An analyst with UralSib Capital reports that Cherkizovo Group
Cherkizovo Group was founded in 1993, and today is one of Russia’s largest vertically integrated agricultural holdings with poultry, pork, meat processing and grain growing and processing assets. The company has the best brand portfolio on the market and modern production capacities. Cherkizovo’s profitability decreased in the first nine months of 2013 due to a jump in grain prices and a drop in pork prices. However, given the good grain harvest this season and a decrease in pork imports, the company’s financial indicators could recover substantially by the beginning of 2014.
The forecast share price is $16/GDR, and growth potential for quotes is 46 %. In our opinion, Cherkizovo Group is ideally suited to both
HIGH POTENTIAL FOR THE MEAT MARKET
The upward trend in meat consumption. The Russian meat product market has considerable potential due to increasing per capita meat consumption.
Strong support from the government. Cherkizovo is an industry leader that benefits from government support of agricultural enterprises.
ATTRACTIVE RISK TO YIELD RATIO
Impressive EPS growth rates. Due
Risks are mainly external. The company’s risks include grain price volatility, epidemics among domestic poultry and cattle, changes in government regulation of the industry and deterioration in the macroeconomic situation.
Vertical integration. Cherkizovo is present in all links of the value added chain, which reduces the risks of a steep increase in costs of raw materials and services. Modern capacities. The company ensures the best performance indicators in the industry and the lowest costs due to its modern production assets.
Capability for economy of scale. Cherkizovo gained additional advantages from economy of scale by increasing its sales.
Good return on capital. Cherkizovo has historically shown profitability above the world level typical for this industry.
High growth potential for quotes. We believe that the company’s excellent outlook is still not factored into its share price. Our forecast DCF price assumes growth potential of 46 % for quotes.