Viterra down 1% as Credit Suisse previews tomorrow's Q1 result

Credit Suisse has an Outperform rating and $13 target price on Viterra (VT.TO) ahead of its Q1 2011 result.

Is IGG big? "IGG should be a growing intangible asset to leverage physical grain assets in major exporting countries, Canada and Australia. Viterra raised its global grain margin guidance by 10% in 2011, largely due to an expectation of increased contribution from the International Grain Group (IGG). IGG is now fully established with primary sales offices in Vancouver, Singapore, New Delhi, Naples, Geneva, Tokyo, Kiev, Hamburg, Shanghai and Beijing. These are early, but formative days for IGG and merchandising margin upside, which we believe can improve beyond 2011. The next glimpse comes in Q1 reporting, which will be an interesting quarter. The record South Australian receivals should exert downward pressure on the global pipeline margin metric, but higher grain shipments, higher grain prices and market volatility also leads to additional margin capture opportunities. South Australian grain OG&A may have ramped above our forecast on higher logistics and seasonal staffing costs, but the grain margin and indications of IGG progress will also be a focus for us."

Investment Case: "Viterra's long-term positioning offers investors an early stage entry into an emerging conduit in the global trade of wheat, barley and canola with an opportunity to move through the value chain."

Q1'11 preview: "Next reporting is on March 9th, and we forecast EPS of $0.23 versus consensus of $0.21. Our $199 million EBITDA projection is comprised of the following: 1) $181 million from grain handling and marketing ($60/121 million from core VT/VTA); 2) $23 million from agri-products (including financial products); 3) $26 million from agri-food processing and feed; and, 4) negative $31 million from corporate allocations. We are also forecasting $1.5 million in integration expense associated with the ABB acquisition. Our Q1'11 grain pipeline margin of $21.95/mt compares to $20.71/mt in Q1'10."

Valuation: "Our $13 target is the average of our DCF value and a weighted average 2011 EBITDA multiple of 7.8x in our SOTP."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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