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Cresud: Rare Value in Farmland
08/06/2013 11:15 am EST
Argentina's largest farmland owner, owning more than 2.4 million acres, is a rare value, says Ian Wyatt of High Yield Wealth.
Cresud SA (CRESY) has 66% of those acres in Argentina; the rest are scattered through Brazil, Paraguay and Bolivia. In addition, it has extensive commercial property holdings in Buenos Aires.
Cresud CRESY is an exceptional value thanks to its depressed share price. For this, we can thank Argentina's dysfunctional government, led by President Christina Kirchner, who has overseen capital controls, foreign-owned asset seizures, and trade restrictions.
Investors, not surprisingly, are leery about investing in such a hostile political climate. But where other investors see fear, I see opportunity. I believe Ms. Kirchner has handed investors a gift.
Keep in mind-she won't be around forever. In fact, she may not be around past the October elections, as a backlash has set-in among her own supporters. In the meantime, I suggest investors focus on the value proposition. You know, see the forest through the trees.
The company has a proven record of growing revenue, cash flow and assets. Revenue over the past five years has soared to $665 million from $41 million, EBITDA per share has grown to $2.88 from $0.25 and book value per share has more than doubled to $11.70 from $5.
The value proposition is that Cresud offers the opportunity to invest in one of world's larger farmland owners at a 35% discount to book value.
The shares have historically traded at a premium to book value-frequently three to four times book value. Throw in the annual dividend, which yields 6%, and you have a unique value proposition in a popular asset class.
Keep in mind that Cresud has been around for more than 70 years, so the company has plenty of experience stepping around political minefields.
I fully expect that long after Ms. Kirchner has withdrawn from the political landscape, Cresud will still be plowing fields and raising cattle on Argentina's high plains.
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