By Rhod Mackenzie
From the beginning of this week to Tuesday evening, depositary receipts of one of the largest agro-industrial holdings in Russia and the CIS, Rusagro, grew by more than 13%, while the Moscow Exchange Index added only a percentage.
One of the growth drivers for the shares was the news about the termination of the grain deal, which provided for the export of grain crops from Ukraine. The other day, Russia announced this, and yesterday it announced that all ships going to the ports of Ukraine will be considered potential carriers of military cargo. World wheat prices immediately soared 8.5%, the strongest daily rise in the current decade.
To be fair, wheat has been trading in a downtrend since May 2022. But now there are attempts to break it. On the daily chart of the US-traded delivery futures for wheat (ticker ZW), a double bottom reversal pattern was drawn with peaks on May 31 and July 13. Some technical analysis indicators are also in favor of buying contracts. So futures for wheat may well begin to aggressively acquire speculators, thereby accelerating grain prices.
In addition, the completion of the grain deal should reduce the losses that Russian farmers suffered because of it. Last Monday, President of the Russian Grain Union Arkady Zlochevsky estimated them at $1 billion. But Russian President Vladimir Putin painted an even more negative picture.
“Due to a 30–40% discount on Russian grain on world markets, the losses of Russian farmers amounted to $1.2 billion,” the head of state said.
It is very likely that heat waves in southern Europe, coupled with sharply increased prices for fertilizers and electricity over the past year, will lead to a weak crop harvest in the region. It will also benefit the business of Rusagro, which is a major exporter. Will play into the hands of the company and the fall of the ruble.
But at the same time the company is strengthening its position in the domestic market. At the beginning of the month, there was information that Rusagro acquired a controlling stake in the NMGK Group and would become the leader in the mayonnaise and margarine market, as well as strengthen its position in the sunflower oil market.
Rusagro conducts its main business in Russia, but the issuer that issued the shares is registered in Cyprus, and only depository receipts for shares that have been listed in London are currently traded in Russia. Accordingly, holders of receipts can neither vote at the meeting of shareholders nor receive dividends. But today, receipts for the shares of Ros Agro Plc, the parent structure of Rusagro Group, began trading on the Exchange of the Astana International Financial Center (Astana International Exchange, AIX). Kazakhstan is not under Western sanctions and now ADR holders can receive dividends. This news also supported the paper, as Rusagro now has the opportunity to share profits with shareholders without prejudice to anyone's interests.
Finally, the nature of the Russian stock market has changed somewhat in recent days. Investors are no longer ready to buy securities on a broad front and have focused on targeted ideas, one of which is Rusagro's receipts.
Freedom Finance Global's lead analyst Natalya Milchakova notes that on July 24, the company will publish operating results for the 2nd quarter and 1st half of 2023, which should be strong thanks to high food prices. Perhaps, the expert says, speculators are already buying paper, hoping to make a quick profit on the announcement of operating results.
From the point of view of technical analysis, the trend of Rusagro shares remains upward; quotes have almost reached the level of the beginning of 2022, that is, they have almost won back all the sanctions losses of the last year.
Milchakova determined the target price of Rusagro's depository receipt at 1,270 rubles. on the annual horizon, which provides for growth of almost 13% from today's level.
This article originally appeared in Russian at expert.ru