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Business As Usual For Bunge, Apart From 59% Potential Return

May 07, 2020 2:49 PM ETBunge Global SA (BG) Stock17 Comments
Robert Honeywill profile picture
Robert Honeywill


  • The nature of Bunge's business involves constant struggles with uncertainty - fluctuating exchange rates and commodity prices, and events like swine fever. For Bunge, COVID-19 is just business as usual.
  • Bunge's shares are currently trading well below their February highs, boosting yield for a company with 18 years of uninterrupted dividend growth, including through the GFC.
  • I take a look at the pros and cons of investing in Bunge's shares, weighing the risks against a potential 59% return over the next year.
  • This idea was discussed in more depth with members of my private investing community, Analysts Cnr | H2 SuperGrid. Get started today »

Bunge: Investment Thesis

The key test I'm looking at in reviewing investment opportunities at present is the ability of corporations to survive through this COVID-19 pandemic and recover to former levels of earnings. The next test is, will the dividend likely be maintained and will a return of the share price to Feb. 21, 2020, levels provide superior returns? For Bunge (NYSE:BG) I believe, as explained further below, the company will trade through this period and come out intact on the other side. Bunge has regularly paid yearly increasing common stock dividends per share since end of 2001, including through the period of the GFC. Significant capital gains and high dividend yields are possible from an investment in Bunge shares, bought at current price level and held through end of Q2 2021. By mid 2021, or thereabouts, I anticipate survivor stocks will have returned to their February 2020 highs, the reasons for which are explained further below.

Potential returns from share price gains and dividend receipts -

Table 1.1 below shows the detailed calculations for a potential total return of ~59% from investing in Bunge common stock shares at May 6 share price and holding through end of Q2-2021.

Table 1.1 Bunge Common Stock Projected Total Returns - May 6, 2020

Table 1.2 Bunge Common Stock Projected Total Returns - Apr 29, 2020

Tables 1.1 and 1.2 are generated from Dividend Growth Income+ Club's extensive database of dividend paying stocks, including all of the Dividend Aristocrats. The only difference in input data between the two tables is share buy price and analysts' consensus EPS estimates. Buying at the April 29 closing share price would have given a potential return of 28.3%. Patiently waiting for the lower share price at May 6 results in more than doubling of total potential return to ~59%. The database I have developed for

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This article was written by

Robert Honeywill profile picture
I am a retired accountant with a background in large mining projects, from feasibility to full-scale operation, large scale primary industry and food processing, commercialisation of university intellectual property, and consulting to small businesses, government departments and insolvency practitioners. I have gained a wealth of experience from having the extreme good fortune to work, in a cooperative environment, with so many people far more intelligent and smarter than me; from scientists and engineers with MBA qualifications, to University professors across a range of disciplines. Through the accident of mergers, acquisitions and dispositions, I held, at various times, financial controller positions within Utah International Inc, General Electric Inc, and BHP Billiton organizations. If I have a special skill, it is in methods of assessment of projects with long lives, where costs are front loaded and/or future revenues are subject to considerable degrees of uncertainty. In relation to stocks, I have a theory, using projections to calculate a present value per share is far less useful for a share buying decision, than using those same projections for calculating future value per share for determining potential exit value and rate of return.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment advisor and/or a tax advisor as to the suitability of such investments for their specific situation. Neither information nor any opinion expressed in this article constitutes a solicitation, an offer, or a recommendation to buy, sell, or dispose of any investment, or to provide any investment advice or service. An opinion in this article can change at any time without notice.

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Comments (17)

ericgamliel profile picture
I bought several weeks ago, based on this article. Hidden gem. Thank you.
Robert Honeywill profile picture
Thanks for the kind words. I continue to dig for more hidden gems here at DGI+ Club. Occasionally we find another, among a multitude of over priced stocks.
searching value profile picture
@Robert Honeywill Thank you for this article. BG has not been on my radar, but it is now. I read through the Q1 presentation, and as far as I can see, the point you are making is valid. It has also been made in Feb a conviction buy by Goldman Sachs. I don't know whether this still holds, but they haven't revoked it yet.
I also like the global exposure. I am thinking about trying to initiate a position, in the 33ies if possible.
Robert Honeywill profile picture
Yes, never pay more than you need to.
I purchased some shares. It will be a long-term position in my portfolio.
Chyrk profile picture
I might have missed it, but there was no mention about them selling their grain facilities. That will significantly alter their balance sheet. Will get rid of low performing assets too
Robert Honeywill profile picture
Hi Chyrk,
I will respond in more depth on the strategic issues surrounding this, but are you able to tell me how much cash you think they got for the grain facilities they sold? I would have liked to have included a figure in the article but was not confident on any amount to put in.
Qniform profile picture
@Robert Honeywill "On April 21, 2020, the Company issued a press release announcing that it has entered into an agreement to sell a portfolio of interior grain elevators located in the United States to Zen-Noh Grain Corporation in exchange for cash proceeds of $300 million, subject to customary closing adjustments."

Page 28 of the Q under subsequent events.
Qniform profile picture
BTW, thanks for the article. I had started a position in BG previously while I reviewed the business. Your article would have saved me time last week. It was good review of hypothetical cases anyway.

I doubled the position yesterday bringing basis to ~$34/sh. Before committing more I need more clarity on the macro. GLTA.
Lots of reference to coronavirus, etc, but did you consider the negative situation midwestern farmers are in now in terms of grain prices vs. cost of production for those commodities? Some analysts are saying that corn, for instance, has roughly a $1 a bushel loss currently built in, when current prices are compared to cost of production. Can BG or ADM, be profitable when their customers/suppliers are in that sort of negative profit situation? Perhaps they can, but it seems to me that should at least be considered in any analysis. Ethanol plants are being shutdown all over the country, because they are losing so much in operation, and ADM has it's ethanol plants for sale. And 40% of corn production goes to ethanol, with much of the rest of it going to animal livestock feed, as in beef and pork production........and that is being impacted by the shutdown of packing plants due to covid-19. It is not just about the virus alone. For me, both BG and ADM do well when farmers do well, and that does not seem to be the case right now. But I could be wrong. I am long ADM, but not sure of the wisdom. Someone convince me that it should be held.
For BG, drop in corn production in US could be a positive. Drop in US ethanol production reduces a competitive input for animal feed (a byproduct of the the ethanol production).
Robert Honeywill profile picture
That is a good point.
The animal feed that is the by-product from ethanol product, is of little nutritional value, as all the energy (carbohydrates/sugar) have been converted to alcohol. It can be fed, but so can corn cobs.
ggravelle profile picture
Bought some this morning.
Robert Honeywill profile picture
Was it you who drove the price up today? 😊
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