Saskatchewan Wheat Pool worked hard to acquire Agricore United.
Now, say market analysts, it will have to work hard to make the new deal pay off.
“It comes down to execution,” said Anil Passi, who tracks the grain industry for Dominion Bond Rating Service.
“They have a lot of levers to play with, now they have to deliver.”
The new company’s to-do list, aside from obvious issues like deciding on a name and head office location, includes:
- Take an inventory of assets and employees and move quickly to eliminate areas of duplication.
- Implement specific cost-reduction measures.
- Figure out how to exercise its market strength to maximize sales and revenues from customers.
- Develop business plans to take advantage of geographic and product diversification.
- Take steps to ensure a healthy balance sheet with minimum credit risk.
- Keep shareholders happy.
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“If they can do all that, and more, then people will see this as having been the right move,” said Passi.
While there are many unanswered questions at this early stage, Passi expects things will go well.
“It’s a pretty difficult thing to map out, but I think most of the prospects are positive,” he said.
Stock market analysts gave the Pool takeover generally positive reviews.
Orin Baranowsky of BMO Capital markets raised his target price for SWP shares to $10.75 from $10.
“We are increasing our rating of SWP to ‘outperform’ as we believe the company’s increased size and scope should result in increased earnings power going forward,” Baranowsky said in a market commentary.
He said with a market capitalization of nearly $2 billion, roughly equivalent to Maple Leaf Foods, the new company should now be on the radar screens of a larger investor audience, which could be positive for future stock values.
“Also, given the investor enthusiasm with regards to agriculture in the current market, we believe it is possible that SWP could benefit from this trend.”
David Newman of National Bank Financial boosted his target price for SWP shares to $10 from $8.50.
He said the end of the single desk for barley will likely result in a migration of market share to the most efficient companies such the new SWP, and could result in opportunities for big grain firms to benefit on the transportation side by being freed from wheat board allocation rules.
