Ceres Global Ag Corp. (TSE:CRP)

Ceres GlobalAg (TSE:CRP), a microcap Canadian agribusiness firm, is the owner of U.S. based Riverland Ag.  Riverland Ag is an agricultural grain storage company with 15 facilities (grain elevators) in 6 states and provinces. 

In preview, when I originally looked at CRP, trading at ~0.6x book value and holding a large cash stockpile, I thought I had a diamond in the rough.  However, a more thorough review raised warning flags.  Return on capital is low to say the least, and highly dependent on volatile commodity prices.  Also, a “hedge fund” ownership structure – where there are essentially two sets of management, creates a prohibitive amount of SG&A expenses – especially given the low return on capital nature of the assets.  Although I still think CRP has great long-term potential (and in full disclosure, I have a toehold long position in the stock), appreciation is dependent on management prudently deploying its significant cash stockpile – always a risky endeavor – and operating its facilities at the peak of historic earnings capability.  Can it be done – I say yes.  Is there a margin of safety in buying shares today – I say no.  To find our more, feel free to read on . . . 

Ceres Global Ag (TSE:CRP) 11/3/11 -

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