Viterra Lower as Credit Suisse Hightlights Crop Production Risks
Credit Suisse has an Outperform rating and $13 target price on Viterra (VT.TO).
Crop production risks: "Canadian plantings and South Australian production forecasts are tilting to the downside, but no change in our estimates."
Investment Case: "VT offers investors exposure to a growing global conduit in wheat, barley and canola with value-added processing capabilities."
CWB and ABARE: "The CWB put out a release estimating plantings in western Canada for wheat and barley would be a modest +0.6 million in acres to 27.0 million acres. VT's last outlook calls for flat to +4.0 million acres in higher plantings year-over-year to 52-56 million acres, which includes a +0.2 to +1.7 million acre increase in canola plantings. Taking the CWB wheat and barley forecasted increases and VT's forecasted canola increase gets to a +0.8 to +2.3 million acres of higher plantings forecasted than last year versus VT's western Canada outlook for flat to +4.0 million acres (assuming VT's estimate for the remaining major grains holds true to its outlook). Remaining plantings over the next several weeks may end up with more of a flat western Canadian plantings year, less bullish for its agri-products segment if canola plantings increase do not materialize. Also, ABARE released its preliminary June crop report forecasting a 3% plantings increase in South Australia versus VT's +4% outlook, but shows a 23% drop in crop production to 7.6 mmt. The notable dichotomy may disappoint some expectations on South Australia, but another record year was improbable. We are forecasting 7.0 mmt of receivals in F2012 and we regard the preliminary ABARE estimate for South Australia as inline with our estimate given VT receives about 90% of that region's crop production. Note that ABARE last June estimated South Australian's crop production to be 6.3 mmt which ended up being 9.8 mmt. Take these preliminary estimates with a grain of salt."
Valuation: "Our C$13 target is the average of our DCF value and a weighted average 2012 EBITDA multiple of 7.8x in our SOTP."
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