long tandou
TRANSCRIPT
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1. Excellent high-quality business with strong
financial position and growth
2. Asset Undervaluation of 31% with large upside
3. Good dividend yield of 2.04%
4. Small-cap potential
5. Growth through land acquisitions and
operational improvements
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Well-diversified water, cropping and pastoral operations and agribusiness services
1. Farming: 56% of revenues 8800 hectares of cotton area, 5000 hectares cereal planting
area in Australian Murray Darling Basin
Future cotton prices favorable
average yield increased to 10.2 bales/hectares: +14%
6% EBIT increase due to record harvest
2. Water: 44% of revenues › One of the largest water portfolios (55 ML) in Murray Darling
Basin › No new licenses to be issued 30% of entitlements by 2019
› 14% EBIT increase
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$2 billion market in Australia,
Worldwide: -3.5% decrease in production, +7% in crease in demand positions Tandou to benefit
US cotton acreage declined due to lower prices and
focus on corn/soybean production
Drought in US decreased harvest yields
Cotton price offers upside
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$27 billion market with the only large-scale trading
system of limited number of water entitlements
10-year drought caused government to start
buyback program
Supply constant and demand growing
Water entitlements will continue to increase in
value
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TAN outperformed ASX 200 index and
competitors
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Revenues increase of 34%
EBIT increase of 12%
NOPAT increase of16% increase
EBIT margin increase of 12%
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Little debt: D/EV 0.13
High liquidity: current ratio 2.8
EBIT/Interest Expense 10.2
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Fair Value of $1.27 min. 40% return
80% return over 2 years
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Commodity price risk negligible due to
strong demand and decreased supply
Currency risk low due to Tandou’s
hedges
Little market risk with a beta of 0.49
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Dividend yield of at least 2/3 of dividend yield of AAA bond: 2.04%>1.92%
Share price of no more than 2/3 of tangible book value: P/B 86%
Total debt below book value : D/E of 0.13
Current ratio of two or more: 2.8
Earnings have more than doubled in the past 10 years: $1.4 million in 2009 to $6 million in 2013
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Total Enterprise Value
Total Equity
Value
Terminal Perpetuity Growth
Rate
Terminal Perpetuity
Growth Rate
2.5% 3.0% 3.5% 2.5% 3.0% 3.5%
Discount 6.0% $107.6 $123.6 $146.2 Discount 6.0% $71.7 $87.8 $110.3
Rate 7.0% 83.5 92.6 104.2 Rate 7.0% 47.7 56.7 68.3
(WACC) 8.0% 68.4 74.1 81.0 (WACC) 8.0% 32.5 38.2 45.2
Implied Terminal
EBITDA Multiple
Total Price
Per Share
Terminal Perpetuity Growth
Rate
Terminal Perpetuity
Growth Rate
2.5% 3.0% 3.5% 2.5% 3.0% 3.5%
Discount 6.0% 10.9x 12.8x 15.4x Discount 6.0% $0.91 $1.11 $1.40
Rate 7.0% 8.5x 9.6x 11.0x Rate 7.0% 0.61 0.72 0.87
(WACC) 8.0% 6.9x 7.7x 8.5x (WACC) 8.0% 0.41 0.49 0.57
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Acquisitions of water and land assets worth more than $32 million and $25.2 million equity raising
demonstrates TAN’s confidence
Projected upside of cotton price enhances return
prospects
Reduction in water entitlements and dryness
increases value of water entitlements
Fortune 500 experienced management team and
new Board member contributes expertise creating
value growth from agricultural assets & operations
18% stake purchase by investor with expertise in
agricultural assets
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1. High-quality business with strong growth,
improvements and outperformance of
peers
2. Excellent track record of management
and recent addition of expertise
3. Good dividend yield of 2.04% and
diversification
4. Small-cap lack of coverage positions SCM
to benefit from mispricing
5. Asset Undervaluation of 31% with large
upside