With 11% return since inception, ELANA AgroCredit reaps the profits from its lean business model of financing land-hungry farmers for arable land acquisition. In the new corporate profile of ELANA AgroCredit, analysts of ELANA Trading comment the company will perform as a bond-like investment getting steady, predictable profits from the ongoing land appreciation in Bulgaria, encouraged by EU funding for the sector. Next 5 years dividend to average 9%, predict the analysts.
Lean business model
ELANA Agrocredit operates a lean business model extending lease financing to local small to mid-sized farmers for arable land acquisition. It extends fix rate up to 10 years leases, with 20% down payment and acquired land as collateral. The latter limits the default rate negatives as land is disposed of straight away in case of default with the down payment as a loss cushion. It also extends short-term working capital loans thus profiting on farmers’ ongoing farming needs (fertilizers, seeds, etc.). All lending activity in line with agricultural year.
Growing market and demand
Double 2014-2020 EU agricultural subsidies vs 2007-2013 funding for smaller and younger farmers and rising land rents encourage farmers to buy rather than rent land. Thus, the company takes advantage of the rising land demand which pushed land prices up. Still, the latter remain 3x below EU average.
3900 ha of arable land funded, 1200+ deals, and BGN 22m+ leasing portfolio built in two years since inception in mid-2013. With a 2:1 debt to equity target, the company to double size and portfolio by end of 2017.
Lucrative investor return strategy
ELANA Agrocredit structure mirrors a REIT, thus ensuring a guaranteed annual dividend return. It is obliged to distribute 90% of annual profits. First dividend came in 2015 after first full year of operations and stood at BGN 0.062 per share. Upcoming 2015 profits’ dividend projected at BGN 0.049 per share thus cumulatively returning 11% to initial investors since inception. 2016 profit projection entails a BGN 0.10 per share dividend or 9.2% yield at current quotes. Dividends over the next 5 years to easily average 10% on the Bulgarian lev or 9% average fiver year DY at current quotes.