Despite strong demand for agricultural machinery, Kverneland's management have failed to turn strong top-line growth into rising margins. This appears to be due to capacity constraints and labour shortages - partly caused by a failure to take account of rising demand during recent restructuring programmes. Without margin expansion, the valuation case no longer stacked up and we sold the shares.
Norwegian listed Kverneland is a leading manufacturer of agricultural equipment. It has the number one position in ploughs and a strong brand in seeders, bailing machines and grape harvesters. It has had an awful few years, with high energy and steel costs coupled with inefficient production. A two year restructuring process, which has reduced costs and head count is now coming to an end, which will drive up margins. In addition the company is an obvious beneficiary of higher agricultural commodity prices, as cash-rich farmers replace old kit. Its strong position in Eastern Europe, where a great deal of machinery needs replacing, is another boon.
| Sedol |
Type |
Price |
Date |
| 4498786 |
Sell |
NOK 10.00 |
06/11/2007 |
| 4498786 |
Buy |
NOK 10.3135 |
28/02/2007 |
|
