NEW YORK, March 02, 2004 (PRIMEZONE) -- The following is an investment opinion issued by Investrend Research Syndicate:
Fundamental Research Corp. maintained its ratings of Bevo Agro Inc. (TSX Venture Exchange:BVO) at "Buy -- 3 (Average Risk)" rating and fair value of C$0.95 after a review of its Q2 2004 results.
According to analyst Brian Tang, CFA, most of the company's lower than expected results for the quarter were due to temporary factors.
Other highlights mentioned in the initial report, available free at http://www.fundamentalresearchcorp.com/PDF/BVO2Q2004.pdf as well as www.investrendresearch.com include:
Q2 2004 sales declined 13.2% compared to the same period last year due to competition and order timing. The report notes that the decline in sales was entirely in Canada while U.S. and Mexican sales achieved growth of 8% (respectable considering the higher C$) and 69% respectively. The analyst's discussions with management indicate the decline in sales was due to a new entrant who undercut prices.
Temporary factors such as changes in the C$, a 107% increase in packaging costs, construction delays, and one-time financing costs led to a decline in margins.
Fundamental decreased its 2004 EPS and EBITDA estimates. Tang notes that most of the quarter's issues are temporary, and should resolve in the long-run. Fundamental revised 2004 EPS estimates downward from $0.06 on a fully diluted basis to $0.05. Originally they modeled the full benefits of expansion to start in Q32004 though they now revise full benefits to start in FY2005-2006. 2005 estimates remain unchanged. Fundamental continues to value BVO on comparable EV/EBITDA multiples for the Hot House Grower's Income Fund (TSE:VEG.U). They note that the unit price has increased to $11.90 versus $11.05 when they initiated coverage of BVO on January 7, 2004. This implies a trailing EV/EBITDA of 7.67 for VEG.U. However, the increase in the multiple is offset by decreased EBITDA estimates for 2004, and thus, they left their target price of $0.95, BUY rating, and risk-rating 3 (average risk) unchanged.
Fundamental notes that it still believes the company will reward investors in the long run given its unique industry position, fundamentals, and positive outlook for the vegetable/greenhouse industry.
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The fee for Fundamental's standard coverage is $25,000, and the fee is being paid by the company.
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