Major News from China, Next China Stock to Explode
China on Sunday issued their No 1 policy document for 2014 and its focused on developing modern agriculture and maintaining agriculture as the foundation of the national economy. There are two China agriculture companies that will likely capitalize the most. Origin Agritech (SEED) is one but it already gained 19% on Friday. Agria (GRO) is the other and it looks ready to explode.
China's food imports from New Zealand are up 80% this year and GRO owns a controlling stake in PGG Wrightson (PGW), New Zealand's largest agricultural services company. GRO's 80.81% owned Agria Asia subsidiary owns 379.1mm PGW shares or 50.22% of the company, which trades overseas on the NZX for $0.43 per share. Agria Asia's shares are currently worth NZD$163mm or USD$134.5mm, valuing GRO's 80.81% stake at USD$108.7mm. With 55.38mm shares outstanding, GRO's stake is already worth $1.96 per share.
Exactly two weeks ago, GRO hit a new 52-week high of $1.77 and PGW at the time was $0.40 valuing GRO's stake at $1.83. GRO came within $0.06 of the value of its PGW stake, therefore, look for GRO to explode to a new 52-week high of $1.90 early this week.
GRO also owns 100% of a China seeds biz with last year's revenues up 98% to $17mm. SEED currently has an enterprise value of 1.04X sales - despite their seed revs down 8%. If GRO's China seeds biz with 98% rev growth was worth a mere 1.04X sales to match SEED, GRO deserves to trade $0.32 per share above $1.96 or for $2.28 per share.
GRO's chart shows that it's in the most solid uptrend in the market, consistently bottoming at higher lows before exploding to new 52-week highs on strong volume. With PGW's fiscal 2014 first half earnings due to be released February 25th and their EPS this year likely to rise 100%, GRO could break $2 this week. Look for GRO to explode when it breaks $1.77.
We have so far purchased 550,000 GRO shares and don't intend to sell until GRO is trading at a fair value.