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Rusgrain Holding Review: agro-industrial company shows results
Rusgrain Holding (MCX: RUGR) — one of the largest agro-industrial holdings in Russia. Located in Bashkortostan, leader in the poultry meat market in the republic, owner of the largest meat processing plant in the republic.
About company
Shares of the group of companies began trading on the RTS 22 April 2008 under the ticker RUGR, under which they are now traded on the Moscow Exchange. Later, three more additional issues were carried out.. Low liquid shares, belong to the third level of listing.
As for other illiquid stocks, they are characterized by high volatility, while, that until some improvement in the financial performance of the group, they were in a constant bearish trend. Let's try to figure it out, how can the place of Rusgrain Holding in the Russian and Bashkir agricultural industry be combined with similar results as in the reporting, so on the stock exchange and will there be light at the end of the tunnel.
History of the group of companies. The group itself does not like to talk about its history.. Known, that the holding was formed in 2004 on the basis of the Bashkir Russian Grain LLC, which, in its turn, was established in 2002. As a result of the creation of the holding, the business of Russian Grain was significantly diversified: company, which is now the managing company of the holding, moved from grain trading to grain processing, poultry farming and feed production.
In the 2000s, the company actively expanded the means of production beyond the borders of its native Bashkortostan, acquiring agro-industrial enterprises in the Saratov region, Voronezh, Volgograd and even far from the homeland of the Rostov holding, Omsk Regions and Krasnodar Territory. Diversification has led to results, first of all, in the field of poultry farming: by the beginning of 2019, Rusgrain Holding held 50% Bashkir poultry market. However, this did not save the group from financial problems.: by the new decade, she has accumulated so much debt, that because of them she ended up on the balance sheet of the Trust bank structure.
Composition of the group of companies. Despite, that initially "Rusgrain Holding" was established on the basis of a grain trader, most of the companies in its composition are engaged in meat poultry farming. Only one company operates on the grain market, one is engaged in the poultry trade, one is grain trading, the rest are holding and management. One of the group companies is registered in Cyprus, the rest are in Russia, mostly in the Republic of Bashkortostan.
Composition of Rusgrain Holding
| Field of activity | Share of participation | |
|---|---|---|
| OJSC "Ufa KHP" | Grain processing and storage | 100% |
| LLC "Trading House Turbaslinsky Broiler" | Trade | 99,9% |
| Grano LLC | Trade | 100% |
| OJSC "Turbaslinskie broiler" | Meat poultry | 100% |
| OJSC "Poultry farm" Tuimazinskaya " | Meat poultry | 100% |
| LLC "Poultry farm" Ashkadarskaya " | Meat poultry | 100% |
| LLC "Poultry farm" Ufimskaya " | Meat poultry | 100% |
| LLC Plemptitsefabrika Yubileynaya | Meat poultry | 100% |
| LLC "Russian Zerno Ufa" | Management services | 97% |
| Aravil Holdings Limited | holding company | 100% |
| Faberge LLC | holding company | 100% |
| Faberge Security LLC | holding company | 99% |
Shareholders and key figures. The main shareholder is PJSC "National Bank" Trust "", to whom businessman Mikail Shishkhanov ceded his share in March 2019 due to the current situation with debts. The key figure of the group of companies is President Mikhail Koshkin, He does not own shares in PJSC.
Shareholders of Rusgrain Holding
| PJSC National Bank Trust | 69,2% |
| OJSC "Ufa Plant of Bread Products" | 5,04% |
| Free float | 25,76% |
69,2%
Geography of production and sales. The main production facilities are concentrated in the Republic of Bashkortostan and the Omsk Region. The company supplies products to most regions of Russia, as well as to neighboring countries. No export to foreign countries.
What he earns
Trade marks. The main activity of the group of companies is the production of chicken eggs. This is the Avdon trademark, occupying 70% in the egg market of Bashkortostan. In addition to eggs of standard categories, the range includes eggs with a high content of trace elements, as well as halal products, in demand on the territory of Bashkortostan with its predominantly Muslim population. Trademark "Turbasly broilers" includes, in addition to the production of broiler carcasses, deeply processed products, sausages and rolls. All products are halal, certified by the Republican Committee on the standard "Halal". Compound feed is also produced from meat production waste.. Trade in grain and grain products is a very small share of the company's business.
Revenue structure. The group’s revenue structure in the first half of 2021 has undergone some changes compared to 2020. The largest share is still made up of semi-finished products, what is connected, apparently, with the nutritional habits of Russians, low standard of living and lack of enough free time for cooking. The share of these products has become even larger compared to 2020.
The share of compound feed has become higher, what can be explained by the economic recovery, which experienced the negative impact of the coronavirus pandemic in 2020. The decrease in the proportion of broiler carcasses can also be explained by the fact, that, due to the restoration of well-being, Russians began to eat more expensive varieties of meat - pork, beef.
The downward trend in broiler carcass sales continued into 2021. But the growth in revenue from sales of compound feed in the first half of 2021 compared to the same period of the previous year was even higher, than for 2020. This can also be related to, that feed prices have reached record levels, and with that, that the production of compound feed from waste has a high marginality, how, for example, from fodder crops. Most of the costs in the production of compound feed are the costs of raw materials, and not of production and bio-additives. Therefore, the conjuncture of the feed market can be assessed rather as positive for the holding., especially given the signs of the Russian economy coming out of the crisis.
Revenue structure of Rusgrain Holding by years, in thousand rubles
| 2020 | 2019 | share | The change | |
|---|---|---|---|---|
| Broiler chicken carcasses | 1 368 158 | 1 437 131 | 16,98% | −4,80% |
| Foods | 3 293 067 | 2 501 288 | 40,88% | 31,65% |
| Mixed feed | 1 789 099 | 1 058 464 | 22,21% | 69,03% |
| Meat products and eggs | 1 586 001 | 1 100 848 | 19,69% | 44,07% |
| Other | 19 949 | 14 536 | 0,25% | 37,24% |
Revenue structure of Rusgrain Holding in half-years, in thousand rubles
| 1п2021 | 1п2020 | share | The change | |
|---|---|---|---|---|
| Broiler chicken carcasses | 620 769 | 666 895 | 11,81% | −6,92% |
| Foods | 2 431 473 | 1 671 867 | 46,26% | 45,43% |
| Mixed feed | 1 495 948 | 809 606 | 28,46% | 84,77% |
| Meat products and eggs | 700 040 | 531 577 | 13,32% | 31,69% |
| Other | 7741 | 6197 | 0,15% | 24,92% |
Financial indicators. What 2019, that 2020 was extremely unfortunate for the holding. All major financials and ratios were negative, and their decline in 2020 was simply catastrophic.
It would be naive to consider, that this is the unequivocal impact of the pandemic. Quicker, this is the result of the unprofessional management of the main shareholder, who had previously been seen in a similar. Lesion, Really, decreased, what can be associated with an increase in demand among the population for poultry meat - cheaper, than other types of meat. Demand has risen amid a decrease in the purchasing power of the population due to coronavirus.
Apparently, the change of the main shareholder made itself felt, since the bank "Trust" indicated, that his strategy is, including, restoration of the financial efficiency of the group. Already in the first quarter of 2021, the results have improved significantly, indicators were positive.
The second half of 2021 also saw an improvement in financial performance compared to the same period of the previous year. At the same time, there were no such sharp jumps in indicators., which is due to, that the company's business in the last month of the first quarter of 2020 - in March - suffered significant losses due to the peak of the pandemic. Also, an improvement in performance could have taken place in connection with the modernization of production.: re-profiling of poultry farms of the egg direction for a more marginal broiler direction, cost optimization, increase in the production of compound feed.
Based on the data, it can be stated, that such leaps in financial indicators are clearly the weak side of the group of companies.
Financial performance of Rusgrain Holding
| annual | 2019 | 2020 | The change |
|---|---|---|---|
| Return on assets | −0,11% | −1,40% | −1176,39% |
| Return on equity | −0,12% | −4,76% | −3938,04% |
| EBITDA, billion rubles | −2,198 | −0,301 | 86,27% |
Rusgrain Holding's annual financial indicators
| quarterly | 1к2020 | 1к2021 | The change |
|---|---|---|---|
| Return on assets | 0,001356% | 0,017211% | 1169,25% |
| Return on equity | 0,000914% | 0,01494% | 1534,57% |
| EBITDA, million rubles | 3,556 | 8,147 | 129,11% |
Rusgrain Holding Quarterly Financial Indicators
| Semi-annual | 1п2020 | 1п2021 | The change |
|---|---|---|---|
| Return on equity | 0,00261% | 0,0283% | 984,29% |
| Return on assets | 0,00347% | 0,0162% | 366,86% |
| EBITDA, million rubles | 9,122 | 15,484 | 69,743% |
Rusgrain Holding's semi-annual financial performance
Plans
The strategy of the group of companies is currently mainly formed by the bank "Trust", what is directly stated in the holding's financial statements. Even before the acquisition of Rusgrain Holding, it was said that, that the bank "Trust", in addition to increasing the production of poultry meat, will include in its strategy the export of products to Kazakhstan, Mongolia and China, although there is no information about, how is this direction implemented.
As for Kazakhstan, then this direction can be promising only in terms of minimizing transportation costs, since the Republic of Bashkortostan borders on it. But data on poultry production in Kazakhstan suggests that, that the country's need for these products will be covered by local producers by 2025.
Mongolia, maybe, will be a more promising market. Currently, it is one of the twenty largest consumers of Russian poultry meat.. At the same time, it is a relatively new food for the Mongols., who traditionally preferred lamb. The arrival of such fast food chains on the Mongolian market, like Burger King, makes it possible to predict an increase in demand.
China is an even more promising market, the volume of imports of chicken meat there by 2024 will double compared to 2019. Considering these facts, the implementation of an export strategy, or at least the news of its launch, can have a positive impact on the share price.
Also in the plans of the Bank "Trust" to expand the production of semi-finished products on the basis of the enterprises of the holding, what fits into his strategy when buying Rusgrain assets. This is good market news for the performance of Rusgrain Holding shares..
Risks
Exchange risks. An unpleasant moment for investors is the low transparency of the company's activities. In the report for 2020, only a passing mention of the plans of the holding and no operational indicators.
Exchange risks include unreasonable growth of the group's shares, which is not related to any news. The artificial acceleration of illiquid stocks through telegram channels has already caused a corresponding reaction in the Central Bank. Not hard to guess, what if the Central Bank takes any measures in connection with the proven episode of dispersal of Rusgrain Holding securities, shares will fall. Also, the refusal of the management of Rusgrain Holding to pay dividends for a loss-making 2020 can also be included in the group of exchange risks..
The risk of loss of business reputation. Trust Bank is known for its penchant for cutting costs, harming the environment. Truth, this incident did not occur at Rusgrain Holding enterprises, and at the enterprise of the second company, component of the bank's poultry assets: sewage was dumped into the river, saving on cleaning.
But this year, the scandal erupted around one of the enterprises of the holding itself: Turbaslinskiye Broilers OJSC was fined for the presence of pathogens of listeriosis, an infectious disease with a high lethality, in minced chicken. At the same time, the products of JSC are already, seems to be, caused complaints from regulatory authorities - even before the incident, in October 2020, temporary bans were imposed on her.
There were violations before Trust: in 2015, Rosprirodnadzor fined Bashkirskaya Poultry Farm JSC for dumping bird droppings on agricultural land. In 2010, Rosprirodnadzor filed a lawsuit against OAO Turbaslinskiye Broilers for storing 50,000 tons of manure at the landfill., but the claim was not satisfied. Truth, At that time, OJSC was not yet part of the holding.
Such risks can be considered significant - even if the claim is not satisfied, the reputation suffers, all this has a negative impact on the value of the group's shares.
Publications in the media can also be classified as reputational risks.. Reputational damage is especially great, when the veracity of publications is proven by the court, as it was last year with the poultry farm "Bashkirskaya" and the publication "Roskontrol". The publication in 2014 attributed the products of the Avdon brand to the black list and won the court of appeal.
Results
It can be stated, that Rusgrain Holding shares have growth potential - financial performance has improved significantly since 2019 and 2020, and the new management policy with the transition to more marginal areas is also bearing fruit. Export plans also give hope, that the current rise in stocks from the bottom will continue.
But these positive prospects do not cover the risks. Exports to China seem like a rather ephemeral source of income, since there are mainly chicken feet and offal in demand. No guarantee, that the Chinese will suddenly change their food preferences and switch to broiler carcasses, but in other way, shipments of chicken feet to China look like a more marginal business, than the production of compound feed from them.
Significant risks, associated with various scandals, fraught with loss of business reputation: of the above three enterprise lawsuits, included in groups, won one. The risk of pumping and dumping stocks through instant messengers and social networks against the background of already high volatility and low liquidity makes it meaningless technical analysis. Fundamental analysis is complicated by the low transparency of information provided by Rusgrain Holding in the reporting.
In this way, Rusgrain Holding shares are more suitable for investors, who have a lot of experience, good professional training, appetite for risk and who are ready to study in detail the news about the company found in various sources.
