Kernel to expand land bank by 34%

Kernel Holding (KER PW) entered into a deal to buy an 80% stake in a farming company that operates a 108,000 ha land bank in three northern regions of Ukraine, the company announced on April 11. Kernel is going to pay USD 68 mln for the stake in the target company which has USD 101 mln in net debt at the moment of the deal. Kernel’s land bank will increase to 422,000 ha (or by 34%) as a result. Earlier that day, Forbes.ua identified Kernel’s target as Ukrainian agri-holding firm Druzhba Nova.

Alexander Paraschiy: Druzhba Nova – which holds about 110,000 ha of land bank in three northern regions of Ukraine – indeed fits the parameters described by Kernel. The company reported USD 30.9 mln EBITDA and USD 20.4 mln net income in 2012 (under Ukrainian accounting standards). This suggests the deal multiples are 6.1x EV/EBITDA and 4.2x P/E. Given that Kernel trades at 7.6x EV/EBITDA and 7.2x P/E (based on FY2012 financials), the deal is a clear bargain for Kernel’s shareholders.

The acquired company will likely add value to Kernel’s crop segment, as it is well-known for utilizing good farming practices. In 2012, Druzhba Nova reported superior crop yields compared to Kernel: 4.1 t/ha for wheat (17% better than Kernel’s result), 6.0 t/ha for corn (15% better) and 2.4 t/ha for rapeseed (26% better).