General information
Adecoagro is a Luxembourg-based company, but operates in Latin America, especially Argentina and Brazil.
It has 300 thousand hectares of arable land, where agriculture and livestock stand out. Also, produce milk, sugar, ethanol, cotton and coffee.
The company is divided into three distinct fields:
- The business of cultivation and harvesting;
- Sugar, ethanol and energy;
- Transformation of underutilized land.
This transformation is based on the use of agricultural techniques and techniques that make the land more productive, increase yield and also the value of the land itself.
Fundamental analysis
Return on Equity during the last 5 years for Adecoagro is 0.16, while the industry value is 5.72. Return on assets for the last 5 years is 0.16, while the industry is 2.05. These numbers show that the company wasn’t doing so well for the last few years.
Despite the last information and the fact that the company does not pay dividends, it has become attractive in recent years. The reason can be seen through the activities of the company’s own staff. Between 2016 and 2017, 5% of the shares were bought back. This means that the board expects a growth for years to come and invests in itself.
Also, inventories raised from 2015 until 2017. In 2018, following the bad results, the company lowered its inventories.
Therefore, based on past results, the price per book value is below one, while industry values are at 1.59. We can get the conclusion that the company is undervalued and with potential for growth in the coming years.
What is the reason for growth in the coming years?
Despite being a commodity market, there is a large growth mainly due to the agreement between Mercosur and the European Union.
Farming is one of the most benefited by the recent Mercosur-European Union agreement. In 10 years, 82% of agricultural products that are imported to the European market will have zero import taxes.
Some products will have quotas like rice, sugar and chicken meat. Other products will enter the European block with lower rates — this is the case of ethanol and beef. Mercosur will account for 82.3% of all beef that Europe imports.
Technical Analysis
After its IPO in the beginning of 2011, Adecoagro stocks raised to $13.82 before decreasing until a historic low of $6.01 in mid-2013.
After a recover, the company reached again for two times the mark of $13. This actually worked as a double top if we consider the 1W time-frame. Consequently, $AGRO reached once more dropped below $7.
Recently, it’s possible to see that the graphic reached a support level around $6.20. Since then, it overcame the descending trend line and it’s going sideways. Fundamental analysis and performance of the company in the next quarter will define if the pullback is going to happen.
Based on past levels, we can define $7.81 as a primary target. In a longer term, $10.34 and $13.25 are good levels to invest on.
In the case of bad performance, we can expect one more trial to overcome the $6.20 support level and, afterwards, a bear run to the psychological support of $6.
