HMC Capital snaps up GrainCorp ‘opportunity’

GrainCorp’s Geelong terminal entrance.

David Di Pilla’s HMC Capital has snapped up 5 per cent of GrainCorp because he believes that its assets are undervalued, but so do analysts, according to research from Ord Minnett.

The broker issued a research note on Wednesday saying that GrainCorp’s port assets and earnings were both undervalued by the market, representing an attractive opportunity for incoming investors.

The analysts say that the seven export port terminals are not fully reflected in the GrainCorp share price, with their valuations pegging the net assets on a replacement value being at $11.80 per share.

GrainCorp shares on Wednesday closed at $8.31 with its market value being $1.89bn.

Selling or spinning off GrainCorp’s infrastructure has been widely discussed before, but the challenge is that grain earnings are highly volatile, so the steady earnings stream that infrastructure investors typically go for is not there.

HMC bought 11.23 million shares, outlaying about $93m last month after a profit warning issued by GrainCorp in February.

Mr Di Pilla wants to capitalise on the energy transition. The theory is that GrainCorp can branch into renewable energy through biofuels.

GrainCorp sold its Australian Bulk Liquid Terminals for $350m in 2019 to ANZ Terminals after rejecting a $3.3bn bid by Long Term Asset Partners. The seven grain handling terminals left wereestimated to be worth about $700m.

Archer Daniel Midland also tried to buy GrainCorp in 2013. Ord Minnett expects average earnings before interest, tax, depreciation and amortisation earnings growth to reach $330m by the 2025 financial year.