The fundamentals of the grain handling industry didn’t change for the worse in September.
If anything, they’ve improved for Viterra, Canada’s largest grain handling company.
The prairie harvest made rapid progress, crop quality was preserved by warm sunny weather and striking workers returned to the job.
Despite that good news, the price of Viterra shares traded on the Toronto Stock Exchange plummeted sharply during the month.
On Aug. 29 the stock closed at $12.25 per share. On Oct. 6 it closed at $8.34, a decline of $3.91 or 32 percent.
Read Also
Going beyond “Resistant” on crop seed labels
Variety resistance is getting more specific on crop disease pathogens, but that information must be conveyed in a way that actually helps producers make rotation decisions.
Viterra officials did not return phone calls or e-mail requests for interviews in time for this issue’s deadline.
Market analysts who follow Viterra’s stock said nothing has happened with the company in the past few weeks to account for the drop in the share price.
“The underlying fundamentals of the business are strong and the company continues to have a strong balance sheet,” said an official with a Toronto-based financial firm who spoke on condition of anonymity.
“The share price is reflecting other unrelated market factors.”
Those other factors were led by several historic declines on stock markets in North America and around the world in response to financial woes in the U.S. and the government’s halting attempts to deal with the situation.
That prompted a similar response from Canadian markets, which saw stocks dragged down across the board, including big agriculture-related firms such as Potash Corp., Mosaic, Agrium and Monsanto, which had a spill-over effect on companies like Viterra.
Another factor is that many of those stocks, including Viterra, had been pumped up over the past year by investors looking to put their money into commodity-based companies.
Many of those same investment funds are now either out of business or selling off their stocks.
“Viterra did have a fair amount of hedge fund ownership, so that has certainly impacted the company,” said financial analyst David Newman.
The anonymous analyst said that indicates a misunderstanding among those hedge fund operators looking to cash in on hot commodity markets as to the nature of Viterra’s business.
“The reality is the company is primarily driven off logistics and volumes, not commodity prices per se,” he said.
Historically, companies involved in the food, drug, beverage and tobacco sector are less volatile than other types of companies and less likely to take big dips, on the basis that demand for the products they deal with is more stable.
That should also work to Viterra’s advantage as the current situation plays out.
One potential silver lining in the market cloud is that with so many companies seeing their stock price decline, many firms are undervalued, making them an attractive target for potential takeover bids.
Viterra has made it clear that it’s interested in mergers and acquisitions and has accumulated a significant cash war chest of cash for that purpose.
“Certainly the balance sheet is in extremely good shape and they’ve made no bones about their desire to acquire,” said Newman.
He added that despite the current market woes, he will maintain his target price for Viterra at $16.
“As from looking at the machinations of the market up or down, we have to look at how the market is pricing stocks for the longer term,” he said.
