Ricegrowers Limited – Value in This Agricultural “Co-op?”

I’m dropping by the old blog today to provide a quick look at an interesting situation in Australia. In early April, Ricegrowers Limited chose to list its stock on the Australian Stock Exchange for the first time. Ticker: SGLLV. Previously, class B shares traded on the National Stock Exchange of Australia, a somewhat obscure and inaccessible exchange with limited trading volume.

Ricegrowers Limited is the corporate parent of SunRice, a nearly 70 year old producer of many varieties of rice. The company has growing, packaging, and distribution facilities around the world. Historically, Ricegrowers functioned much like an agricultural co-op. Its shares were owned exclusively by rice producers and their affiliates and the company was run primarily to maximize the return to these grower-owners. While technically a corporation and not a cooperative or a mutual, the practical difference was small. With the ASX listing, Ricegrowers has chosen to allow non-affiliates to purchase its shares for the first time. The firm will now function as a truly public corporation and will

Ricegrowers’ financial results show a fundamentally decent business at work. Return on equity has average almost 12% over the last five years. (Averages are critical for agricultural producer like Ricegrowers. The results of any particular year are highly unpredictable due to growing conditions and global market demand and supply.) Ricegrowers does employ a decent amount of leverage, but most of its debt is cheap, seasonal debt used to smooth out the cash flow cycle associated with the annual harvest.

The reasons Ricegrowers intrigues me are two-fold. First, the company trades at a discount to book value despite adequate profitability. At a price of AUD 6.50 per B share, Ricegrowers has a market capitalization of AUD 381 million versus book value attributable to shareholders of AUD 416 million. Nearly all of this book value is tangible. Companies earning their cost of capital and still trading below book value are something of a rarity in today’s markets. Second, Ricegrowers is a company with plans! In conjunction with its ASX listing and removal of ownership restrictions, the company published a guide to its ambitious growth strategy. The company intends to double revenue by 2022, while maintaining a double digit return on capital. The full document is available here, but be warned, it’s quite the tome.

For the first time, investors can access one of Australia’s premiere agricultural companies. They are able to buy the company at a discount to book value at a time when the company expects to achieve significant growth while maintaining profitability.

Alluvial Capital Management, LLC does not hold shares of Ricegrowers Limited. Alluvial Capital Management, LLC may hold any securities mentioned on this blog and may buy or sell these securities at any time. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at info@alluvialcapital.com.

Alluvial Capital Management, LLC manages a value investing partnership, Alluvial Fund, LP. If you are a qualified investor and would like more information, please contact us at info@alluvialcapital.com or visit alluvial.capital.

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10 Responses to Ricegrowers Limited – Value in This Agricultural “Co-op?”

  1. The reason Ricegrowers share price was so low in the Newcastle Stock Exchange was that only rice growers could buy them. There were a number of people who wished to buy them but couldn’t.
    The other thing to consider is that the company has two classes of shares and the voting shares remain unlisted and can only be owned by Ricegrowers

    • otcadventures says:

      You’re absolutely right. The shares rallied quite a bit on the NSX in advance of the ASX uplisting. I think the reason shares have been relatively weak since the ASX listing is because for the first time, holders have liquidity for their shares. Hopefully this shakes out in a few months. As you mentioned, the company will continue to be controlled by growers as they own all the A shares. There are also ownership limitations on the B shares.

  2. Len Rosenthal says:

    This may be a unique company in Australia, but in New Zealand, Fonterra does the same thing with dairy milk farmers in New Zealand. The company has a huge dairy export business and its shares trade in both New Zealand and Australia. As with Ricefarmers, the company is controlled by the farmers, but their shares don’t trade.
    One issue with Ricefarmers as an investment is that rice is a very water intensive crop Besides drought in Australia, similar problems exist in California and other parts of the world. With global warming, growing rice will be a problem in the areas where Ricefarmers currently obtains their rices. On the other hand, they are not doubt working on better, drought resistant strains of rice, especially since rice is the basic foodstuff for so much of the world.

    • Len Rosenthal says:

      Sorry about using the wrong name for Ricegrowers. Len

    • otcadventures says:

      Great insights! Thanks! The company certainly has its challenges. Their diverse geography may give them an advantage in adapting to changing climate conditions.

    • Jason Ramage says:

      How realistic would it be to grow rice in an indoor hydroponic farm? A few of these are opening in the U.S. as commercial operations, selling to major grocery chains. They’re supposed to consume about 90% less water than outdoor crops.

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  6. Gediminas says:

    Thank you for the interesting introduction.

    I have noticed that Riverina yields have been quite low and company (cooperative) started offering its member growers fixed price/volume contracts that possibly run above market price. Do you believe this is a possible conflict of interest? I.e. branded business profits being used to support struggling Riverina growers, who indeed control the business?

    https://investors.sunrice.com.au/FormBuilder/_Resource/_module/2weQNICYSUy13FE_jxQXvg/file/presentations-webcasts/2018/Ricegrowers_Limited-2018-AGM-CEO-Presentation.pdf

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