Analysis of Black Earth Farming (BEF)

Company: Black Earth Farming Ltd (BEF)

Business: A Swedish registered agricultural company that are producing cereals as well oilseeds in Russia. Their concept is to acquire, develop and farm the acres they have.

Active: In Russia with main focus around the black soil regions. They have today 308000 acres of which 81% is fully owned meaning almost 250000 acres and from those they have 230000 acres in production.

P/E: 37.7 

The P/E for Black Earth Farming is crazy high with 37.7 (in my personal opinion the P/E should be negative because the only reason they made a small profit last year was by increasing the value of their land). The P/B is fully acceptable with 0.9 but still the overall gives with the Graham formula that the company should not be bought. The earnings to sales are ok with 5% but the ROE is only 2.4% which is far, far too low. The book to debt is very good with a ratio of 2.3. The growth in the last five years has been excellent with 43% per year (then I removed the revenue based on re-evaluation of the land acres). If this growth were to continue, which I strongly doubt then the motivated P/E would be around 95 which then would mean that they are undervalued by the market but that is not reality. The company pays no dividends which they are also not able to. four out of the last five years they have been minus and as mentioned before only reason for profit was a re-evaluation of the land.

Conclusion: Black earth farming is a no go. I will stick to the Grahams formula for this one and it very clearly tells not to buy the company. I don´t like their concept either because the first most focus is to buy land and have it increase in value. In the mean time let us try to get some money out of it so we plant a couple of seeds there and see if they grow. When I buy a company I want the focus to be on creating value and if there are some secondary effects then so be it and I will be happy to take them also but value must first be there. The company will not be added to the list of interesting stocks.