Buffett Buying Land in Brazil?

[Parsad]

Article in Forbes discussing the possibility Buffett is buying land in Brazil, and the rapid improvement in farming techniques and yield over there.  Cheers!

 

http://blogs.forbes.com/kerenblankfeld/2010/09/02/is-billionaire-warren-buffett-buying-up-land-in-brazil/?partner=yahootix

[rick_v]

It would be easier to Gobble CRESUD which owns a subsidiary that farms in Brazil. I own some CRESUD it has been a terrible performer, Alejandro Elzstain has proven to be terrible when it comes to minimizing stock issuances. I did make a ton on IRSA though which is another Elzstain company (IRS:US).

 

If Buffet acquired CRESUD he could inject more capital and utilize their expertise to grow the land under management.

 

I would say though that at first glimpse this entire deal does not seem like something Buffet would do so it may just be some Brazilian characters trying to spike up interest for their lands!

[tiddman]

Brookfield Asset Management (BAM) and their subs have a big presence in Brazil. They own land, commercial and residential developments, hydro power, and some other assets.  I think they are the largest operators of shopping malls.  They have a long history there dating back decades, the former name of the company was Brascan which stood for "Brazil-Canada".

 

Buying BAM exposes you to a lot of things besides their Brazil assets, but by poking around you could find their REIT's, trusts and other publicly traded entities with more direct exposure.

 

Brazil has a history of high inflation, unstable currency, and the occasional economic collapse, but about 10 years ago they seem to have gotten their house in order.  Their interest rates have always been very high (reflecting high inflation) but in April 2008 their debt was raised to investment grade for the first time.  Since then rates have come down, foreign investment has increased, as has the ability to finance assets.  This is driven by a very strong export economy.

 

You may recall that the Brazilian Real was among the currencies that Buffett bought a while back when he was hedging against the US Dollar, and I think this was the last of the batch to be sold.

 

Another way to play this is with Brazil Fast Foods (BOBS on the bulletin boards), a large (for Brazil) hamburger chain there.  The company's history is a saga similar to that of the Brazilian economy and makes for very interesting reading.

[rogermunibond]

http://translate.google.com/translate?js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&sl=auto&tl=en&u=http%3A%2F%2Fportalexame.abril.com.br%2Fnegocios%2Fnoticias%2Fwarren-buffet-compra-terras-brasileiras-593029.html

 

Google translator link to the original article from Exame.

 

 

[tiddman]

A little off topic but here is a synopsis of BOBS that I wrote in another forum recently.

 

BOBS is the 2nd largest burger chain in Brazil, second to McDonald's.

 

The Brazilian economy has a very colorful 20 year history including high inflation, unstable currencies, dictators, and general chaos.  Recently the economy has stabilized, it missed the worst of the global meltdown because leverage was basically unavailable, its debt is now investment grade, they are running a trade surplus, interest rates are dropping, and investment is increasing.  Brazil has a young, increasingly affluent population.  The Brazilian Real was one of Buffett's currency bets and one of the last ones he sold.  My view is that Brazil will continue to stabilize and become a reasonably productive economy.  Fast food has low penetration in Brazil, and if the trends that have taken hold elsewhere in the world get started, Bob's would benefit from that too.

 

The Bob's chain was founded in 1952 by the American Brazilian tennis champion Robert Falkenburg.  It started out with a single restaurant in his neighborhood but has expanded to over 650 locations.  They have a simple menu of burgers, fries, milkshakes, etc. with an average ticket of about US$4.50.  Historically they have owned the restaurants, but since 1984 been growing primarily through franchising, which is what makes the story interesting, and distantly relevant to SNS.

 

In 2008, owned restaurants provided 73% of revenues but nominal operating income (operating margins 0.4%).  Franchise locations provided 18% of revenue and almost all of the operating income (operating margin 72%).  At YE 2008 they had 642 locations, of which 62 are owned and the remaining 580 are franchised.  Their goal is to grow primarily through franchising going forward and are targeting 720 locations by YE 2009.

 

In August 2008 they acquired YUM's largest Pizza Hut franchise in Brazil with 14 locations, funded with debt.

 

http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080812005307&newsLang=en

 

An exec named Jorge Aguirre came with the deal, who is apparently quite the fast food magnate in Brazil, who has evidently worked for all of the large fast food companies in the country.  He is credited with turning around YUM's franchises over the past 10 years by addressing the cultural and operational issues that come with introducing foreign fast food to the Brazilian market.  Here is some background on his history:

 

http://www.bizlink.ufl.edu/pdf/risner.pdf

 

The company also has various other JV's it's working on, generally 60/40 deals to add locations, all in the fast food area.

 

The stock trades OTC and is currently at around $3.20 and a market cap of $26M.  CFO in Q1 was about R$5.5M which is about US$3.0M.  MRQ book value is about US$11M, so they're at around 2.5x book, typical for a franchisor.  They report in Brazilian Reals but file K's and Q's with the SEC as they are ultimately a holding company.

[Myth465]

Article in Forbes discussing the possibility Buffett is buying land in Brazil, and the rapid improvement in farming techniques and yield over there.  Cheers!

 

http://blogs.forbes.com/kerenblankfeld/2010/09/02/is-billionaire-warren-buffett-buying-up-land-in-brazil/?partner=yahootix

 

The economist had a whole briefing on this, last week. Basically 30 minutes of spoken word about this. Very interesting.

[Myth465]

Another way to play this is with Brazil Fast Foods (BOBS on the bulletin boards), a large (for Brazil) hamburger chain there.  The company's history is a saga similar to that of the Brazilian economy and makes for very interesting reading.

 

Bobs has been on my to research list for a while. A guy I know owns it, and I remember seeing there restaurants everywhere when I was done there. They appear to be selling at a reasonable price, for a growing business.

 

How did you get a market cap of $26 million, I have always seen 60 million - is google reporting incorrect share count data?

 

http://www.google.com/finance?q=OTC:BOBS

[OracleofCarolina]

I would bet Howard Buffett was there just visiting farms and

learning from the farmers. Just my hunch

[rick_v]

Tiddman the market cap for BOBS is 61.43m

 

I suggest for all of you who don't have a professional system to always double check market cap's on www.bloomberg.com, what many people don't know is that when you type in a quote there even an international one, it grabs the market cap data from bloomberg which automatically calculates for multiple shares/adr's/ or any new issuances.

 

A good example is Blackstone (BX) which if you go to finance.yahoo.com will give you an inaccurate market cap figure.

 

 

[tiddman]

Tiddman the market cap for BOBS is 61.43m

 

Sorry, I wrote that a while back when the stock was much cheaper :).  I should have put a date on it.