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Ukraine Agriculture Stocks Gain With Europe Trade Deal in Sight

June 13, 2014
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Ukrainian agricultural companies from Agroton Public Ltd. to Kernel Holding SA are rallying on speculation the government will reach a trade pact with the European Union that will help them boost exports.

The stocks are the best performers among 356 companies on the Warsaw Stock Exchange in the last five trading days through yesterday. Wheat and sunflower producer Agroton soared 18 percent in the past week for the biggest gain. Kernel, the largest Ukrainian company listed on the Polish bourse, surged 46 percent from a March low while Milkiland NV, a dairy producer with businesses in Russia and Ukraine, has advanced 42 percent in three weeks as the confrontation between the two countries eased.

Petro Poroshenko, who was sworn in as Ukraine’s new president on June 7, vowed to complete a trade agreement with the EU "soonest" as he battles pro-Russian rebels in the country’s easternmost regions. A Bloomberg index of the most- traded Russian stocks in the U.S. fell yesterday for the first time in nine days as Ukraine accused President Vladimir Putin’s government of allowing armored vehicles to cross its border to help separatists. Markets in Moscow were closed for a holiday.

"Better trade ties with Europe would certainly increase the value of one of Ukraine’s greatest assets: the quality of their farmland," David Riedel, president and founder of Riedel Research Group Inc., said by e-mail yesterday. "The country has the ability to be the breadbasket of Europe if given favorable access to markets there."

 

European Promises

 

The EU has promised Ukraine almost half a billion euros ($660 million) a year of trade relief, eliminating annual import duties on some Ukrainian agricultural goods. Kernel trades at 0.7 times its book value, the lowest ratio among its 15 global peers and less than one-third the average valuation of the group, according to data compiled by Bloomberg.

"Ukraine’s agricultural companies look very attractive at their current valuations as the industry should benefit the most from closer ties with Europe," Mattias Westman, who oversees about $3.6 billion in Russian assets as chief executive officer at Prosperity Capital in London, said by phone yesterday. "They should be able to increase exports significantly as demand is there and some trade restrictions are likely to be eased."

 

Barroso’s Commitment

 

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