MIDAS EQUITY TIPS: Reap the rewards of Cordiant loans to fruit growers
MIDAS SHARED TIPS: Reap the rewards of fruit grower loans with Cordiant Global Agricultural Income, set up to increase supply, but keep costs low
UK consumers eat over 650 million avocados each year, or nearly two million a day. Most come from Peru and Chile, which also produce heaps of blueberries, grapes, oranges and tangerines that can be found on our supermarket shelves.
Russia and Ukraine may be known as the breadbasket of Europe, but Latin America is the breadbasket of the world. Blessed with warm climates and fertile land, the continent exports tons of fruits and vegetables every year, as well as coffee, sugar and crops such as soybeans, corn and millet, which are key components of the vegetable oil and animal feed.
As such, agriculture plays a crucial role in the Latin American economy and is expected to continue to do so for the foreseeable future. Luckily too, trade links between the UK and South America go back centuries.
Healthy earnings: Cordiant Global Agricultural Income will allow investors to tap into the wealth of Latin America and help farmers produce more with less
Cordiant Global Agricultural Income will allow investors to tap into the bounty of Latin America and help farmers produce more with less. The group will go public early next month, targeting a 4% first-year dividend yield, rising to at least 6.5% by 2024. Share price growth is expected to push annual returns to at least 10%, making it well worth a closer look.
Cordiant managers have been investing in Latin American agriculture for years, focusing on Brazil, Mexico, Chile and Peru. During this period, they understood how the market works and where the opportunities are.
They found that many farmers, even those with large properties and multi-million dollar turnovers, struggle to access the cash they need to grow. In the past, these large, established producers relied on banks to finance their growth, but long-term loans have become scarce since the financial crisis.
This is where Cordiant comes in. The group lends money to farmers to help them become both more efficient and more sustainable.
The company intends to focus on farms with an established record, multi-generational expertise and large tracts of land – some as large as Manchester.
With funds and guidance from Cordiant, these farmers are able to develop smart “drip” irrigation techniques that reduce water use by approximately 90% and can nearly double yields per acre. They can acquire a kit to convert by-products into energy, buy low-emission machinery, and adopt precision farming, which uses technology to increase yields in an environmentally friendly way.
Loans will range from $5 (£3.80) to $50m, although most are around $25m to be repaid over four to seven years. The demand being high, Cordiant can afford to be very demanding, refusing many more requests than it accepts.
With a team of around a dozen on the ground, Cordiant will also be keeping a watchful eye on creditors, to ensure they are using their money wisely.
Additionally, the group will only lend to farmers who have end customers in place, from large trading groups such as Cargill in the US to supermarket chains such as Sainsbury’s, Waitrose and Lidl.
Cordiant will start with eight loans worth more than $115 million, but managers have identified a nearly $1 billion pipeline so they can lend float proceeds relatively quickly.
The global crop trade is conducted almost exclusively in dollars. Cordiant is therefore offering its shares at $1 each and hopes to raise $300 million. Investors will also receive one free share for every five they buy.
MIDAS VERDICT: Food prices were already skyrocketing before the war in Ukraine. In the future, further increases seem inevitable. Cordiant Global Agricultural Income was set up to help farmers increase supply, while keeping costs low. Over time, this should translate into more stable prices in stores. And in the shorter term, Cordiant offers investors access to the agricultural sector, generous dividends and the prospect of steady stock growth. At $1, stocks are a buy.
To be negotiated on: main market Teleprinter: CAI Contact: cordiantagtrust.com or 02081585829