Landkom’s gross profit turns black for the first time

Landkom International PLC (AIM: LKI LN) reported a harvest of 39.5 ths mt of rapeseed from 14.6 ths ha planted with marginal 3.4% losses due to more favorable weather conditions in western Ukraine. Despite summer droughts, Landkom’s rapeseed yield remained flat y-o-y at 2.7 mt/ha, which represents a ~60% premium to the Ukrainian average. The group has already concluded forward agreements for 92% of its rapeseed harvest at USD 323/mt, or a 19% y-o-y increase (ex-VAT, Ex-works), while its wheat harvest is underway with 63% of winter and spring wheat harvested. Management estimates a 41% reduction in direct operating costs on wheat to USD 680/mt (ex-VAT), which implies a gross profit of USD 2.8 mln from rapeseed. Ruslan Patlavskyy: We see this as a strong boost for Landkom’s share price, which has already reacted to the news, gaining 3.7% in yesterday’s session to GBp 10.25 on AIM. Based on our estimates, the company should be able to report USD 3.22 mln in gross profit in 2010, positive for the first time since its inception. We expect the winter wheat harvest to add an additional USD 0.39 mln in gross profit to the management’s forecast USD 2.8 mln from rapeseed. This implies a 21% gross margin for 2010 vs. -345% a year ago, though we expect Landkom’s EBITDA to remain negative this year.