Landkom posts disappointing harvest update, stock falls 25% to historical low

Landkom (LSE: LKI LI, N/R) posted a disappointing harvest update yesterday, reporting a 30% y-o-y decline in rapeseed yields, a key agriculture product for a company. This forced management to review its guidance for 2011 pre-tax profit to a negative figure and commence a strategy review. Yegor Samusenko: This means the company will have a third consecutive year of losses. Though Landkom will still be able to continue as a going concern (but no growth in landbank), we see now a strong likelihood that the company will be sold, especially given Landkom’s listing in London. Mriya and Ukrlandfarming are the most obvious candidates. In terms of implications for minority shareholders, it is far from clear just yet. From one side, all the acquisitions of agro companies in Ukraine in recent years have been negative for minorities (Ukrros, Dakor, Allseeds, Landwest) as the acquirer has been reluctant to pay even the same price to minorities. From the other side, Landkom is almost all free float, unlike the previous names, and is listed in London, which makes it more difficult for a possible acquirer to treat minorities poorly, especially if it plans to use the London listing for own purposes. The stock fell 25% yesterday to a historical low, which we see as a clear over-reaction. The stock now trades at EV/landbank of USD 400 per arable ha (USD 280 per ha under lease), which is even below what agro companies pay for non-listed non-efficient landbanks. Under an acquisition scenario, we hardly see acquisition multiples being less than USD 400 per ha under lease plus a USD 5 mln premium for the London listing, implying a market capitalization of at least of USD 38 mln vs. current USD 26 mln.