Vanguarda Seeks First Profit in Shift to Soybeans

Vanguarda Agro SA (VAGR3), the Brazilian farm company that lost 97 percent of its value since going public in 2006, expects to make a profit for the first time this year by producing soybeans and corn after biodiesel projects folded.

Chairman Salo Seibel said Chinese demand for the crops that Vanguarda has been growing since last year will help it turn around five years of losses. The Asian country, which buys about two thirds of the world’s soybean exports to feed poultry and swine, has helped boost prices 43 percent in two years.

“Year after year, China has been increasing purchases from Brazil,” Seibel said in an interview at his Sao Paulo office on May 29. “We’ll feed the world.”

Seibel is seeking to transform Vanguarda into a crop producer after a shareholder rift that led Spanish billionaire Enrique Banuelos to leave the company last month and prompted analysts to drop coverage of the stock. Sao Paulo-based Vanguarda is planting soybeans, corn and cotton in an area twice the size of Los Angeles after selling three biodiesel plants last year, Seibel said.

Vanguarda was the worst-performing stock of the Bovespa index in the past five years after failing to produce fuel from castor beans, according to data compiled by Bloomberg. The exit of Banuelos, who started a row with other shareholders to create a farmland fund, will help Vanguarda focus on its crop projects, Seibel said.

Before today, Vanguarda rose 13 percent this year to close at 36 centavos on June 1, compared with a 5.9 percent decline in the benchmark Bovespa index. The company raised 378.9 million reais ($187.9 million) selling shares at 12 reais in November 2006 in an offering led by Citigroup Inc. and Banco Fator SA.

Buy Recommendation

Vanguarda is currently covered by only three equity analysts, according to data compiled by Bloomberg. EVA Dimensions and XP Investimentos rate it hold while Erick Hood of Sao Paulo-based SLW Corretora plans to rate it buy after reviewing his target prices for the stock.

“Now that the company has been pacified, they can focus on crop production, a much more interesting business than biodiesel,” SLW’s Hood said in a telephone interview May 29. “It’s a buy.”

Vanguarda, formerly known as Brasil Ecodiesel, lost about 518 million reais between 2006 and 2011 after betting on a government program to make biodiesel from castor beans, jatropha and other oilseeds.

Former Brazilian President Luiz Inacio Lula da Silva championed the production of diesel from oilseeds grown in the arid backlands of the country’s northeast as a means of pulling small farmers out of poverty.

Lula’s Plan

Vanguarda was the only major project to pursue Lula’s vision. The plan failed because the raw material supplied by small growers was not competitive against soybeans produced in the country’s center-western export-oriented plantations, Chief Executive Officer Bento Moreira said.

As Lula’s program flopped, companies that invested instead in more lucrative biodiesel production from soybeans, such as Sao Paulo-based Granol Industria Comercio e Exportacao SA, thrived. Granol is now the country’s biggest biodiesel supplier, while Vanguarda is out of the market.

Vanguarda’s demise as a biodiesel producer led shareholders to fight over plans to turn it around.

Banuelos, who made his fortune building houses in Spain before the country’s real-estate market crashed at the end of 2007, bought a 22 percent stake in Vanguarda in 2010 and sold it last month. He wanted to lure private investment into the company’s farmland holdings, while other shareholders aimed to focus on growing crops, Moreira said.

‘Creating Value’

“Mr. Banuelos belongs to the past,” Seibel said. “Now we are ready to focus on creating value to shareholders.”

Aline Lex, chief executive officer at Banuelos’s Veremonte Participacoes SA, declined to comment on the Spanish investor’s decision to shed his holdings in Vanguarda.

Vanguarda planted 287,732 hectares (711,001 acres) with soybeans, corn and cotton for the crop year that started Sept. 1 in land that it bought in 2010 and plans to expand the area to about 300,000 hectares for the next harvest, Seibel said.

Shareholder Juliano Leite Malara, a former board member at Vanguarda, said he bought the shares at more than 1 real two years ago and is “very skeptical” he will see returns before the end of this year as the company struggles with debt. The investor, speaking in a telephone interview from Araraquara, Brazil on May 31, declined to disclose his holdings.

Sapped Confidence

“They have sapped investor confidence over the years,” Fausto Gouveia, who helps manage 380 million reais at Sao Paulo-based Legan Administracao de Recursos said in a telephone interview May 29. “For now, I need to see results before giving them a vote of confidence.”

The company is seeking to sell its remaining three biodiesel plants to cut debt that jumped to 483.4 million reais in the first quarter from 165.7 million reais a year earlier, Moreira said.

Seibel, who holds a 15 percent stake in Brazilian plywood-boards maker Duratex SA (DTEX3) through his Cia. Ligna de Investimentos holding company, bought a 5 percent stake in Vanguarda this year and was named chairman last month. His brother Helio owns 13.5 percent of the company.

“We are not proud of being the lagging stock,” Seibel said. “We’re rewriting our story and plan to leave this position very soon.”

To contact the reporters on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net; Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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