hi, for the profitability, is it comparable to previous year due to the one off gain of disposal (400mil) as well as the income from affiliate(In the past the income from affiliate has been negative)? I believe that if you were to remove the gain as well as income from affiliate, its margin only improve marginally due to price increase as well as cost saving.
Besides, i am just curious on the gain on RMI, based on its accounting policy, changes in fair value of RMI are recognized in earnings as a component of cost of goods sold, does it suggests that the higher profitability is mainly due to changes in inventory value instead of structural change in the company business model? My idea was that the volume didn't change much, so i would presume that their inventory increase was mainly due to revaluation instead of volume, am i right to say so?
It's likely a strategic buyer knew that Bunge's margins could be improved, so were willing to pay what seemed like a high multiple (14x), which in reality is a low multiple (7x) after improving/doubling the margins. If ADM runs at 5% margins, then buying BG at 14.6x/2% margins would be a great deal.
Which is to say, I think you're right that the market has not recognized the margin improvement and repriced appropriately. ADM saw the opportunity four years ago, and now that opportunity is reality for the public to buy.
Also would point to old write-up on numerous accounting issues / red flags. Long time ago (and new mgmt seems good) but similar concerns around actual translation of EBITDA/profits into cash flow https://valueinvestorsclub.com/idea/bunge_limited/2846607573
Nice write-up, especially on the potential business model transformation. Historical financials are extremely messy...generally a business that earns low returns on capital (barely 10%) and FCF is consistently negative. I get precedent transactions have traded on EBITDA, but curious what is your bridge on EBITDA -> FCF? What % do you think it converts going forward and what multiple unlevered EV/FCF is it trading at?
hi, for the profitability, is it comparable to previous year due to the one off gain of disposal (400mil) as well as the income from affiliate(In the past the income from affiliate has been negative)? I believe that if you were to remove the gain as well as income from affiliate, its margin only improve marginally due to price increase as well as cost saving.
Besides, i am just curious on the gain on RMI, based on its accounting policy, changes in fair value of RMI are recognized in earnings as a component of cost of goods sold, does it suggests that the higher profitability is mainly due to changes in inventory value instead of structural change in the company business model? My idea was that the volume didn't change much, so i would presume that their inventory increase was mainly due to revaluation instead of volume, am i right to say so?
Re: past buyout attempts by strategic acquirers
It's likely a strategic buyer knew that Bunge's margins could be improved, so were willing to pay what seemed like a high multiple (14x), which in reality is a low multiple (7x) after improving/doubling the margins. If ADM runs at 5% margins, then buying BG at 14.6x/2% margins would be a great deal.
Which is to say, I think you're right that the market has not recognized the margin improvement and repriced appropriately. ADM saw the opportunity four years ago, and now that opportunity is reality for the public to buy.
Also would point to old write-up on numerous accounting issues / red flags. Long time ago (and new mgmt seems good) but similar concerns around actual translation of EBITDA/profits into cash flow https://valueinvestorsclub.com/idea/bunge_limited/2846607573
Nice write-up, especially on the potential business model transformation. Historical financials are extremely messy...generally a business that earns low returns on capital (barely 10%) and FCF is consistently negative. I get precedent transactions have traded on EBITDA, but curious what is your bridge on EBITDA -> FCF? What % do you think it converts going forward and what multiple unlevered EV/FCF is it trading at?
This is great! I wasn't aware that you (Conor) were the author of Value Situations!