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Mriya — Well managed and poised for growth

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Mriya is a leading Ukrainian agro holding with a land bank of 218 thsd ha concentrated in four regions: Ternopil, Khmelnitskiy, Chernivtsi, and Ivano-Frankivsk. The Company has a well-diversified crop portfolio, and apart from its main activity — grain crop cultivation — it also grows sugar beet and potatoes. Mriya also benefits from a vertically integrated structure that enables it to manage the entire farming value chain efficiently, from seed production, crop planning, and cultivation to storage and transportation infrastructure and logistics. We expect the Company’s land bank to grow by 40% in 2011 to 305 thsd ha and issue a BUY recommendation with a target price of USD 15.56 per DR.

Executive summary

Major expansion plans are feasible. Mriya is one of the largest landholders in Ukraine. The current land bank of the Company is about 218 thsd ha. Mriya plans to expand its lands to 650 thsd ha in 2013 and considering the Company’s track record for vast increases and the rapid integration of its land bank under cultivation, we believe that this target is achievable. Moreover, there are 3 mln ha of arable land in four regions where Mriya operates and they have grounds for further growth. The Company has intentions to issue Eurobonds worth up to USD 300 mln this year. Mriya have signed an agreement with IFC for two loans of USD 25 mln each and warrant option for another USD 25 mln and engaged into the cooperation with EBRD for receiving another USD 25 mln loan.

Successful expansion experience. Mriya has a proven track record of achieving high yields on newly acquired land. The yield is usually at Ukraine’s average level for newly acquired land, reaching the high Company’s standards within 2-3 years time. The Company has established a unified system of clusters — production units fully sufficient with all required machinery and labor. This type of experience gives us reason to suggest that the new lands will be successfully integrated.

Crop prices outbalance declines in crop yields. Crop yields have decreased due to severe drought this year and we have lowered the Company’s yields by an average 10% YoY. Grain prices were boosted this year by an average 55% YoY (9M2010) due to adverse weather conditions and Russia’s grain export ban. We believe that grain prices will remain at today’s high level and that the Company will cover its losses from reduced crop yields. Mriya also has a wise crop mix that allows it to diversify its harvest.

Strong financials. In recent years, the Company has demonstrated excellent financial results and margins. We believe that these dynamics will be maintained over the next years. We foresee a 98% YoY net sales growth in 2010 and suggest that costs will be reduced by 14 p.p., to 55% of net sales, which will allow a posting of 57% of gross margin. The EBITDA margin will reach about 60% in 2010, which is lower by 3 p.p. than in 2009 due to higher SG&A costs. Net income will increase by 94% in 2010 and net margin will be around 54%.

Valuation. We used two different valuation methods — DCF and comparative valuation. Our DCF model suggests a fair value of USD 15.78 per DR, implying a 90% upside. Comparative valuation suggests an 84% upside. We recommend BUYing Mriya’s DRs with a target price of USD 15.56 per DR (87% upside).

Список таблиц, диаграмм, графиков:

Figure 1. Key indicators

Figure 2. Company’s crop mix

Figure 3. Company’s cluster map

Figure 4. Company’s 2010E yields versus Ukraine’s average, mt/ha

Figure 5. Crop prices, USD/mt

Figure 6. Valuation summary

Figure 7. DCF model

Figure 8. Comparative valuation

Figure 9. Income statement

Figure 10. Balance sheet


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