Let’s begin today with a quick run through of the last 300 years of capitalism.
Don’t worry, it won’t take long. And it’s an important bit of background to the company I want to discuss. A company that wants to short cut 300 years of capitalistic development and go straight to the top of the business charts.
Stay with me - I think you’ll find this interersting...
How visionaries built the first fortunes
Pre-industrial revolution we were a nation of farmers and small business owners. It was the butcher, the baker and the candlestick maker (and yes, a bucket-load of serfs toiling the land too).
Over time, the more successful business owners merged and took over competitors. Business bods refer to this as horizontal integration. It was survival of the fittest... and a way of making plenty more money for the shrewd operators.
As capitalism progressed, the really ambitious types developed an even larger type of integrated business. Not content with horizontal integration, the likes of steel giant Andrew Carnegie or Standard Oil’s J D Rockefeller bought up businesses in the supply chain. Carnegie bought the mines supplying the iron ore, he bought the mills that processed it, the railways, the ships, and the coal mines too.
In the fullness of time most of these fantastic conglomerates eventually got broken up. But what’s important is that the empire builders had their day in the sun. Horizontal and vertical integration created giant fortunes for some.
And today we have the opportunity to invest in a business that’s hell bent on establishing a fantastic vertically and horizontally integrated behemoth.
Where? Well, in Africa...
An exclusive report from The Right Side
A one-company industrial revolution
Regular readers may already be familiar with Agriterra (LON:AGTA). It describes itself as a pan-African agricultural company with four divisions: beef, maize, coco and palm oil. And it has grown quickly over the last couple of years.
It’s had to. Given the lack of local infrastructure, this business is building its own. It’s vertical integration by necessity. Agriterra has already built a massive logistical division (trucks and helicopters) making it possible to reach its operations in even the most remote part of Africa. It has even won the concession to run its own port facilities in Guinea.
This is a business that started out simply. It bought grain from local subsistence farmers and processed it, allowing AGTA to store the grain and re-sell it as required. But from there, it’s grown massively both in scale and scope.
It started an animal feed business using the by-products from milled grain. But without a significant animal farming industry to sell the feed to, they had to develop their own. And from animal husbandry, they’ve gone into the abattoir business too. Next, they aim to set up a chain of butchers to sell their wares. They call the strategy ‘field to fork’.
The company has also branched out laterally, through its purchase of a palm oil trading company in Sierra Leone. From there it aims to go into palm oil and cocoa production in West Africa.
This conglomerate-style approach is undoubtedly risky. Setting up the infrastructure has cost them tens of millions over the years. And figures out yesterday say that this year will be no different.
Make or break time for Agriterra
Yesterday the company released unaudited results (basically a pre-curser to the full report and accounts). I’ll go through the figures in full when they’re released in a couple of weeks’ time. But for the moment, investors will need to brace themselves. Basically, AGTA will report a loss of over $6m on turnover of $13.8m.
On the plus side, management sees light at the end of the tunnel: “During the period, investment in the capital and operating infrastructure has been significant and the Board believes it now has the foundation in place from which to raise profitability and further enhance shareholder value.”
Well, let’s hope so!
Another bright side is that the company should at least be flush with cash. As per my latest note on AGTA, the sale of some old oil assets loitering on the balance sheet should release upwards of $50m. Now, bearing in mind that’s about what the company is currently worth (market cap £34m), then there are reasons for hope.
The AGTA business model is no doubt risky. It took decades for the bold capitalist visionaries to build their conglomerates. And even then, they were operating in countries with a significant business infrastructure.
And here is a team trying to build an agricultural conglomerate in just a few years… in a place that it often feels like time forgot.
If these guys can pull it off, then it could be transformational for many local economies in Africa. And more importantly, it could also make a fantastic payback for investors.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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