Here’s four ag stocks to make money in 2022: Angus Aitken

Global food shortages will create a ‘huge opportunity’ for Australian producers in the next decade, says high-profile stockbroker Angus Aitken. Here are four on his radar.

Cobram Estate olive picking. Angus Aitken writes that Cobram has a significant opportunity in the US where about 5 per cent of the market is supplied by Californian producers and ‘the rest is low quality Spanish/Italian oils’. Picture: Supplied

Looming global food security issues are creating a “huge opportunity” for Australian producers to “go up the value chain” in the next decade – and could turn a sector long shunned by investors into a lucrative one, high-profile stockbroker Angus Aitken says.

In a note to clients sent at the weekend, Mr Aitken said investors had made “great money in stocks like Elders and GrainCorp” but other listed companies still presented good value.

“For years people would always tell you ag-related stocks are a disaster because of some terrible times years ago, but the last five years has been a real money-making opportunity,” wrote Mr Aitken, the former managing director of institutional equities at Bell Potter who now runs Aitken Mount Capital Partners.

“Private businesses have gone up a lot in value, such as the big cattle stations, and some of the listed names have been very good.”

The high profile stockbroker in his email to clients named four ASX-listed agribusinesses as “standout buys”, starting with Cobram Estate.

The Victorian-based olive oil producer, he wrote, had significant market opportunities in the US and Australia – and accounted for about 70 per cent of local production.

Cobram was listed in August, and its share price has fallen some 16 per cent – or 30c – since then to hit $1.60 on Friday. In December Mr Aitken’s firm and Barrenjoey Capital Partners raised $50m through an institutional placement.

“Remember it takes five to eight years for an olive tree to mature and given 40 per cent of their trees are yet to mature, you get 40 per cent volume growth down here alone without spending another 1c,” Mr Aitken wrote in his note.

“Olive trees are biennial and hence every olive tree globally has a high production year and next year a low production year … that doesn’t change the cashflows for Cobram but just confuses analysts,” he added.

Mr Aitken says that Cobram has a significant opportunity in the US where about 5 per cent of the market is supplied by Californian producers and “the rest is low quality Spanish/Italian oils”.

“Family offices should buy Cobram, own them for 10 years for your kids and you will make multiples of your money from here in a sustainable way,” the note reads. “We advised Cobram on their $50m capital raising last year and we think Cobram is a $5-$6 stock over time.”

Kiland Limited, formerly Kangaroo Island Plantation Timbers, could also be worth significantly more than its market capitalisation of $86.3m. Picture: Amy Pysden

Mr Aitken’s second pick is Ridley, a provider of animal feed and rendering, which converts animal products not fit for human consumption into products for livestock and pets.

Ridley shares have risen 13 per cent since the start of the year, and more than 41 per cent over 12 months.

“This is a great business that is finally going forward after 10 years of going sideways,” Mr Aitken wrote.

“The new CEO, Quinton Hilderbrand, has done commonsense things like providing branded pet food for major retailers and other simple steps and this company is set up to earn well north of $100m (earnings) in coming years vs $75m now.”

“Rendering is a great business even though nobody is going to leave school and go ‘geez I want to go and boil up animal parts in a stinking factory to make money’,” he wrote. “But that is why rendering is such a great business and tallow prices have been a huge winner in recent years … anyone selling these products is printing money.”

Mr Aitken, in his note, said Kiland Ltd., formerly Kangaroo Island Plantation Timbers, could also be worth significantly more than its current market capitalisation of $86.3m. Kiland’s sole asset is 18,600ha of agricultural land on Kangaroo Island, about 14,500ha of which is plantation.

But the company lost almost all of its plantation forests in the 2020 bushfires, forcing it to revalue those assets to only $5.95m, down $109.2m. Under its recovery strategy, Kiland is increasing its sheep flock by almost 50 per cent and pivoting further into agriculture. Kiland shares have fallen more than 21 per cent since the start of the year, and closed at $1.14 on Friday.

“Out of bad things, very good things happen and this business is now investing to clean up that land and turn (it) into premium farm land,” Mr Aitken, who underwrote a $32 equity raising for the company in March, wrote.

“We think over four to five years this 18,000ha can be worth $300m or more, and remember that land size is like buying Sydney in scale. We also see large carbon-related opportunities in this business over time that people won’t have looked at.”

 

Mr Aitken’s final stock pick is Lark Distilling, the premium Tasmanian whisky brand. “We have plenty of bottles in the new office in Paddington,” Mr Aitken wrote.

“We are new to Lark as we think the valuation is dirt cheap … this year the stock tanked when the former CEO had some terrible headlines about drugs but he is long gone and his behaviour didn’t change the value of the brand or the maturing whisky, which is over $400m sitting in barrels.”

The company’s former chief executive, Geoff Bainbridge, the co-founder of the Grill’d hamburger chain, quit in February after vision emerged which appeared to show him smoking recreational drugs. He later claimed he was the victim of extortion in an unnamed Asian country before it emerged he had filmed the footage himself in Melbourne.

“Lark is the only Tasmanian premium whisky producer we see as having the scale to get into Asia long-term and compete with the high end Scottish and Japanese whiskies,” Mr Aitken wrote.

“Lark should easily make $25m-30m (in earnings) down the track and hence you are buying this stock on single digit multiples when the average EBITDA takeover in the premium spirits space is 30-40x,” he wrote.