MIDAS SHARE TIPS: Reap rewards from Cordiant loans to fruit farmers

UK consumers munch their way through more than 650million avocados every year – almost two million a day. Most come from Peru and Chile, which also produce piles of the blueberries, grapes, oranges and mandarins found on our supermarket shelves. 

Russia and Ukraine may be known as the breadbasket of Europe, but Latin America is the world’s fruit bowl. Blessed with warm climes and fertile land, the continent exports tons of fruit and vegetables annually, as well as coffee, sugar and crops such as soy, corn and millet, which are key constituents of vegetable oil and animal feed. 

As such, agriculture plays a crucial role in the Latin American economy and is expected to continue in that vein for the foreseeable future. Fortunately too, trade ties between the UK and South America date back for centuries. 

Cordiant Global Agricultural Income will allow investors to take advantage of Latin America’s bounty and help farmers to grow more with less. The group is listing on the stock market early next month, targeting a 4 per cent dividend yield in the first year, rising to at least 6.5 per cent by 2024. Share price growth should take annual returns to at least 10 per cent, making this flotation well worth a closer look. 

Cordiant managers have been investing in Latin American agriculture for years, focusing on Brazil, Mexico, Chile and Peru. Over that time they have come to understand how the market works and where the opportunities lie. 

They discovered that many farmers, even those with large estates and multi-million-dollar turnovers, find it hard to access the cash they need to expand. In the past, these large, established producers would rely on banks to finance their growth, but long-term loans have been in short supply since the financial crisis. 

This is where Cordiant steps in. The group lends money to farmers to help them become both more efficient and more sustainable.

The firm intends to focus on farms with an established record, multi-generational expertise and extensive tracts of land – some as big as Manchester.

With Cordiant funds and advice these farmers can construct clever ‘drip’ irrigation techniques, which reduce water use by around 90 per cent and can almost double yields per acre. 

They can acquire kit to convert by-products into energy, buy low-emission machinery and adopt precision farming, which uses technology to boost yields in an environmentally conscious way. 

Loans will range from $5 (£3.80) to $50million, though most will be around $25million to be repaid over four to seven years. Demand is substantial so Cordiant can afford to be very choosy, turning down many more requests than it accepts. 

With a team of about a dozen on the ground, Cordiant will also keep a watchful eye on creditors, to make sure they are using their money wisely. 

In addition, the group will only lend to farmers who have end customers in place, from huge trading groups such as Cargill in the US to supermarket chains including Sainsbury’s, Waitrose and Lidl. 

Cordiant will start out with eight loans worth more than $115million, but managers have identified a pipeline of almost $1billion so they should be able to lend out the proceeds from the float pretty swiftly. 

Global trade in crops is conducted almost exclusively in dollars so Cordiant is offering its shares at $1 each and hopes to raise $300million. Investors will also receive one bonus share for every five they buy. 

MIDAS VERDICT: Food prices were already soaring before the Ukraine war. Looking ahead, further increases seem inevitable. Cordiant Global Agricultural Income has been set up to help farmers increase supply, while keeping costs low. 

Over time, that should feed through to more stable prices in the shops. And in the shorter term, Cordiant offers investors access to the agricultural sector, generous dividends and the prospect of steady share growth. At $1, the shares are a buy.  

To be traded on: Mainmarket Ticker: CAI Contact: cordiantagtrust.com or 02081585829