Shares digital

Landkom International (LKI:AIM) – 79.5p, stop loss 63.5p

SHARES SUMMARY

Leasing land in Ukraine to grow wheat and oilseed rape crops, and should tap into rising soft commodity prices. Trading update in March should provide another spark for the shares.

Business:

Wheat and oilseed rape farming

Vital stats:

Market value: £194.5 million

Historic PE 2007: n/a

Prospective PE 2008: n/a

Prospective PE 2009: n/a

Sector PE: 15.9

1-month relative strength: 37.3%

1-year relative strength: 43.1%

Yield 2008: n/a

NMS: 7,000

Spread: 3.7%

One of 2007’s more successful floats, Landkom’s shares have soared more than 50% from their 52p placing price. This is no coincidence. The company is setting up leased land in western Ukraine to grow wheat and oilseed rape for the food and biofuels market, a fertile area once known as the ‘bread basket’ of Russia. The Ukrainian government’s initial attempts to modernise the old collective farms was disastrous, with many plots too small to farm productively or profitably, while lack of capital was also an issue.

Landkom wants to address this by leasing large tracts of land and return them to their former growing glory, providing the necessary seed capital itself and source a workforce from the local population. Its plan will be to use about two-thirds of its landbank to grow wheat, with the rest used for oil seed rape. A key advantage of this strategy is that wheat can be harvested immediately after the completion of the rape harvest, thus maximising the use of the group’s capital equipment.

The results so far have been well ahead of original forecasts. Landkom successfully hedged the sale of 5,000 tonnes of oil seed rape at $537 in December, a significantly higher price than envisaged at the time of its November float. It has also exceeded its target of planting 10,000 hectares last year, and remains on track to bring another 50,000 hectares of leased land into its control by December this year.

The group is next due to update the market at the beginning of March, and this should reveal that the company is well ahead of schedule.

At the same time the increase in soft commodity prices should also benefit the bottom line as it will more than offset the impact of higher fertilizer prices. The company ordered tractors and combines before the IPO so that it will be able to plant and harvest all its land this year and next.

Landkom is also keen to act as a socially responsible employer, establishing a social assistance programme that has already aided a local nursery school, and more projects are planned as the company expands its operations locally. This brings obvious benefits to the local people, but it also curries favour with Ukrainian officials, a factor that should help ease any red tape problems.

No forecasts are currently in the market but this should change after its update goes public next month, a point at which the shares genuine value becomes clearer to investors. Barely at the start of its strategy, Landkom has the makings of a strong and long growth story and the shares are a good buying opportunity.

by: John Marshall