Patient investors might like to take a debut stake in pan-African crops-to-cattle counter Agriterra (AGTA:AIM) ahead of the market share gains expected to drive an eventual move into profits. Rising beef demand in Mozambique and a global cocoa shortage are among the favourable trends that should foster share price upside at the £26.9 million cap.

Chaired by former England cricketer Phil Edmonds, Agriterra’s key divisions carry out everything from cattle ranching to cocoa trading and plantation development to maize farming and milling. In Mozambique, its expanding ‘field to fork’ beef operation integrates ranching, feedlot, abattoir and beef retail operations, a model designed to maximise margins.

Burgeoning beef demand across Sub-Saharan African and Asian economies underpins the division’s long-term prospects as consumers increasingly adopt western diets. February’s half-year statement could contain a positive update on cattle processing volumes as well as Agriterra’s growing presence in the beef retail market.

Also within Mozambique, Agriterra operates a cash-generative maize buying, processing and farming operation which is grabbing market share and enjoying improved pricing. Margins have scope to improve due to increased demand for maize meal, an African staple used in foods ranging from pancakes to porridges and also as livestock feed.

Another string to Agriterra’s bow is its cocoa operations in Sierra Leone, where it is developing the country’s largest plantation. Commercial production and a sustainable source of the commodity will come onstream from its 3,200 hectare site from 2016 at a time when shortages may become more acute as chocolate sales test new highs. Agriterra’s ownership of 45,000 hectares of brownfield agricultural land suitable for palm oil production in Sierra Leone adds further potential to the story.

Full-year results (4 Nov) to end-May revealed a 54% jump in sales to a record $21.2 million, although the firm stayed in the red as it completed the final 12 months of a three-year investment drive. The $28 million sale of a legacy oil business in Ethiopia means Agriterra has a strong balance sheet with which to support its expansion plans and the company could bank another $10 million before tax in the event of a commercial discovery on those hydrocarbon assets.

Joint broker MC Peat & Co believes Agriterra’s top line can grow by more than 70% to $36.5 million by May 2016 and help cut adjusted taxable losses from $8.7 million to $1.2 million. The broker’s 4.6p price target, based on a sum-of-the-parts calculation, implies the shares could nearly double from current levels.

Agriterra is not without its risks but the long-term investment case for agriculture is compelling and risk-tolerant, patient investors might like to take a stake at 2.4p.

SWOT ANALYSIS

STRENGTHS

• Experienced management team

• National government support

• Net cash balance sheet

WEAKNESSES

• Loss-making

• Sensitivity to weather

• Needs critical mass

OPPORTUNITIES

• Rise of African consumer

• Further product diversification

• Market share gains

THREATS

• Political risk

• Commodity price volatility

• Extreme weather