A prominent analyst has forecast a strong second quarter for Viterra and raised his target price for the company’s stock.
Viterra is expected to report its financial results for the three months ending April 30 on June 11.
David Newman of National Bank Financial last week projected the company will report quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $68.2 million on revenue of $1.1 billion, and net earnings of 10 cents per share.
That compares with a “street estimate” of $56.5 million and six cents per share.
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Newman also boosted the target price for Viterra’s shares to $15 from $13, which reflects an increase in projected earnings in the 2008 and 2009 fiscal years.
In an analysis of the company’s financial position released May 20, Newman said stronger-than-expected grain shipments and crop input sales, combined with strong profit margins on grain handling and fertilizer, will result in higher earnings.
He now expects EBITDA for the year ending Oct. 31, 2008, to be $383 million, up from his previous estimate of $338 million.
He also bumped up forecast EBITDA for the 2009 fiscal year to $397 million from $356 million, assuming a normal crop in 2008 and reflecting a full year of financial benefits from the acquisition of Agricore United.
The wild card in projecting future earnings is the timing and scope of mergers and acquisitions Viterra is expected to enter into over the next year or two.
“We do not expect Viterra to execute any large transactions similar to Agricore United, but rather a series of smaller acquisitions,” Newman said.
With $600 million available from recent equity and debt offerings, Newman said he expects “heavy news flow” in the next few quarters regarding mergers or acquisitions.
Upon successful completion of a $400 million share offering in April, Viterra chief financial officer Rex McLennan said the funds would be directed toward future acquisitions.
“We have a solid growth strategy (and) this gives us a solid financial platform,” he said.
In the quarter ended April 30, Viterra acquired three livestock feed companies, two in the United States and one in Alberta.
Newman said mergers and acquisitions could add as much as $100 million to Viterra’s EBITDA over the next few years.
In his analysis, Newman said the company is expected to make acquisitions across its various operating divisions but may focus more on the food processing sector, which could include value-added processing of any of the grain and oilseed products the company now handles.
Other possibilities include biofuel production, agribusinesses in the U.S., Australia or Europe and partnerships with local distributors.
“We believe Viterra has more opportunities before it than it has the balance sheet for,” he said, adding he expects the company to be “prudent and choosy” in its pursuit of other companies.
