Seeds, at the heart of global food issues, Equity trading strategy

Over a long history of 300 years, acquisitions, restructurings or disposals, Vilmorin & Cie today claims the rank of world number one for vegetable seeds and number six for field seeds. This is how the group managed to become the world’s fourth largest seed company behind the German Bayer, the American Corteva and the Swiss Syngeta.

At the beginning of October, the French group published 2021-2022 sales of 1.59 billion euros, up 7.5% at current data and 6.2% on a comparable basis, performance higher than its last forecast in a context destabilized by the Russian-Ukrainian conflict. It thus managed to exceed its growth target as revised at the end of the third quarter (ie growth of around 5% like-for-like). The net result of the French seed producer amounted to 95.4 million euros, up 2 million compared to the previous financial year. This is the highest net result since fiscal 2012-2013.

Resilient market

Vilmorin & Cie’s strength is that it operates in a resilient market, in fact, the value of the world seed market has tripled in twenty years, representing 41 billion dollars, driven by several complementary growth factors, foremost among which is population growth. The world population is expected to reach nearly 10 billion people in 2050, generating a need for a 60% increase in food to meet demand.

To cope with population growth, growing demand for healthier food and the need to improve agricultural productivity, the company is implementing sustained and continuous investment in the Research & Development division. Aware of the stakes, the seed company devotes 30% of its workforce to the search for new seeds. Over the 2021-2022 financial year, a budget of 275 million euros (+18 million euros) was dedicated to R&D, i.e. 16.2% of seed turnover. This value creation has enabled 442 new varieties to emerge.

The demographic and agricultural context alone does not explain the commercial dynamism of the seed company since inflationary pressures are a lever of growth in the short and medium term which should therefore result in a significant revaluation of the price of seeds.

Despite geopolitical risks and repeated meteorological accidents that disrupt harvests and maintain price volatility, it is undeniable that demographic growth and the adaptation of agricultural varieties to environmental changes plead for Vilmorin & Cie. Cutting-edge research and broad genetics allow the seed company to adapt its offer and thus be able to compete against its global competitors.

The Vilmorin & Cie value has been evolving, since the sharp decline observed that began in February 2022, within a consolidation zone whose limits are between 38.90 and 45.50 euros. A graphic configuration in ” triple hollow ” Where ” triple bottom in Anglo-Saxon terms is forming, combined with a decrease in volume in the third trough, one of the primary criteria for this bullish reversal pattern that appears at the end of a downtrend. A monthly bullish engulfment is also noticeable, which further reinforces this possible strengthening.

We recommend waiting for the crossing of the upper limit located at 45.50 and placing an order oftrigger buy at 45.60 in order to confirm this output which must necessarily be accompanied by volume. We also recommend to reinforce the position in case of overflow of the major resistance and the moving average 200 to 47.90. Remember that it is very likely that a throw back on the upper limit is realized after its crossing, before continuing its upward movement.

The first target of the triple bottom is at 52.10 euros, i.e. 14% increase since the crossing of the major resistance located at 45.50. The second target is at 54.70 euros, or 19.5% upside potential from our entry point. We set our protective stop at 42 euros, below the moving average 20 and mediandu trading range, either 8% maximum loss. The risk/return ratio is then respectively 1 for 2 and 1 for 2.5.

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