Seeking Alpha: Adecoagro - A Solid Operator With Argentina And Ethanol Risks

When I wrote on SLC Agricola (SLCJY.PK) a couple of weeks ago, it was just the first of a handful of Latin American farming names leveraged both to growing international food demand and rising farmland values in Brazil. SLC Agricola is not the only one that looks undervalued, though, as Adecoagro (AGRO) looks even more undervalued than SLC Agricola.

There are reasons for this undervaluation, though. For starters, a substantial percentage of the farmland that Adecoagro owns is located in Argentina - a country undergoing significant economic turbulence and a lot of uncertainty regarding financial/tax rules and regulations. What's more, while about 70% of Adecoagro's 2013 EBITDA is likely to be generated in the more stable country of Brazil, the nature of the business there (sugarcane and ethanol) is volatile in completely different ways.

All told, I believe Adecoagro is significantly cheaper than SLC Agricola, but that at least a portion of that difference has to be viewed as compensation for the significantly different risk profile. Even with some sizable haircuts to valuation, though, I believe Adecoagro shares are worth about $10, or 60% more than today's price. Investors considering Adecoagro need to be aware of the risk that flagging crop prices and rising global rates could significantly slow land value appreciation and/or that ethanol prices could reverse, but risk-tolerant investors may find the balance here still very favorable.

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Adecoagro - A Solid Operator With Argentina And Ethanol Risks