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Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria Message Board

  • bryangoldsmith bryangoldsmith Jun 20, 2013 12:26 PM Flag


    Interested in thoughts and analysis.

    CRESY has more land more debt better profit good dividend and is established. 

    AGRO has less debt seemingly more hype and Soros. Plus it's more diverse. 

    Both seem well below book value. Reasons to favor one over the other?

    Thinking about going 50/50 for a pure ag holding. Thoughts?

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    • I have been looking into the question of CRESY vs IRS vs LND (the US listing of AGRO) for the last few days.

      My conclusion is that while Cresud is undervalued if you think Irsa is undervalued, there seem to be some problems with it that make it my least favorite of the three.

      Cresud has 200M in US$ debt due in the next 2 years. I am not exactly sure who loaned them dollars at 1.9% or why. The value of Agro to Cresud at the current stock price is about 120M USD, estimated value is at least 50% higher. The Argentine farms have value but no way to get dollars out. Are we sure that they will be allowed by the market to roll over the debt or by the gov't to remove dollars to pay off this debt as it comes due? You can't look to Irsa to back up this debt. Irsa has plenty of its own debt. The US assets Irsa holds is almost but not quite enough to cover the Irsa level debt (after cap gain taxes). But they have negative carry value on this as the debt is at high yields. APSA which they own 96% of has another $130M or so of USD debt with no US assets.

      Most likely the way this sorts itself out is the Peso is devalued, but who knows. What if Cresud just can't get money out of the country? Then what? What if the devaluation comes with a massive collapse in Argentina again.They'd pretty much need to sell Agro. If the Ag market drops sharp this could be a fire sale.

      There's another problem I see with Cresud, which is that they seem to be very cash flow negative at the parent level. If you compare the cash flow of Cresud to the subsidiaries, money seems to be consumed despite all the farm assets (cash burn is roughly 4% of the farm asset value). So between that and the taxes owed on asset sales it's going to be difficult to get more than low single digit return over time.

      So if you want farms I'd stick with Agro. If you think Argentina can avoid complete collapse Irsa could be interesting here. Cresud while a combination of the two, seems riskier to me.

      Comments anyone?

      • 4 Replies to sublimesubprime
      • I was looking at the 2012 year end balance sheet. CRESY has $1.2 billion in debt if you ignore the minority interest.

        A good deal of debt gets denominated in the currency of choice of the lender banks, so think U.S. and Europe.

        The currency in Brazil and Argentina has been taking a beating in comparison to Europe and the U.S.

        Argentina is not investor friendly. Also, the president is a socialist which really has been hurting
        the economy by hurting growth, investment and the currency.

        I have spent the last two years looking at the large ranches in South America and I am glad I did not invest in them.

        I did invest in the largest farming operation in Canada and so far it has not performed for me. At least the political system and currency looks like a better opportunity.

        Still, none of the three farming investments (South America or Canada) has done anything but cost investors money during the last few years. That makes me wonder who is making the money? The management and Board of Directors are probably the winners. They get salaries and stock options.

        The smart money has stayed away from farming over the last few years.

      • "Are we sure that they will be allowed by the market to roll over the debt or by the gov't to remove dollars to pay off this debt as it comes due?"

        This, to me, is the main issue facing Cresud right now. In my opinion the probability that the "market" allows them to roll over the usd debt in this environment is very close to zero. Mostly I have been thinking of a binary scenario:

        1) The BCRA at some point simply refuses to process the payments of debt in dollars the same way they temporarily halted the dividend payment. In this case, what would be the legal implications for the bond holders claim on assets over the stock holders? Should this occur, there might be a good opportunity to pick up some distressed bonds. For current stock holders, this would not be pretty.

        2) The BCRA continues to allow regular payment of dollar debt held abroad by local corporations. In this case could Cresud simply issue new peso debt and use the funds to pay off the dollar debt at the official rate? And could this, in turn, extend to IRSA? Would they be able to use their massive peso cash flow to pay off their dollar debt at the official rate without touching their dollar assets held abroad?

        How likely is scenario 1 or 2? What probability would you assign them?

        One thing that worries me is that at the end of the most recent Cresud conference call a person (in between terrible questions) asked about the dividend payments. In their response, management mentioned that they viewed the dollar debt as a "natural hedge." In the past, I suppose access to foreign markets was a kind of competitive advantage for them, but in a world where real estate transactions become pesified and the central bank freezes dollar accounts, that debt can quickly become a noose instead of a hedge. I am not sure if Cresud is fully prepared for that type of scenario.

      • The more I think through this, I think you are right......the peso will almost certainly be devalued, which will send all of these stocks through the floor. But also likely present an excellent long term opportunity, though not for the faint of heart.

      • It seems to me that a bet on any of the 3 is a bet on Argentina and South America. I like AGRO as a more basic diversified land only holding but when and where are the profits? It seems CRESY is what AGRO wants to become. CRESY while more leveraged has more land, profit, and a better basket of risk diversification.

        Intrinsically CRESY as a whole appears more valuable to me than AGRO. The market has it reversed.

        The debt is a burden but has some of the strongest backing possible - farmland.

        Granted, if Argentina tanks so does CRESY but then again, doesn't AGRO? And IRS the most?

        I just don't see where AGRO has more value. Unless its coming from the expected ethanol and sugar.

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