www.lonrho.com
Lonrho is a pan-African company with a diverse portfolio of investments focusing on Africa. Its investments range from primary infrastructure to transportation, support services, hotels and natural resources. The Company is focused on servicing Western investment and African business by investing in emerging sectors across Africa, creating hubs of business through key investments. Lonrho is re-establishing a significant presence on the African Continent through strategic investments across sectors in fast-growing African economies.
Lonrho: Set to harvest growth in strategically important African agriculture industry
Lonrho (LON:LONR) is well placed, with agriculture set to play an important strategic role in Africa’s economic growth, according to Panmure Gordon.
With a market value of around £200 million the specialist investment group is one of the bigger fish in the junior pond. That said it is planning to join the LSE Main Market at some point in 2011.
Essentially it is a growing Africa-focused conglomerate with assets spanning agriculture, infrastructure, transport and support services. It even has its own airline and a chain of hotels.
Farming already provides more than half of Lonrho’s revenue and of all its businesses it is expected to be the fastest to grow, as this essential industry takes an increasingly important role the continents development.
This morning Damian McNeela, analyst at Panmure Gordon, gave an upbeat assessment of the division in a research note to clients.
“Lonrho’s vertically integrated approach should allow it to capitalise on both the increased global and domestic demand for produce from Sub-Saharan Africa and the trend towards greater commercialisation of farming in the region,” he said.
The analyst stressed that agriculture has strategic importance for Africa’s economic growth, as well as for global food supplies.
He notes research from the United Nations that estimates that food production will need to increase by 70 percent over the next 40 years to sustain the world’s ever growing population.
Africa is expected to provide the bulk of this growth, given that 60 percent of the world’s uncultivated arable land is found in sub-Saharan Africa.
Indeed, the United Nation’s Food and Agriculture Organisation is forecasting that 26 percent more arable land will be cultivated in sub-Saharan Africa by 2030 - that’s around 70 million additional hectares being farmed in just under twenty years.
Clearly these are pretty big numbers, but what do they mean to AIM-listed Lonrho and its agriculture business?
Well first of all it already services a significant portion of the region’s existing agricultural infrastructure.
The two key businesses in the agriculture division are Rollex, a packaging and delivery company, and Oceanfresh Seafoods, a seafood producer with export deals in place with US wholesaler Costco as well as European retailers.
Overall Lonrho’s Agribusiness also features food production, cold storage, chilled logistics, processing, packing and distribution to global retailers.
It exports fruit, vegetables, fish and meat in European and American markets, as well as domestic markets in Africa.
Furthermore it also has other businesses which are likely to benefit from the industrialisation of farming in Africa - like its John Deere and and Komatsu dealerships in Mozambique.
McNeela’s research goes on to look at Lonrho’s wider prospects in sub Saharan Africa, a region the analyst believes is one of the world’s stronger emerging markets.
“The IMF’s regional economic outlook for Sub-Saharan Africa (SSA) published in October 2010 indicates that the region has fared better than other developing regions across the world and is set to continue to do so,” McNeela said.
He adds: “SSA’s growth is second only to Developing Asia.
“Lonrho remains strategically aligned with the region’s four key growth drivers of agriculture, resources, consumer-facing industries and infrastructure-related industries.”
Panmure Gordon rates Lonrho as a ‘buy’ with a 23 pence a share price target - which implies 27 percent upside from the current price of 17.25 pence per share.
“Lonrho reported 20 percent revenue growth to £107.8 million and divisional operating profit of £4.7 million in FY 2010.
“We are upgrading our Agribusiness operating profit forecasts by c85% to £13.3 million and £18.9 million in 2011 and 2012, respectively, to reflect the progress being made by Rollex and Oceanfresh.”
McNeela emphasises that his latest forecasts see the agriculture business driving the group’s operating profit to grow by an additional £6.4 million and £8.2 million in 2012 and 2013, to £39.9 million and £63.8 million respectively.
As such the analyst reckons that Lonrho will grow revenues by around 50 percent each year and it will achieve a massive 138 percent increase in divisional operation profit in the coming years - Compound Annualised Growth Rate between 2010 and 2013.
