Viterra Inc. has enjoyed a nice rebound over the past couple of years, but the prospect that Ottawa will pull the plug on the Canadian Wheat Board is making some investors salivate.
The company generates most of its income through grain handling and the sale of agricultural products, like seeds and fertilizer, mostly in Canada but also Australia.
Dismantling the wheat board, which currently has a monopoly for marketing wheat and barley in Canada, would open up Canada’s market and give farmers more choices for selling their grains. For Viterra, it means opportunity.
Right now, small grain handlers control about 30 per cent of the market in Canada, but some observers believe that they would have a tough time competing in a less-regulated market, and would likely run into the arms of a larger player such as Viterra.
That, along with increased efficiencies that an open market could bring, could translate into bigger earnings.
Keith Carpenter, an analyst at Canaccord Genuity, estimated that Viterra’s earnings would receive a boost of 6.5 to 9.5 per cent once the wheat board’s monopoly is gone.
That’s gravy on top of earnings that are already showing some strength. In its most recent quarter, Viterra reported a profit of 33 cents a share, up more than 30 per cent from last year and beating estimates.
But Mr. Carpenter also dangles another possibility in front of investors: A deregulated Canadian market would also make the company more attractive to other grain handlers looking to bulk up on foreign acquisitions.
This would be an interesting twist, given that Viterra has a reputation as an aggressive buyer. It used to be known as Saskatchewan Wheat Pool before a restructuring. Since cleaning up its balance sheet, it expanded its aspirations, entering the Australian market in 2009 through its acquisition of ABB Grain Ltd.
However, it isn’t hard to see it in the sights of another company. While big, Viterra is less than half the size of Bunge Ltd. in terms of market capitalization. And it is less than a quarter the size of behemoth Archer-Daniels-Midland Co.
Deregulation elsewhere has tended to coincide with a flurry of mergers and acquisitions. Canada might not be any different.