Knobias Clip Report (02-25-2008)
Submitted By Knobias ClipReport
Chinese Agricultural Names Release Updated Guidance
Chinese agricultural names popped on the screens of many traders following news reports from two in the industry. Agria Corporation (GRO), an innovative China- based agri-solutions provider, announced that the Company expects revenues for the fourth quarter of 2007 to reach the high-end of prior guidance.
Prior guidance for revenues for the fourth quarter of 2007 was between approximately RMB 238 million (US$ 31.8 million) and RMB 253 million (US$ 33.8 million), representing year-over-year growth in the range of 60% to 70%, respectively, compared to RMB 149 million in the fourth quarter of 2006. Growth was led by strong corn seed sales, as the fourth quarter is typically the strongest period for this segment due to the annual harvest and sales cycle.
The Company also noted that the recent winter storms did not materially affect their operation in Shanxi, did not cause any material increase in breeding sheep deaths and should not impact their seedling business. The impact was confined to transportation and shipment problems across China.
Following the guidance announcement, shares of GRO gained 9% on heavy volume.
The other China Agricultural name that saw increased attention was Ag Feed Industries, Inc. (FEED). The Company is a market leader in China’s premix animal nutrition and hog raising industry. On Monday, they announced that it had entered into definitive agreements for $41 million in financing advised by its financial advisor, Deutsche Bank Securities Inc. A closing of the $41 million financing was anticipated for Thursday.
AgFeed offered a total of $22 million in newly issued common stock at $9 per share under its Form S-3 Registration Statement, plus an additional $19 million in a three year, 7% bond convertible into common stock at $10 per share with 20% warrant coverage at a strike price of $10 per share. The Company noted that they would use the offering proceeds to expand its two business lines — premix animal feed and hog raising. AgFeed intends to acquire multiple hog farms and expects to further expand its premix feed distribution network in 2008.
The Company also announced guidance. Total revenue was estimated to be around $135 million, an increase of approximately 275% from 2007. Net income was expected to be between $30 million and $33 million with EPS of 96c to $1.10. After the announcement, shares were up almost $1 before falling to $10.73 and closing up 2%.
With the food shortages in China exacerbated by the winter storms along with the upcoming Olympics, these names are certainly a couple to watch over the coming months.
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