Archer-Daniels-Midland CompanyADM83,00 $
About company
ADM purchases, transports, stores and sells agricultural goods and products, processes oilseeds, corn, oat, barley, peanuts and wheat.
The company's value chain includes about 480 crop purchasing points, 350 Ingredient Manufacturing Facilities, 60 innovation centers.
The ADM business is represented in the following operating segments:
- Agricultural services and oilseeds — the share of the direction at the end of 2021 was 78,6%. The segment includes manufacturing, sales, transportation, storage, oilseed processing, such as soybeans and soft seeds, into vegetable oils and protein foods.
- Carbohydrate solutions — the share of the direction at the end of 2021 was 13%. The segment includes the processing of corn and wheat into products and ingredients, used in the food and beverage industry, including sweeteners, corn and wheat starch, syrup, glucose, wheat flour and dextrose. Also includes the production of ethanol and biodiesel.
- Catering — the share of the direction at the end of 2021 was 7,8%. In this segment, the company is engaged in the production of raw materials for the food industry, including food, Drinks, nutritional supplements, as well as feed and premixes for animal husbandry, Aquaculture & Pet Food.
- Another is that the share of the direction at the end of 2021 was 0,4%. The segment includes activities of subsidiaries: ADM Investor Services, ADM Investor Services International, ADMIS Singapore Pte, ADMISSION Hong Kong, – who carry out activities related to the stock exchanges.
Largest regions by revenue:
- USA - 41,5%;
- Switzerland — 21,6%;
- Cayman Islands — 6,47%.
The United States had to 62,2% net balance sheet assets of the company.
Revenue by country, million dollars
| USA | 35 396 | 41,52% |
| Switzerland | 18 453 | 21,65% |
| Cayman islands | 5515 | 6,47% |
| Brazil | 3213 | 3,77% |
| Mexico | 2934 | 3,44% |
| United Kingdom | 1848 | 2,17% |
| Other | 17 890 | 20,99% |
| Total | 85 249 | 100% |
Net book asset value by country, million dollars
| USA | 6098 | 62,21% |
| Brazil | 76 | 7,75% |
| Other | 2945 | 30,04% |
| Total | 9803 | 100% |
Financial indicators
Revenue increased by 32,3% due to higher sales prices, partly offset by lower sales volumes. Rising oil prices, slaughter, corn, flour, Animal feed and higher sales volumes of wheat and processed cotton were partially offset by lower sales volumes of soybeans and oils.
Selling expenses, general and administrative expenses increased by 11% due to higher salaries and benefits, Performance-based compensation, IT and legal costs.
Operating profit increased by 34,4%, And margins are 0,1 item, to 7,02%. As a result, net profit increased by 53%. Free cash flow changed in a positive direction - from -3.2 billion to 5.4 billion dollars.
During 2020, the company restructured accounts receivable, As a result, operating cash flows for 2021 no longer include the impact of deferred consideration in accounts receivable.
The company expects a favorable demand environment for its assets in 2022. Operating profit growth by 15%, revenue — by 10%. ADM increases its 2022 capital expenditures to approximately $1.3 billion to fund ongoing expansion projects, including a joint venture with Marathon Petroleum to produce renewable fuels.
Financial indicators, million dollars
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Revenue | 64,341 | 60,828 | 64,656 | 64,355 | 85,249 |
| Operating profit | 3273 | 2536 | 4147 | 4453 | 5987 |
| Operating margin | 5,09% | 4,17% | 6,41% | 6,92% | 7,02% |
| Net profit | 1810 | 1595 | 1379 | 1782 | 2735 |
| free cash flow | −5,626 | −7,015 | −6,280 | −3,209 | 5,426 |
Balance sheet indicators of the company, million dollars
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Assets | 40,833 | 39,963 | 43,997 | 49,719 | 56,136 |
| Capital | 18,996 | 18,322 | 19,225 | 20,022 | 22,508 |
| Total debt | 8,388 | 7,493 | 8,881 | 9,927 | 8,969 |
| net debt | 4,545 | 5,635 | 5,891 | 5,281 | 1,515 |
Market
Food prices in the world continue to rise against the backdrop of events in Eastern Europe. Instability has spread to the energy market, The price of oil has updated a multi-year high.
Taken together, this is a favorable environment for ADM, that has the capacity to produce food, as well as ethanol and biodiesel.
As for long-term triggers, then the trend of growth in the world's population, along with the expansion of the middle class, is the main factor in increasing demand. Expected, that during the next 10 years of world trade flows of four major commodities, like corn, wheat, Soybeans and Soybean Flour, will grow by about 130 million tons. This is an increase of 21% from current levels.
To be less subject to the cyclical nature of the commodity market, In recent years, the company has relied on the development of new business areas and sold low-margin assets.
For these purposes, ADM closed M transactions in 2021&A on the acquisition of Sojaprotein, a manufacturer of alternative proteins, PetDine – Pet Food Manufacturer, Deerland, a manufacturer of probiotics, and FISA, a manufacturer of flavors. ADM's current strategy is to drive sustainable growth through productivity and innovation.
Despite new business areas, The company remains dependent on commodity prices. Trade wars and currency volatility can also have a negative impact on financial performance.
Regulatory regulation of U.S. biodiesel and ethanol demand plays an important role for ADM, given the company's projects in this area.
Now there are disputes: Biofuels Trade Group Seeks to Establish Standards for Blending Traditional and Renewable Fuels, which does not suit small refineries.
Notwithstanding the above-mentioned influencing factors for ADM, It should be noted, that during periods of instability, the state subsidizes the company and at the moment support continues. It means, that ADM investors have a golden parachute.
Comparison with analogues
As a comparison, The Andersons were chosen from the analogues, Bunge and COFCO.
The revenue growth rate will show, how successful the company is in its market and whether its products are in demand. The ROE profitability ratio shows the financial return on the use of capital and allows you to assess the quality of work of financial managers.
ADM has competitive profitability, but the revenue growth rate lags behind the comparison leaders.
Revenue growth and ROE for 5 years
| Revenue growth rate | Average ROE | |
|---|---|---|
| ADM | 6,98 | 9,5% |
| The Andersons | 27,86 | 4,27% |
| Bunge | −2 | 7,5% |
| COFCO | 14,27 | 7,04% |
Dividends and buyback program
In 2021, the company allocated $834 million for the payment of dividends, or 1,48 $ per share, which brought a potential dividend yield of just over 2%.
ADM shares are on the list of dividend aristocrats. The company has been paying dividends continuously since 1931 and has increased their amount by more than 40 consecutive years. The average dividend payout ratio over the past five years is 48,1%, and the dividend growth rate is 2,95%.
In the reporting period, the company did not carry out share buybacks. In 2019, the Board of Directors extended the previous buyback program by 100 million shares and approved the repurchase of an additional 100 million shares. This implies a significant support for the price of securities, taking into account the fact that, that there are 562 million shares outstanding..
Profitability indicators
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Dividend per share | 1,34 | 1,28 | 1,4 | 1,44 | 1,48 |
| Payout ratio | 32,96 | 59,15 | 65,95 | 50,71 | 31,75 |
| Dividend yield | 3,27 | 3,19 | 3,02 | 2,86 | 2,19 |
| Buyback Yield | 0,32 | 4,11 | 0,88 | 0,42 | — |
| Total return | 3,6 | 7,3 | 3,9 | 3,3 | 2,1 |
Comparison with competitors
Most ADM multiples indicate an overvaluation of the stock compared to its closest competitors, But compared to the median indicators of the industry, there is a potential for price growth.
Company multipliers
| P / E | P / BV | P / S | EV / EBITDA | |
|---|---|---|---|---|
| ADM | 14,6 | 1,7 | 0,5 | 10,9 |
| The Andersons | 15,06 | 1,3 | 0,1 | 6,9 |
| Bunge | 5,9 | 1,7 | 0,3 | 5,5 |
| COFCO | 6,9 | 1,2 | 0,6 | 161,9 |
| Mean | 10,6 | 1,5 | 0,4 | 46,3 |
| Potential for growth or decline to competitors | −27% | −14% | −24% | 326% |
| Median FMCG Industry | 18,11 | 1,6 | 1,17 | 10,81 |
| Potential for growth or decline to the median | 24% | −7% | 144% | 0% |
Dividend Discount Model
Given that, that the analysis of multiples did not give an unambiguous answer about the expediency of buying the company's shares, I've built a simple DD model based on discounting future dividends over five years, to determine the fair price of the shares.
Aggregator forecasts were used to predict the company's financial performance, as well as the calculated average growth rates for recent periods. The data on the risk-free rate was based on data on the yield of ten-year US government bonds.
As a result, the target price of the share, calculated by this method, is 96,8 $, upside potential to current levels — 7%. To make a decision to buy shares using discount models, the growth potential from 20%.
What's the bottom line?
At the end of 2021, the company showed an increase in financial indicators of revenue and profit due to an increase in prices for key products. ADM significantly reduced net debt. The company is quite effective, which is confirmed by a high return on equity.
This year, prices for key products - soybeans and grain crops - will not fall and will remain at a moderately high level, which will allow ADM to improve its financial performance.
An additional driver for quotes will be the implementation of the share buyback program. These stocks are suitable for conservative investors, aimed at stable dividend payments.
The multiples analysis and the DDM model did not show a significant discount, in which you can recommend shares for purchase. Respectively, To enter a position, you need to wait for a correction.
