This week, we revisit an agricultural company making outstanding progress with two key crops in South America. When we last reviewed Peru’s Camposol, it was well on its way to becoming one of the world’s largest producers of avocados. Fast forward to 2015, and the company has achieved the title of the world’s largest avocado grower. It has also made significant inroads to becoming the world’s largest producer of blueberries. Camposol recently posted excellent results for its third quarter, due in large part to the sales of these two crops. Q3 2015 sales registered a healthy 19.9% increase year-over-year, and Q3 EBITDA was up a staggering 260% from Q3 2014. Camposol has strategically planned and executed and is now reaping the benefits. In fact, the company’s management sees solid growth over the next two years in volumes of avocados and blueberries without any significant additional capital expenditures. We think these short 13-month bonds, maturing in February 2017 currently indicating a yield over 40%, represent an excellent high yield opportunity relative to its risks, and we have chosen them for additional weighting in our high-yield managed global income portfolios, FX1 and FX2.
What Has Changed?
In 2014, Camposol decided to invest more than $140 million US into expanding its blueberry operations. In 2014, blueberries represented 3.57% of the company’s total sales. As of the company’s latest reported quarterly results (ended September 30,2015), blueberry sales have contributed 5.8% of total revenues for the nine months ending September 30, 2015.
As part of that expansion, the company planted an additional 500 hectares of blueberries, to add to its existing 200 hectares of blueberries. These additional hectares just started producing in August 2015 (the season runs from August to April). It appears the additional hectares of planted blueberries are paying off.
For Q3 2015, the net volume of blueberries sold increased 550% over Q3 2014. Also, blueberries are one of the highest margin products that Camposol produces. For Q3 2015, the gross margin for blueberries was an astounding 80.3%, with YTD margins also showing a healthy 67.4%. Also, another win for the company was announced in September, with Camposol becoming the first Peruvian company to ship blueberries to Canada. Camposol expects blueberries to account for as much as 40% of its profits this year. With much of the blueberry season still to come, Camposol has a good chance to post another excellent quarter in Q4.
About the Issuer
Camposol began operating in 1997 when it purchased the first land in the La Libertad region located in the north of Peru, 600 kilometers from Lima. In that same year, more land was acquired in the Chavimochic Special Project by means of a public auction. In 2009, Camposol worked successfully on the revision of its plans and strategies with the objective of adapting to new market conditions. As a result, the company decided to concentrate on increasing its avocado crop and introduced new products such as the red table grape, mandarin oranges and other fruit.
Today, Camposol is Peru’s leading agro-industrial company. It is the largest avocado grower in the world and will soon be the largest blueberry producer in the world. It is involved in the harvest, processing and marketing of high quality agricultural products such as avocadoes, asparagus, blueberries, grapes, mangoes, peppers, artichokes tangerines and shrimps. These products are exported across Europe, Asia and the United States. In 2014,Camposol’s products were exported to 51 countries, with a majority of products shipped to three markets; 43% of the company’s products went to the United States, 13% went to the Netherlands and 11% went to Spain. The company offers fresh, frozen and preserved products. It is the third largest employer in Peru, with more than 13,000 workers in peak season.
The company has more than 25,000 hectares between Chao, Virú and Piura; land located in the La Libertad and Piura regions in northern Peru. Just over 6,400 hectares are planted and currently producing. The CAMPOSOL agro-industrial complex consists of six processing plants, three of which are for preserved products, two for fresh and one for frozen products. Additionally the Company owns a fruit packing company (mangoes, grapes and others) and participates as partner in a similar operation in Piura.
Camposol’s Leading Revenue Generators
Camposol has three main product categories: fresh, preserved and frozen. In 2014, 61% of total revenues came from fresh product, 29% from preserved product and 10% from frozen products. Within these categories, some of the company’s leading revenue generators (for the nine months ending September 30, 2015) are avocados, mangos and asparagus.
As a country, Peru is the the fourth largest avocado exporter in the world. With 2014 avocado exports totaling 38,000 tons Camposol claims to be the biggest exporter of Haas avocados in the world. In 2014, Camposol led avocado shipments to the United States of $66 million, an increase of 82% over the first ten months of 2013. Representing 28% of total sales for 2014, avocados are also highly profitable, with gross margins of 52.4% for 2014. These figures have adjusted slightly for the first nine months of 2015, with avocados representing 26% of total sales with a gross margin of 49.8%.
Asparagus, the crop on which the company was founded, has also continued to perform well, both in the fresh and preserved categories. In 2014, this crop represented 24.4% of the company’s total sales revenue, with a gross margin of 21.4%. For the first nine months, sales of asparagus were 16.6% of revenues with gross margins of 20.1%. Mangos represented 10.2% of sales for the first nine months of 2015, with a gross margin of 34%.
Since our last review of Camposol, the company has continued to post solid financial results. 2013 was an excellent year for the company, with an increase of 26% in corporate sales over 2012, rising from $183.2 million to $231.2 million. In 2014, the company continued its growth trajectory, registering a 15.7% increase in sales and a 17.6% rise in terms of volumes sold.
More recently, Camposol posted an outstanding third quarter. Here are some highlights of the company’s results:
The volume of product sold during the quarter increased 15.6% from the same period in 2014.
EBITDA was up 260% from Q3 2014, mainly due to higher volumes and prices for avocados and blueberries and reduced selling, general and administrative expenses.
Gross profit increased 49%.
Sales increased 19.9% over Q3 2014.
Cost of goods sold decreased 6.2%.
The default risk is Camposol’s ability to perform. The company has continued to make solid progress in growing revenues over the past few years. Its recent focus on increasing its blueberry production and sales, a very high margin crop, has already had a positive impact as evidenced by its most recent quarterly results. With demand for fresh produce increasing in the United States and Europe, and increasing demand for both avocados and blueberries specifically, Camposol is ideally positioned to profit from these emerging trends.
There has been much in the news concerning the El Nino weather pattern predicted for this year. In the past, such weather events has had adverse effects on agricultural production in Peru. However, in a recent interview with Bloomberg, Samuel Dyer Coriat, CEO of Camposol reassured the public regarding the upcoming El Nino, stating that Camposol’s most profitable crops, including avocados and blueberries will have already been harvested before the rain gets stronger. In spite of this, the bond market has reacted negatively to this news and pushed its bond price down to this extremely high yield level. We think the yield more than compensates for this projected unfavorable weather risk.
The hardest risk to identify is the geopolitical risk. Since it is often difficult to understand many of the political changes in our own country, perhaps the uncertainties of changes in a foreign country become less formidable. With that in mind, it is our opinion that diversification into other countries and industries often serves to reduce risk. Our strategy here, as with other Yankee bonds, is to focus on unique or required services that can be seen as adding key economic value to the countries or communities with which is it associated. As one of Peru’s largest employers, Camposol contributes greatly to the economic base of the country. In addition, its fresh produce products provide healthful food for much of the United States and Europe.
These short, 13-month bonds have shorter durations and higher risks to other bond issues typically reviewed on Bond-Yields.com, such as Kemet’s 2018 Bonds Yielding 14% and the Dynagas 2019 Bonds Yielding 10.25%.
Summary and Conclusion
Camposol has shown steady growth in its revenues over the past few years. The company has made the decision to greatly increase its blueberry production within the last 18 to 24 months and the benefits of this decision are just beginning as indicated in its most recent quarterly report. Two of the company’s highest margin products, avocados and blueberries, have both shown excellent increases in volumes sold over the first nine months of 2015. With blueberries expected to contribute close to 40% of the company’s 2015 profits, it appears as if this trend is just beginning to pick up steam. These very short 13-month bonds from Camposol are indicating a yield that’s well over 30%, making them an astounding addition to our Fixed-Income1.com and Fixed-Income2.com high yield global income portfolios.
Issuer: Camposol S.A.
Yield to Maturity: ~40.4%
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Disclosure: Durig Capital and certain clients may have positions in Camposol 2017 bonds.
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