Landkom’s crops minimally damaged over winter

Landkom International (AIM: LKI LN) said this morning in a winter crop update that its winter crop audit revealed only minimal damage to crops over the winter, well within acceptable limits. The audit was carried out by an independent agronomy adviser. Landkom reported that 89% of its rapeseed was in good or excellent condition, with 9% average and 2% lost (vs. the Ministry of Agriculture’s estimate of a 28% loss of Ukrainian rapeseed due to winter); 98% of winter wheat was in good or excellent condition, with the remaining 2% average and none lost (vs. 10% across the country). The company planted 21.4 ths ha of rapeseed and winter wheat last autumn. Ruslan Patlavskyy: Winter crops comprise 54.3% of Landkom’s planted acreage of 39.4 ths ha (+36% yoy) for 2010 (another 18.0 ths ha of spring crops are expected to be planted in line with the company’s 2010 outlook). In our view, the USD 16.1 mln in equity capital raised late last year should allow the company to compensate for the lost winter crops by expanding its spring planting acreage in line with the guidance provided, should the need be. Moreover, given the significant loss rate for winter rapeseed across Ukraine, one of the world’s largest producers of this crop, we expect to see increased upside in rapeseed pricing over the next 3-6 months, which increases Landkom’s chances to breakeven this year. At the same time, we remain cautious about Landkom’s ability to fully monetize said agricultural assets this year since historically the company showed 30-50% higher direct operating costs per ha planted compared to its local peers, sacrificing its profitability.