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challenger123's  Instablog

challenger123
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I studied law and now work for a german based international company. I am 38 years old, married, 3 kids.
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  • some yellow flags for AGRO

    1. Valuation
    Be careful if earnings consist of valuation and the cash flow is negative. Q3 EPS, which fall short 50% of the estimations, include such an valuation increase:

    Adecoagro's land portfolio has increased to 295,801 hectares As of September 30, 2011, Cushman & Wakefield updated its independent appraisal of Adecoagro's farmland. Adecoagro's farms were valued at $899.1 million, 115.5 million higher than C&W's previous appraisal. This value creation mainly reflects Adecoagro's focus on land transformation and soil productivity improvement through its sustainable production model.


    I do not say, this is the next Chaoda or the next Sino Forest. And it is to concede, that the story of upgrading the value is plausible. Further they sell from time to time a piece of land, and the last transaction led to higher realized gains than book value. So it is definitely no red flag, but a yellow stained green flag or a green stained yellow flag

    2. Assets raise but liabilities raise stronger
    Total assets were up 49 million USD from 2009 to 2010, but total liabilities grew by 83 million USD. No big difference, but look at the long term development of the balance sheet. 

    3. A young company with a good story
    On the one hand long term investment of course require a convincing business model. But if this story is too good, then one shoul be careful. Especially if it is a young company and the money collected from IPO is turned to the former owners. I have not checked out this already.
     
    On the one hand I am attracted be the growth story of AGRO's business model, but I will not invest before a careful due diligence.
    Tags: AGRO
    Dec 05 7:39 PM | Link | Comment!
  • Offshore Drilling Contractors and the Pig Cycle
    Look at FRO or DRYS or the several well written articles at seeking alpha about their rise and fall. All the ship owner industry is in a crisis?

    No, their are at least two segments where the sun shines bright: LNG Carriers and deepwater/ ultra-deepwater rigs.

    Stocks like SDRL and Golar LNG - both are John Frederiksen companies - are performing very well.

    But how long will this growth story last? On the one hand it is true, that the world's demand for oil does not decrease and it probably will even rise. The oil price may be volatile but let us assume, it will rise also. 

    Based on this assumption it will economically make sense, to explore and exploit deepwater and ultra deepwater oil fields. I think this is true at oil price above 80 USD / barrel WTI.

    But could it happen that the ship owners destroy their business by increasing their fleets stronger than the demand growth? May they overestimate scrap rate? Due to the management presentations at f. e. pareto oil conference their is only one problem: The drilling contractors cannot order and take delivery enough newbuilds as the customers will aks for.

    And according to this article even the 21 rigs which Petrobras does not want to hire externally but build and operate by its own is not a problem: www.reuters.com/article/2011/05/25/petro...

    But what did we hear from the Management of container, dry bulk and crude carrier ship owners some years ago? 

    Is their really a unique selling proposition of the Drilling Contractors or how strong will the market entry barriers are? If they consist just of the financial aspect to invest high amounts of money, we will probably see, that not only Petrobras but also CNOOC, PetroChina, Reliance Industries will follow. 

    If it is the experience and technological advance, I think that Exxon, Royal Dutch Shell, BP, Chevron, etc. have enough know how to insource this business. As long as it is more profitable to own and operate rigs than the upstream itself, insourcing makes sense.

    I think this is not a near term topic. At least until late 2013, when the majority of the ordered rigs of the current newbuild cycle will be delivered, dayrates will increase and demand will outstrip supply. And there are a lot of open question, f. e. those mentioned in this instablog. I will observe this topic.

    Dec 04 5:58 PM | Link | Comment!
  • Some thoughts about cresud
    If You look at CRESY at seeking alpha You easily find very detailed and knowledgeable articles and each of them bear interesting discussion.

    So, why to write an instablog. I just want to itemize those of the pros and cons which were for me of most relevance.

    1. Top down
    We are now more than 7 billion humans and the earth population is still growing. Arable land is not growing. So the value of farmland will grow at least mid-term.

    George Soros and China are grabbing farmland in South America. It cannot be wrong to follow them before farmland investment become a hype again.

    Ha prices of the fertile black earth soil in Russia and Ukraine are substantially lower than those in South America, but those in South America are substantially lower than in US, Canada or Western Europe. It makes sense to geographically diversify farmland investments. So to invest in Eastern Europe does not exclude South America but demands it.

    2. Alternatives
    Adecoagro (AGRO), SLC Agricola - these both are relatively young compared to CRESY and this leads me to a important topic: The valuation of farmland for the balance sheet. CRESY values its land bank at cost and not mark to market. They bought the land years ago and so I assume cheaper than it would be possible today.

    Liquidity at US-exchanges of CRESY is better than any other South American or Eastern European company. This should not be underestimated. CRESY even seems to be a global blue chip if You look for farmland stocks

    3. Specifics of CRESY
    CRESY is an Argentinean company and generates income in Argentinean Pesos. Whilst everyone is looking at BRIC and thus the Brasilia Argentina just emerges from a very severe crisis. So there should be a significant upside potential for Argentina and economic success of Argentina will reduce political risks for CRESY and appreciate the Pesos.

    P/B of CREY is little above 1 and below long term average. Since the farmland is valued at costs there should be an upside potential

    Major Shareholders. There are several funds and institutions among the Shareholders of CRESY.

    But now let us have a look at some risk factors:
    Gains will depend on weather conditions. This is inevitable for farmland stocks. And there will be El Nino years to come. But there is a certain internal geographical diversification by CRESY's investments in Brasilia and Bolivia.

    South American political climate especially in Bolivia is not as friendly for private investors as other regions. There is a substantial risk of interferences. Anyway I think Bolivia this risk is overestimated. F. E. Pan American Silver runs a silver mine in Bolivia, which is a much higher investment than CRESYs Bolivian farms.

    So I bought today some CRESY shares. I intend to increase this.

    Dec 01 6:52 PM | Link | Comment!
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