IMC
Recommendation*: Buy 12M TP*: PLN 22.56
During 2022 harvest campaign, IMC S.A. harvested:
- 121.9k tonnes of winter wheat (yield 6.7 t/ha, +18% compared to 2021)
- 64.2k tonnes of sunflower (yield 3.4 t/ha, -3% compared to 2021)
Harvesting of corn - the main crop of IMC (42% of the Company's land bank was under corn in 2022) is in progress. As of February 1, 2023, 70% of the area under corn has already been harvested. Corn yield nudged up slightly to 10.7 t/ha (10.6 t/ha in 2021).
In the autumn 2022 the winter wheat was sown on an area of almost 33,000 hectares, which is 80% more than the traditional area under winter crops at the company in previous years. All sown winter wheat has sprouted and currently is in good condition.
Currently the Company is preparing for the spring sowing campaign 2023, all the necessary inputs are being purchased, and agricultural machinery is being repaired. In the spring of 2023, IMC plans to have 100% of its land bank sown (120,000 hectares).
Due to Russia's full scale invasion in Ukraine on February 24, 2022 and blockade of marine export routes IMC’s sales volumes of grain and oilseeds decreased by 35% in 2022 to 483k tonnes from 743k tonnes in 2021
In 2022, the Company had to develop alternative export routes through the western borders of Ukraine, but they could not fully compensate for the volume of exports through the Black Sea ports of Ukraine. Therefore, during the first three months after the resumption of exports (May-July 2022), IMC exported on average about 14k tonnes of grain per month, compared to 70k tonnes on average per month in pre-war times.
In August 2022, exports through the Black Sea in Ukraine were partially resumed (on 22 July 2022, Ukraine, Turkey, the United Nations and the Russian Federation, signed the Istanbul Grain Agreement enabling to unblock grain exports from Black Sea ports of Ukraine), thanks to which the Company managed to increase the volume of grain shipments and reach almost the pre-war level (in December 2022, IMC shipped about 66k tonnes of grain and oilseeds, and in January 2023 grain and oilseeds shipments reached over 99k tonnes).
Our view: NEUTRAL
With regard to production numbers, thanks to the 17% beat of our expectations on winter wheat yield, the final crop may turn out 20kt higher than we expected. The same applies to 4Q22 sales, which were 12% higher than our assumptions for the 4Q22e previews. In terms of financial results, it may not have considerable impact due to the proportional allocation of costs stemming from its recognition mostly in 2Q22, nonetheless cash flow-wise the higher volume sales may bring about additional USD 4mn of cash which is vital in the current circumstances.
On the other hand, we highlight that some military pundits indicate high risk of second Russian attack in the Kharkiev region, which sits near IMC’s assets. If another front would open to the West of Kharkiev (in the Poltava region) it may pose a risk of operational disruptions to IMC and other Ukrainian companies activities, in our view.
*Recommendation and target price from our report dated 16 September 2022
Krzysztof Koziel, CFA
krzysztof.koziel@ pekao.com.pl
