Monday, 4 November 2013

Analysis of Kernel 2013

A Ukranian agricultural, logistics and cattle company

Company: Kernel Holding S.A.

Business: A Ukrainian agricultural, cattle (around 16,000 heads) and logistics company. Has the entire chain from farmland in 405,000 hectare (owned as well as leased), silos for storage, oilseed crushing plants (one sixth of all sunflower oil seed runs over them), logistics both inland as well as deep-sea harbour for further transport. They also have their own brands of for instance sunflower oil.

Active: Ukraine and Russia is where the farmland is. The company it is traded in the Warsaw stock exchange.

P/E: 8.9

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for Kernel is excellent with 8.9 and the P/B is also great with 0.8 which gives us a very clear buy signal according to Graham. The earnings to sales are low with only 4% but agricultural business is usually not running on high margins. The ROE is also not good with only 9.0% but at leas the book to debt is good with 1.3. The revenue growth during the last six years have been yearly 27%! Which then also gives a motivated P/E of very high... Actually between 50 and 60 but I doubt they can keep it up so cautiously a motivated P/E of 25 which means that the stock is highly undervalued on the market. The came out with a suggestion for paying dividend which can be read about here. which would be 0.25 USD per share so almost 2% dividend compared to the price of the shares today and around 20% of the earnings however I will not bring it into the analysis until it written in stone. They end their year in June which is the reason for the comment about the broken year.

To see the previous analysis of Kernel please look here.

Conclusion: I like the P/E and P/B and I love the growth and shockingly enough they have even managed to increase it for the six running years compared to last years analysis which was done for five years. The ROE which I did not look at before is not good news but if they will start to pay out dividend then the company will still have several other benefits that makes me stick around as a shareholder. Still it is interesting to see that this company which I previously bought directly I would be more cautious with today. Anyway I still like it, I like their business and I will seriously consider to increase my position if possible.

The values will be updated in the Stocks of Interest list for Kernel with the next update.

1 comment:

Fredrik von Oberhausen said...

I just read in the news that economists expects Ukraine to make a 10% devaluation in 2014. I have difficulties to figure out if that will be good or bad for Kernel.
My thoughts are IF they manage to sell their grain and sunflower oil for world market prices then the labour costs should be cheaper for them in Ukraine and it should be beneficial especially since Kernel is big with logistics and export. What is the downside that I am missing?