A strong financial future has been forecast for the new grain company created by Saskatchewan Wheat Pool’s takeover of Agricore United.
National Bank Financial said the as-yet-unnamed company should generate earnings before interest, taxes, depreciation and amortization (EBITDA) of $300 million in 2007-08 and $332 million in 2008-09.
By way of comparison, the two companies posted combined EBITDA of $208.6 million in 2005-06.
Final numbers for 2006-07 are not yet available. The first nine months for Sask Pool plus the first six months for AU produced combined EBITDA of $95.4 million.
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National Bank analyst David Newman said strong business operations, along with savings resulting from the combination of the two companies, will produce significant financial benefits.
“Our grain handling and crop outlook continues to be favourable, while (the new company) should also benefit from merger synergies over the next 12 to 18 months in the range of $90 million,” he said in an Aug. 7 market report.
Grain handling volumes and earnings should benefit from strong demand, a modest increase in seeded area, adequate soil moisture and some carryout.
However, Newman also cautioned that recent hot weather across the Prairies could trim expected yields and reduce the company’s projected grain handle by one million tonnes in the current 2007-08 fiscal year.
“This could reduce our 2007-08 EBITDA estimate by $10 to $15 million,” he said.
The Pool recently announced the new company’s inaugural fiscal year will begin Nov. 1, 2007.
The new company will have a market share in country handling of about 42 percent, along with 51 percent of grain terminal capacity at the Port of Vancouver.
As for crop input sales, Newman said favourable crop prices, relatively depleted soil nutrient levels and increased canola acreage all bode well.
In terms of the stock market, National Bank has maintained its rating of “sector perform” (that is, in line with the industry average over the next 12 months), with an above average risk rating. However, it boosted its target price for the new company’s stock to $10.75 per share from $10.
Earnings per share are forecast to be 49 cents in 2007-08 and 67 cents for 2008-09.
Meanwhile, the Pool has announced that Aug. 30 it will unveil the name for the new company, along with a logo and other aspects of the company’s corporate identity.
“Our new company has a much broader scale and scope and our corporate identity will reflect a Canadian agribusiness champion that is positioned to compete in the global marketplace,” said Saskatchewan Wheat Pool chief executive officer Mayo Schmidt.
