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Emerging Markets Stock Writeups |
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We have bought back into Agnico-Eagle. Since we sold out over a year ago, the company has acquired two new mines and the prospects look good for both. The company plans no more equity issuance and its gold is completely unhedged, making it a great play on rising prices. With the dollar set to weaken further, and increased uncertainty on the global financial outlook, the prognosis for the yellow metal is good.
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The stock was sold as it hit our revised (-down) target price. Although the company is growing strongly, margins aren't expanding as fast as we had expected as cost pressures rise. We were struggling to square the circle on valuations, hence we've exited. AMBEV (ADR). Formed by a merger of Brazil's two largest breweries, Ambev is now one of the world's top five brewers. It dominates the Brazilian beer and soft drinks markets, has a strong position in Argentina and, through its ownership of Labatts, is number one in Canada. Latin America is the fastest growing beer market in the world and management have a fantastic record of controlling costs and driving up profit. The combination of surging revenue and rising margins makes the stock a buy.
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Despite talk of restructuring, intensifying competition on lending and the exposure of their Investment Banking division to a global slowdown will mitigate the benefits. It was clear from discussions with management that the huge amount of global liquidity inflows in Asia is ensuring supply of loans exceeds demand. As a result margins are under pressure and we cut. AMMB is Malaysia's 5th largest bank by assets, and has the largest exposure to the growing auto loans business in Malaysia. It also has the 2nd largest share of corporate and investment banking, and hence is well positioned to profit from Malaysia's corporate restructuring. Further catalysts come from the reduction in provisions, which have in recent years crimped margins. This process will be accelerated by the investment in AMMB by ANZ bank, as this capital infusion can be used to increase what the bankers call the "coverage ratio", i.e. the amount of money set aside against bad loans. Further, ANZ will bring added resources and expertise. The expected margin improvements give the share 29% upside to our target price.
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Australian Agricultural Company is now faced with very negative headwinds. A strengthening Australian dollar is hurting imports, while continued drought is depressing cattle prices; finally rising feed costs are also hitting margins. The company is now fully valued so we exited. Australian Agricultural Company is the world's largest beef producer, with a herd of over 550,000 cattle and a land bank the size of Ireland. During last year's drought the company consolidated its position by buying up the smaller herds of cashless farmers and began to move into the premium-branded beef market. With beef prices on the rise and costs being well contained, 2007 should be a good year. The value of the cattle and land alone justify the share price. In addition the company has a strong position in the Japanese market and it will be a beneficiary of any yen strength.
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