Examining how Agriterra Limited (LON:AGTA) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Agriterra is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its food industry peers.
How Did AGTA’s Recent Performance Stack Up Against Its Past?
AGTA is loss-making, with the most recent trailing twelve-month earnings of -US$5.0m (from 31 March 2018), which compared to last year has become more negative. However, the company’s loss seem to be contracting over the medium term, with the five-year earnings average of -US$6.6m. Each year, for the past five years AGTA has seen an annual decline in revenue of -0.3%, on average. This adverse movement is a driver of the company’s inability to reach breakeven.
Scanning growth from a sector-level, the UK food industry has been growing its average earnings by double-digit 12% over the previous year, and a more muted 6.2% over the past five years. This growth is a median of profitable companies of 20 Food companies in GB including Greencore Group, Premier Foods and Finsbury Food Group. This shows that whatever uplift the industry is deriving benefit from, Agriterra has not been able to reap as much as its average peer.
Given that Agriterra is not profitable, even if operating expenses (SG&A and one-year R&D) continues to fall at previous year’s rate of -11%, the company’s current cash level (US$3.5m) will still be insufficient to cover its expenses in the upcoming year. This is not a great sign in terms of operations and cash management. Although this is a relatively simplistic calculation, and Agriterra may continue to reduce its costs further or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the Agriterra’s operation is, and when things may have to change.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that incur net loss is always difficult to forecast what will occur going forward, and when. The most valuable step is to assess company-specific issues Agriterra may be facing and whether management guidance has regularly been met in the past. I suggest you continue to research Agriterra to get a more holistic view of the stock by looking at:
- Financial Health: Are AGTA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.