Kernel land bank surpasses 600,000 ha

Ukrainian farmer and leading sunflower oil producer Kernel (KER PW, KERPW) reported on July 7 that it has acquired Agro Invest Ukraine, which operates more than 170 kt of grain storage capacity and over 27,500 ha of farmland. Kernel paid USD 43.3 mln in cash for the 100% interest in the firm. The acquired company, which belonged to Serbian businessman Miodrag Kostic, “has positive net working capital less net debt in excess of USD 4 mln,” the announcement said. The acquisition has enabled Kernel to build its land bank to above 600K ha and fulfill its farmland expansion plan announced last year, the announcment said.

Andriy Perederey: As we expected, Kernel announced another land acquisition this year. It was able to do so with the approval in May of the Anti-Monopoly Committee of Ukraine. After its two acquisitions this year, we estimate the company’s land bank is about 607,000 ha, which makes it the largest farming holding in Ukraine (Its nearest peer, Ukrlandfarming, had 605,000 ha as of end-2016.)

Kernel has spent USD 198.3 mln on land bank expansion this calendar year at an average cost of USD 910 per hectare, we estimate. The expansion will enable the company to boost profit from its farming business, which we expect will be its key value-generating division. We retain our Buy recommendation on Kernel stock, with a neutral view of its bond.