Kernel swells land bank by 190,000 ha

Ukrainian farmer and leading sunflower oil producer Kernel (KER PW, KERPW) announced on June 2 that it has completed an acquisition of a 92.1% interest in Russian-owned Ukrainian Agrarian Investments, which manages about 190,000 ha of leasehold farmland and has about 0.2 mmt of grain storage capacity. Kernel expects to complete the acquisition of the remaining 7.9% interest before July 1, 2017. The company said it will pay USD 155 mln in cash for the complete stake in the business, which has positive net working capital and a net debt in excess of USD 30 mln.

Our view: Following the acquisition, Kernel’s total land bank will reach about 575,000 ha. The acquired land bank of 190,000 ha is more than the 150,000 ha that Kernel initially planned to purchase at a price of about USD 150 mln. We estimate that this land bank acquisition can potentially add up to USD 50 mln to the company’s annual EBITDA, and we do not rule out the possibility that Kernel might announce more land acquisitions soon.

We think that a most likely target would be the acquisition of Agro Invest Holding, which belongs to Serbian businessman Miodrag Kostic. The company cultivates around 40,000 hectares of land producing 175 kt of grain annually, and operates two grain elevators with a total capacity of 174 kt. As a sign of Kernel’s interest, the Anti-Monopoly Committee of Ukraine granted the company permission last month to acquire Agro Invest Holding.