Kernel expands landbank by 29 ths ha to 215 ths ha

Kernel (WSE: KER PW, N/R) entered into a call option agreement for the purchase of 100% of Enselco, a farming company managing 29,300 ha of leasehold farmland, of which 23 ths ha are located in Khmelnitsky region and 6.3 ths ha further to the south in Mykolaiv and Odesa regions. The company also owns a silo with a capacity of 30 ths mt of grain. Following the acquisition of the company, Kernel’s landbank will expand by 16% to 215 ths ha. Subject to approval of the Antimonopoly Committee, Kernel will pay a total cash consideration of USD 52.3 million, USD 31.3 million of which will be paid for lease rights, machinery and partial working capital, and USD 21 million for marketable inventories. Yegor Samusenko: The deal comes at P/ha of USD 1,070 per leased ha, net of inventories. Though we see the multiple paid as relatively high compared to other deals this year disclosed by listed companies (IMC, KSG Agro) with the most recent deal valued at EV/ha of USD 700. However, the multiple is in line with guidance of a possible transactions pipeline the company revealed in March 2011. We also attribute some of the premium paid for the landbank to the fact that most of acquired land is located close to a sugar plant in Western Ukraine, which will allow for increasing the plant’s self-sufficiency in sugar beet supply. We expect a neutral reaction from the stock market to the announcement.