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Viterra down 4% despite Credit Suisse giving thumbs up to Q1 result

Credit Suisse has kept an Outperform rating and $13 target price on Viterra (VT.TO) but raised its estimates after the company's Q1 result. Today, VT - which held its Annual General Meeting for shareholders yesterday in Calgary, Alberta, - has lost all of Wednesday's gains, and more. VT gained more than 1% and touched around $12.10 yesterday, compared to an existing year high $12.28.

Grain margin drove the Q1 beat: "Viterra reported EPS of $0.27 versus our $0.23 estimate and consensus of $0.21. EBITDA of C$211 million exceeded our C$199 million forecast. Relative to our estimates, agri-products fell short, but was offset by outperformance in processing. However, it was the grain margin outperformance that led to the overall beat. The consolidated grain margin pipeline of C$25.48/mt exceeded our C$21.95/mt estimate. We raised our 2011 EPS estimate on the Q1 beat, with some modest offsets from lower volume and margin in feed. Given International Grain Group (IGG) progress, we tweaked our 2011 2012/2013 EPS estimates up to C$0.73/C$0.76/C$0.79 from C$0.70/C$0.74/C$0.78 respectively."

Investment Case: "Viterra offers investors exposure to a growing conduit in the global trade of wheat, barley and canola with value-added processing capabilities."

IGG's all good: "We estimate IGG's grain margin contribution was ~$3/mt. IGG had a robust quarter and may not repeat the performance, but clearly with tight risk management, IGG's all good for Viterra. IGG was a meaningful EBITDA contributor in Q1'11. EBITDA from IGG was C$33 million compared to C$1 million (our calculation) last year. IGG accounted for 36% of the C$88 million EBITDA increase in grain. Higher volumes, higher grain prices and associated market volatility benefited both the North American and Australian grain margin. It was also a good environment for IGG to increase merchandising activities (wheat in Australia outside of South Australia and canola in Canada). Grain prices remain uncertain, but persistent volatility would also work in IGG's favor. IGG may also have further upside in 2012, if South Australia has another above-average crop year while not constraining Viterra's 10 mmt storage capacity."

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

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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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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