Bunge Jump Redux
Valuing the combined Bunge+Viterra business
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Following an operational restructuring led by CEO Greg Heckman, BG was fundamentally mispriced by the market relative to public peers (~6.6x EBITDA vs. 10x for ADM, and 11.5x for Wilmar International,WIL at the time), and compared to the private market valuations of comparable companies (~10x- 11x);
As a result, BG represented a compelling, undervalued way to play the emerging food inflation/crisis theme in early 2022; and
BG was an event-driven situation-in-waiting, being a takeover target given the combination of its undervaluation and its favourable fundamentals and positioning in an inflationary environment, and the fact that it was previously a takeover target of both Glencore (controlling shareholder of Viterra) and ADM.
I originally valued BG at ~$173/share in my Base Case scenario, which to date has not come to pass in terms of a market re-rating; the stock did reach a ~15 year high of $126.76 in April 2022 during a period of extreme volatility in food and energy-related commodity markets following Russia’s invasion of Ukraine. However, it subsequently sold off through the summer of 2022 amid market calls of peak inflation and a rolling over in commodity markets. Since then, the stock has been range-bound, trading between $82 - $100/share, and only recently broke above the $100 level in July. At the time of writing, BG is trading at ~$114.40/share, just shy of its closing 52 week high of $115.98 reached in August.
However, the event-driven angle that I identified previously has started to play out to some extent, as I discuss below.