A Letter to Avangardco (AVGR:LN)

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accretion, activist investors, Avangardco, Cal-Maine Foods, corporate governance, eggs, enhanced EPS/NAV, free cash flow, intrinsic value, Iryna Marchenko, lowest cost producer, M&A, majority control, minorities, Nataliya Vasylyuk, Oleg Bakhmatyuk, P/E ratio, P/S Ratio, Return on Equity, risk aversion, share buyback, technical analysis, Ukraine, Ukrlandfarming

Here’s a copy of a recent letter to the CEO & CFO of Avangardco.

Note I’ve updated all figures, as appropriate, to reflect today’s $10.50 closing price – otherwise, the text remains unchanged. For reference, I’ll also include Word copies of the original below. The letter speaks for itself, and is also a great reminder to readers of AVGR‘s extraordinarily cheap valuation! So, without further ado:

‘November 05, 2012

FAO:

Nataliya Vasylyuk, CEO, &

Iryna Marchenko, CFO

Avangardco IPL

121 V Prospect Peremohy

Kyiv, 03115

Ukraine

Dear Nataliya & Iryna,

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Avangardco Eggcelerating!

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agri-business, Angry Birds, Avangardco, Chuckie Egg, eggs, IPO, Oleg Bakhmatyuk, platformers, trading update, Ukraine, Ukrlandfarming, US ADR program

Please see my recent Avangardco (AVGR:LN) post here. Since then, it’s been interesting to see Bakhmatyuk engaging more actively with the media, for example here and here. Definitely seems to be part of a gradual ramp-up to an IPO for Ukrlandfarming (Ukr) – looks like further news may even come as early as end-May. We still don’t have any real hard info, though, but I’m encouraged by positive noises to date from the company & Bakhmatyuk, and by his explicit pairing of Avangardco & Ukr (eggs & grain) in recent comments/interviews.

However, it’s obvious a significant number of shareholders (potential, or actual) will continue to view this as a stock negative until there’s a specific transaction & terms on the table to evaluate. Ironically, a counterweight to this might well be a potential Ukr transaction itself! The buzz & analyst/media blitz ahead of an IPO would be sure to generate plenty of good publicity/attention for Avangardco also. As I’ve mentioned before, fair/preferential treatment of Avangardco shareholders in a potential Ukr transaction is essential, and would provide valuable support to Bakhmatyuk in pursuit of his longer-term ambitions. Continued maintenance of a foreign listing‘s essential also (in London, obviously, but adding a US ADR program might be attractive eventually).

Avangardco – Eggsotic But Eggcellent!

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agri-business, Avangardco, Baker's Dozen, Big Bird, Black Earth region, Cal-Maine Foods, Cherkizovo, Cresud, eggs, Eurobond, hryvnia, MHP, Oleg Bakhmatyuk, Sprott Resource Corp, Ukraine, Ukrlandfarming

Avangardco (AVGR:LN)

I’ve recommended Avangardco in my Baker’s Dozen for 2012, but with their recent results and share price acceleration it’s time for a complete write-up. My Black Earth articles, here and here, are helpful background also. This Black Earth interest came about when I began i) seeking agricultural plays on the increasing global demand for protein as living standards improve around the world, which evolved into ii) identifying the most fertile farmland, generally accepted to be the Black Earth region of Ukraine & Russia and the Pampas of Argentina (followed by the Canadian Prairies), and iii) finding the cheapest (but acceptably fertile) farmland globally.

I was delighted to discover the most fertile farmland coincided with some of the cheapest farmland globally, a happy accident of history! I discarded Canada due to its higher cost (and the only farmland opp. I found was Sprott Resource Corp (SCP:CN), which is more of a commodity play). In Argentina, however, I discovered the perfect farmland (and property) company to invest in! Please read here, I now have a 2.8% portfolio stake in Cresud (CRESY:US). This left me with Russia & Ukraine: Farmland companies here have v large (and cheap) land holdings, but suffer from negative cashflows and the obvious need to raise cash from investors…