With investments of ca. BGN 60M since inception and favorable leasing conditions, ELANA Agrocredit’s lean business model is successfully financing small farmers. With strong demand for land and expected ongoing land appreciation in Bulgaria, it is set for growth, at the same time delivering higher than market’s average yields for its investors.
This is what ELANA Trading analysts say in their latest research report.
Lean business model
ELANA Agrocredit operates a lean business model extending lease financing to local small to mid-sized farmers for agricultural land purchases. Leases are due up to 10 years, with 20% down payment, the acquired land serving as collateral. The latter limits default rates downsides as land is disposed of straight away in case of default with the down payment acting as a loss cushion. The Company also extends short-term working capital loans, thus profiting on its clients’ ongoing farming needs (fertilizers, seeds, etc.).
Growing market and demand for land
Current market is driven by demand from farmers as land prices are appreciating much faster compared to rents, making land purchase a preferred option for farmers. Additionally, intensive farming and return to forgotten, yet traditional for Bulgaria crops such as etheric and bean crops (areas dominated mainly by smaller farmers), will further drive ELANA Agrocredit’s growth in the upcoming years, expect ELANA Trading analysts.
With business expanding fast and with invested funds verging ca. BGN 60m as at Q3’18 end, ELANA Agrocredit successfully raised BGN 19.5m in a SPO in Apr’18, to further its development as planned. The fresh capital will enable the Company to boost its growth, with proceeds to be fully invested by mid-2019. Looking ahead, it is to follow a lean financing scheme with debt financing backing up growth till 2021 before the next capital hike. Management guidance points to financing deals for BGN 15-18m per year until 2023.
ELANA Agrocredit’s structure mirrors REIT, ensuring a guaranteed annual dividend return, distributing 90% of annual profits. Paying average BGN 0.07 per share, the Company is in top 3 in terms of dividend yield, delivering 7.7% dividend yield in 2017, and 4.7% on average for the past 5 years. After having almost doubled its capital, the Company is expected to distribute ca. BGN 0.054 DPS in 2018, with projections for 2019 and 2020 pointing to BGN 0.069 and BGN 0.088 DPS, which at current quotes yields 6% to 7%.