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Table of contents
- About company
- Organizational structure
- Key operating and financial indicators
- Why Stocks Can Go Up
- Why Stocks May Fall
- Dividend policy
- What is important to know right now
- What we wrote earlier about this company
📍 About the company
"Cherkizovo" (MCX: GCHE) — Russian manufacturer of meat products. The company controls all business processes: from the production of mixed fodder to the production of finished products. Since 2006, Cherkizovo shares have been traded on the Moscow Exchange under the ticker symbol GCHE. At the end of 2021, about 93% revenue accounted for sales in the Russian market. But in recent years, the company has been actively developing exports., especially to China and the Middle East.
👥 Organizational structure
The company is jointly owned and operated by members of the Mikhailov family. At the end of 2021 by 27,35% shares owned by two brothers: Sergey — CEO and Chairman of the Management Board — and Evgeny — Chairman of the Board of Directors and Director of Business Development.
15,03% Shares of Cherkizovo belong to the mother of the Mikhailov brothers - Lyudmila, who holds the position of CFO and is a member of the Board.
Another major shareholder of the company is the Spanish turkey producer Grupo Fuertes, who at the end of the year owned 8,34% Shares. But as a result of the consolidation deal 100% shares of the company "Tambov Turkey" The share of the Spanish manufacturer in the share capital of "Cherkizovo" has grown to 11,12% january 2022.
Structure of share capital on 31 December 2021
|LLC "AK "Mikhailovsky""||2,78%|
|LLC "MC "Mikhailovsky""||0,45%|
Cherkizovo's main production facilities are concentrated in Russia, and the geography of production sites covers more than a dozen regions of the country: from Kaliningrad Oblast to Altai Krai.
The average number of employees exceeds 31 thousand people, and the total production capacity is more than a million tons of meat products per year. The book value of the holding's assets reaches 200 billion rubles.
Production activities of the company are divided into 5 large segments: "Chicken", Turkey, «Pork», "Meat processing" and "Crop production". Let's take a closer look at each of the segments.
"Chicken". Cherkizovo is the largest producer of chicken meat in Russia. Poultry complexes of the company have a total production capacity of about 800 thousand tons of poultry meat in live weight per year, or more than 200 million broiler heads. The company also occupies a leading position in the production of branded products, including such well-known trademarks, as "Petelinka" and "Chicken Kingdom".
The company almost completely provides itself with hatching chicken eggs and feed for growing birds., and 9 modern poultry complexes ensure stable production of finished products.
Turkey. One of the fastest growing and most promising areas of business, which was launched in 2012 thanks to an agreement with the Spanish company Grupo Fuertes on the construction of the production complex "Tambov Turkey". Since 2017, the production of turkey under the brand "Pava-Pava" has begun.. In 2021, Cherkizovo acquired Krasnobor, which was in third place in Russia in terms of turkey production in 2020. And in early 2022, Tambov Turkey completely came under the control of Cherkizovo..
Tambov Turkey farms contain over 1.7 million heads, and the production complex includes an incubator for 8.8 million eggs, 5 cultivation sites, 10 fattening sites and feed mill with a capacity of 180 thousand tons per year.
"Pork" and "Meat processing". Cultivation of pigs in own pig-breeding complexes for subsequent sale to meat processing plants and processors. Most of the products go to our own meat processing plants for further processing and production of finished meat products.
Pig-breeding complexes of the holding are located in Penza, Lipetsk, Voronezh, Tambov and Oryol regions, and processing plants are mainly located in the Moscow region. The company produces both commercial pigs, side carcasses and semi-finished products, as well as products of deep processing: different types of sausages, smoked meat and meat delicacies.
"Crop production". The company's land bank is about 300 thousand hectares of farmland, on which wheat is grown, maize, barley, sunflower, soybeans and other crops, going to domestic consumption. Part of the harvest goes to its own feed mills for the production of mixed fodder.
Due to adverse weather conditions, the total volume of harvested crops in 2021 decreased by a quarter to the level of 2020 and amounted to 597.2 thousand tons..
Structure of sales revenue in 2021 by segment
Average price of agricultural products per kilogram
Last Updated: 23 March 2022 📊 Key Operating and Financial Indicators
Sales revenue. The company's revenues consist of two components: chicken sales volumes, Turkey, pork and meat processing products, as well as average selling prices.
The difference between sales revenue and cost of sales is called gross profit.. In order to calculate the net profit, from the gross subtract net operating and financial expenses, including tax payments and one-time items from non-cash revaluation of exchange rate differences and asset values.
Net profit. Allows you to evaluate the final results of activities in monetary terms. Dividends are paid from net profit and investment projects are financed without increasing the debt burden. Besides, the net profit indicator is used in the calculation of popular multipliers to assess the investment attractiveness of the business.
Coefficient P / E – the ratio of market capitalization to net profit. Determines, for how long can the company theoretically "recoup" the investor's investments in the issuer's securities.
Коэффициент ROE – the ratio of the company's net profit to its capital. Says that, how efficiently the company uses its capital compared to competitors.
International financial reporting standards require meat producers to reassess the value of biological assets – usually unsold birds and pigs – at current market prices.. Due to fluctuations in meat prices, the business has a profit or loss from the revaluation of biological assets., but this is a "paper" article, because there are no real sales at estimated prices. So that investors can see the real state of affairs in the company and the actual results are not distorted, management adjusts profits taking into account such one-time and non-monetary items.
What's changed in the new report
|Revenue ↑ +23%||Growth in sales of meat products and average selling prices against the background of acceleration of inflation|
|Cost of sales ↑ +22%|
|Gross profit ↑ +13%|
|Free Cash Flow ↓ −21%||Large investments in the construction of new facilities and the purchase of competitors|
|Adjusted net income ↑ +21%||Historical maximum against the background of increased revenues and competent work with costs|
|Net debt ↑ +19%||Long-term loans and borrowings remained at the level of 2020 of the year, and short-term increased in 1,6 Times|
|Harvested ↓ −25%||Adverse weather conditions in Russia|
|Equity ↑ +11%||Retained earnings increased|
Growth in sales of meat products and average selling prices against the background of acceleration of inflation
Dynamics of operating indicators, thousand tons
|Sales of chicken meat||522,49||544,10||663,03||695,08||711,24|
|Turkey meat sales||26,31||39,25||39,41||40,98||52,40|
|Sales of meat processing products||110,79||106,73||107,66||113,6||135,86|
Dynamics of financial indicators, billion rubles
|Net income before adjustments||5,8||12||6,75||15,18||16,9|
|Net income after adjustments||5,07||9,96||8,43||13,9||16,77|
|free cash flow||−2,67||5||7,46||4,57||3,6|
Dynamics of capital expenditures, net debt and EBITDA, billion rubles
Dynamics of key multipliers by year
|P / E||9,7||4,8||7,9||5,8||7,4|
|net debt / adjusted EBITDA||3,3×||2,9×||3,0×||2,4×||2,6×|
📈 Why Stocks Can Go Up
Favorable price situation in the market of meat products. Since 2021, inflation has been growing, including in the food sector. Against this background, prices for meat products are near local highs and may grow in the future..
Increase in the share of exports. In recent years, Cherkizovo has been exporting its products, mainly to China and the Middle East. These markets have a large capacity and maintain friendly partnership ties with Russia., which is especially important in the context of tough sanctions rhetoric from Western countries.
High self-sufficiency in raw materials. Vertically integrated company structure allows you to control costs, which creates a competitive advantage due to low cost of sales.
Large-scale investment programs. In recent years, the business has been actively expanding its own production through the modernization of existing and the construction of new facilities.. Besides, the company actively absorbs competitors and increases its market share. This is reflected in the annual growth in meat production in 2015-2021..
📉 Why Stocks May Fall
Low liquidity of securities. The average daily trading volume of Cherkizovo shares remains relatively small, therefore, stock quotes are subject to high volatility due to changes in market sentiment..
Changes in the price situation in the global meat market. The financial results of the business are directly dependent on the price of chicken, Turkey, pork and sausages. Changes in market conditions and falling prices for meat products will negatively affect the final revenue and profit.
Large share of foreign ownership. The Spanish company Grupo Fuertes owns a large stake in Cherkizovo. Against the background of geopolitical conflicts and mutual restrictive measures of Russia and Western countries, the presence of a foreign company in the capital may create additional difficulties.. There is a risk that, that Cherkizovo will have to temporarily refuse to pay dividends, maybe, look for money to buy out the share of the Spanish manufacturer.
Great dependence on the domestic market. More 90% the company's revenues bring sales in Russia. A decrease in real disposable incomes of the population will lead to a drop in sales, which will have a negative impact on operating and financial results.
Biological risks. The company is engaged in the cultivation of pigs and birds at its production sites. Swine or chicken flu epidemics, as well as other diseases at enterprises lead to a decrease in the number of livestock and a significant decrease in the volume of output of finished products.
💸 Dividend policy
According to Cherkizovo's dividend policy of May 2018, the company sends for the payment of dividends not less than 50% of adjusted net profit under IFRS, if the ratio is "net debt" / adjusted EBITDA" does not exceed 2.5×. Profit in calculating the dividend base is adjusted taking into account one-time profits and losses and changes in the fair value of biological assets and agricultural products.
Despite the fact that the debt burden of Cherkizovo in recent years has periodically exceeded the level of 2.5×, the company did not reduce dividend payments below 50% from adjusted net profit.
The amount of dividends per share according to the results of the reporting period
🚨 What is important to know right now
Food prices in 2022 will grow. Food and Agriculture Organization (FAO) The UN predicts an increase in food prices by 8-22% from the high levels of early 2022 due to hostilities in Ukraine.
Dividends postponed. 4 In March, Cherkizovo's Board of Directors canceled the recommendation to pay dividends for the 2021 reporting year and hold a general meeting of shareholders 25 March 2022. Probably, this is due to the temporary ban on Russian issuers paying dividends to foreign individuals and legal entities. Let me remind you, that one of the largest shareholders of Cherkizovo is the Spanish holding Grupo Fuertes.
Undisputed Leader. At the end of 2021, Cherkizovo once again became the leader in the production of broiler meat with a share in the Russian market of about 13%. Besides, the company ranked second in terms of exports of broiler meat.
🔖 What we wrote earlier about this company
- We study cherkizovo's operational report for 2021.
- First half of the year for Cherkizovo: meat rises in price and it is glorious.
- "Cherkizovo": chicken and turkey sales are growing, but pork production is falling.
- Prices for Cherkizovo products increased, and sales fell.
- Cherkizovo's net profit increased in 2 Times.
- Cherkizovo had record sales in all business segments in 2020.
- Cherkizovo has record revenue and profit, despite the downturn in the economy.
- Cherkizovo increased its profit by 53% during the crisis. Dividends are fine.
- Cherkizovo Increases Sales and Revenues in All Business Segments.
- Meat producer Cherkizovo earned 5.6 billion rubles.