Bunge Ltd (#BG) is an American agribusiness and food company, incorporated in Bermuda, and headquartered in St. Louis, Missouri, United States. As well as being an international soybean exporter, it is also involved in food processing, grain trading, and fertilizer. It competes with Cargill and Archer Daniels Midland.
We consider the stock to be part of an aggressive portfolio at current price.
1) Favourable grain market conditions in the second part of 2020, compared to the first half of the year, increased by 5-7%.
In this regard, we expect good results for agricultural sector at the end of the second half of the year.
2) Optimizing production capacity and selling a number of non-core assets:
Not so long ago Bunge signed an agreement to sell a processing factory in Roth to Neste Corporation for EUR 258m.
At the same time, the company will continue to use the capacity of that factory by renting it from the new owner's plant until 2024. The deal itself is expected to close in the first quarter of 2021.
3) Underestimated valuation compared to its analogues.
In the present Bunge's shares look undervalued in comparison to it's analogues in terms of the main market multipliers. Thus, according to EV/EBITDA, the discount is about 35%, and according to P/E - about 91%.
However, it is always important to consider the risks involved, in this case the key risks , we believe to be :
1) High competition in the sector,
2) Companies Dept position in the long term. Thus, the ratio of net debt to
EBlTDA as of the last reporting date was about 3.9 x. This factor points out increased risks of the company's ability to service its debt obligations.
OTB Global Investments
London, 18 January 2021