Famed corporate raider Sir Ron Brieley’s old investment vehicle Guinness Peat Group (ASX: GPG) has continued its portfolio sell-down, offloading its long-held 19.5% stake in agricultural feed producer Ridley Corp (ASX: RIC) to California-based private equity firm AGR Partners. GPG shareholders have pocketed approximately $54 million from the sale, which was conducted at a premium to the trading price of Ridley shares at approximately 90 cents per share (cps).
At 90 cps, this equates to a price-to-earnings (PE) multiple of roughly 11.25 times forward earnings and provides an insight for investors as to the value strategic investors are willing to pay for agricultural assets.
Graincorp (ASX: GNC) provides another point of reference. Graincorp is in the process of being acquired by Canada-based Archer Daniels Midland. At a takeover value of $13.20, the PE multiple is nearly 13 times last year’s earnings.
So who will be next?
AGR Partners now effectively has a blocking stake, so shareholders will have to wait and see what the next move is at Ridley. Another stock that could come to the attention of strategic buyers is Tandou (ASX: TAN).
GPG also owned a substantial stake in Tandou, which it sold earlier in the year. Tandou looks relatively cheap on less than 10 times earnings; however, it is more appropriate to value the business on its asset base. With a December net tangible asset backing of 53 cents compared with a current share price of 42 cents there is a small discount, but as a primary producer with significant exposure to the weather, this discount may be deserved.
Toowoomba-based PrimeAg (ASX: PAG,) like Tandou, owns water rights and rural properties, however with its share price having consistently traded below net tangible assets, the PrimeAg board has recommended the wind-up of the business to return value to shareholders.
The agricultural sector is certainly hot at the moment, with plenty of interest from overseas buyers. The potential for alert investors to profit from “takeover arbitrage” opportunities within the sector is definitely real and can be a smart way to invest a portion of your portfolio, particularly as cheap stocks get harder to find.
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