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Author: TMFTheSnake Big red star, 1000 posts Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 897  
Subject: Re: CRESY earnings Date: 11/22/2011 10:32 AM
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kid

I finally got a chance to give CRESY a relatively thorough once over!

You are quite right about the debt continuing to pile up, and at the CRESY level I'm still worried about that. However, there is something to get happy about if you're still an investor, and that is the company appears to be gaining the favor of markets.

When it issued its Series III, IV, V, VI, and VII notes, they were for 21 and 24 months, but the latest issuance of notes for Cresud were 36 month maturity and didn't have the periodic principal payments that previous notes had.

Not a cure-all, but some light in this debt tunnel. As you pointed out, the dollar-denominated debt is still an issue for IRSA and APSA. Less so for CRESY because the prices for its produce is determined in dollars.

Further (somewhat) good news is that the debt maturities at IRSA and APSA have been pushed out mostly to 2017 and beyond.

but the other is revaluation of IRSA real estate holdings, with a resulting major loss (over $15 million USD). That's more troublesome.

This fair value adjustment was actually the value of options to buy more shares of Hersha at $3 per share. As the shares dropped from $5.74 at the beginning of the quarter to $3.46. Accordingly the value of IRSA's options collapsed. Since quarter-end the shares have rebounded to over $4, so we should see this charge reversed.

So the financial asset impact was really a couple of non-events. IRSA continues to grow its property portfolio and has been buying stakes in buildings in NYC to complement its BA portfolio. Its shopping centers are reporting higher rents and strong occupancy. However, lease income this quarter was down from a year ago due to less space and a 10% drop in rent rates.

BrasilAgro sold the farm it purchased (back in 2006) at a 153% gain (I calculate 125%, but there could be some FX impacts happening there) and is looking to pay down its debt a bit.

The strong crop prices helped both Cresud and BrasilAgro put up strong numbers (although the blending of the two this quarter makes comparisons tricky). With La Nina expected to flow through the region this year, we could have a tougher crop season, but with Cresud's geographic diversity, it may benefit as poor harvests will push up prices.

Obviously the combination of short-term debt and fluctuations in harvests and crop prices is something to be concerned about. However, as Cresud and BrasilAgro bring more land on line and up to modern agriculture standards, they should be less susceptible to climactic swings.

BrasilAgro is trading around book value and book value doesn't reflect appreciation in its land and is worth about $102m to CRESY. IRSA is at 1.2x book and worth about $374m.

Cresud's enterprise value is currently $1.8 billion or so. Backing out IRSA and BrasilAgro, we've got an EV of $1.3 billion. Spread that over CRESY's 1.3m acres and we get a valuation of about $1,000 per acre.

That is twice what we were looking at when the stock was first recommended back in late 2007, but still well below prices for farmland in various places around the world. However, we can't forget the uncertainty that comes from the combination of Argentina, debt, and crops.

I think you said it best, kid. "So much promise here, and so much risk."
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