Raymond James Agribusiness 2011

Agribusiness & Food ProductsClash of the Titans: Food vs. Feed vs. Fuel

Steve Hansen, CMA, CFA

[email protected]

604.659.8208

Arash Yazdani, MBA (Associate)

[email protected]

604.659.8280

RAYMOND JAMES® Canada Research Published by Raymond James Ltd

Please read domestic and foreign disclosure/risk information beginning on page 170 and Analyst Certification on page 171. Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2

Industrial April 27, 2011

Industry ReportSteve Hansen CMA, CFA | 604.659.8208 | [email protected]

Arash Yazdani MBA (Associate) | 604.659.8280 | [email protected]

Industrial | Agribusiness & Food Products

Agribusiness: Clash of the Titans: Food vs. Feed vs. Fuel

The global agriculture (“Ag”) complex has embarked on a prolonged journey of fundamental change, in our view, grappling with immense, often competing, secular forces that portend long-term structural imbalances in the world’s food supply chain. Specifically, we expect the desire to put food on the table, feed in the barnyard, and fuel in the gas tank will increasingly clash with mounting environmental, political and socioeconomic supply-side constraints.

The demand-side pressures speak for themselves. The world is expected to add two to three billion more people (i.e. mouths to feed) by 2050, the bulk of which will surface in emerging markets. At the same time, robust economic growth and burgeoning middle classes in these regions are facilitating a dietary evolution toward greater protein intake and processed foods (United Nations FAO). Taken together, the FAO estimates that agricultural output will need to rise 75.0% by 2050 just to keep the planet sufficiently fed. Meanwhile, energy security concerns have introduced an accelerating bio-fuel phenomenon that increasingly competes for already scarce food supplies. Finally, we highlight the massive inflow of investment dollars, and arguably speculation, which has greatly enhanced equity and commodity volatility in recent years.

Supply-induced challenges have also introduced powerful stressors on the global Ag complex. Weather, pest and disease, in particular, are responsible for delivering powerful, unpredictable shocks to global output. For instance, severe drought in Russia, coupled with excessive flooding in Canada, China and Australia, conspired to impair 2010 global wheat production. Long term issues such as climate change, declining arable land per capita, water scarcity, and declining productivity growth also present material challenges that, if not addressed, will place mounting strains on the complex’s ability to feed the planet.

The corollary, in our view, is that we are in the preliminary stages of a long-term bull market in agriculture products. With global food reserves hovering near multi-decade lows, and many foodstuffs trading at multi-decade highs, we believe that prices are likely to remain both elevated and volatile. After decades of underinvestment, we also believe the sector is ripe for change, requiring significant investment in research and development, productivity enhancement, and commercialization, a process which is expected to create a wealth of investable opportunities.

At the same time, investor caution is also warranted, as short-term cyclicality can often turn against long-term secular forces. In this context, we highlight the tremendous volatility associated with many Ag-related equities and commodities over the past two years. As always, we believe investors should be cognizant of market expectations and, above all, valuation sensitive.

This report profiles SEVEN Canadian-listed companies that boast significant exposure to the global Ag sector. Three of them—Rocky Mountain Dealerships, Cervus Equipment and Asia Bio-Chem Group Corp. —are part of our existing universe of stocks. Four others—Viterra, Alliance Grain Traders, BioExx Specialty Proteins, GLG Life Tech—represent new initiations of coverage for us (see Exhibit 1).

Exhibit 1: Raymond James Ltd. – Agribusiness & Food Products Universe

CompanyTickerPrimary

TickerSecondary Current Price Rating

Target Price(6-12 mths)

Total ReturnTo Target Analyst

Alliance Grain Traders Inc. AGT-TSX C$23.25 1 C$30.00 31% SHAsia Bio-Chem Group Corp. ABC-TSX C$1.15 2 C$2.25 96% SHBioExx Specialty Proteins Ltd. BXI-TSX C$1.74 2 C$2.50 44% SHCervus Equipment Corp. CVL-TSX C$17.62 1 C$20.00 16% BCGLG Life Tech Corp. GLG-TSX GLGL-NASDAQ C$9.05 1 C$12.50 38% SHRocky Mountain Dealerships Inc. RME-TSX C$10.05 2 C$14.00 41% BCViterra Inc. VT-TSX VTA-ASX C$11.10 3 C$12.50 14% SH

Raymond James Ltd.

Canada Research | Page 2 of 183 Agribusiness & Food Products

Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2

Table of Contents

How to Play the Cycle — Our Favoured Ag-Related Names ............................................................... 3

Clash of the Titans: Food vs. Feed vs. Fuel ......................................................................................... 4

Demand-Side Pressures ...................................................................................................................... 4

Supply-Side Pressures......................................................................................................................... 10

Supply-Demand Implications.............................................................................................................. 17

Company Overviews ........................................................................................................................... 19

Appendix A: Industry Comparables .................................................................................................... 34

Company Initiations............................................................................................................................ 35

Alliance Grain Traders Inc. .................................................................................................................. 36

BioExx Specialty Proteins Ltd. ............................................................................................................. 68

GLG Life Tech Corp.............................................................................................................................. 99

Viterra Inc. .......................................................................................................................................... 133

Agribusiness & Food Products Canada Research | Page 3 of 183


How to Play the Cycle — Our Favoured Ag-Related Names

Despite our positive long-term view toward the broader Ag sector, we recommend that investors remain vigilant in their Ag investing process. In particular, we highlight the inherent volatility that often strikes Ag equities in association with short-term events (i.e. weather-related supply shocks). We’re also mindful of market expectations, which tend to ebb and flow in tandem with Ag commodity prices, geopolitical events, and headline news. Given this basket of largely unpredictable factors, we recommend that investors steer toward those companies that boast a: (i) strong growth profile; (ii) healthy balance sheet; (iii) proven management team; and (iv) attractive valuation. This lattermost criterion is particularly important, in our view, in order to provide investors with a healthy margin of safety in the event that unforeseen shocks do indeed arise (as they often do).

For the purpose of this report, we have selected three ‘Top Picks’ in order to highlight where our conviction is currently the strongest. These include: GLG Life Tech Corp. (GLG-TSX), Cervus Equipment Corp. (CVL-TSX), and Alliance Grain Traders Inc. (AGT-TSX). As suggested, we believe all three of these names score well against the four screening criteria noted above and are therefore Strong Buy rated. We also highlight our Outperform ratings on Asia Bio-Chem Group (ABC-TSX), BioExx Specialty Proteins Ltd. (BXI-TSX), and Rocky Mountain Dealerships Inc. (RME-TSX). Viterra Inc., notably, is the only name that we currently rate Market Perform, which we highlight is strictly due to current valuations.



Clash of the Titans: Food vs. Feed vs. Fuel

The global agriculture (“Ag”) complex has embarked on a prolonged journey of fundamental change, in our view, grappling with immense, often competing, secular forces that portend long-term structural imbalances in the world’s food supply chain. Specifically, we believe the desire to put food on the table, feed in the barnyard, and fuel in the gas tank will increasingly clash with mounting environmental, political and socioeconomic supply-side constraints. To delve into this argument further, below we review each of the subcomponents contributing to these demand and supply side pressures.

Demand-Side Pressures

Putting Food on the Table

World food demand is forecast to steadily climb over the next four decades. Specifically, the UN estimates that global food output will need to rise by ~75.0% over the same period just to keep the world adequately fed. We see this trend favourably impacting the growth outlook for all of our Ag-related names due to global increases in demand for both high-quality, nutritious foods as well as convenience-oriented, processed food products. Factors supporting this demand growth include:

1. Population Growth—Plenty More Mouths to Feed

Population growth is the principal underlying driver behind global food demand growth. The UN forecasts an incremental 2.3 bln mouths to feed by 2050 with the global population reaching ~9.2 bln. Geographically, we highlight that over 95.0% of this growth is expected to emerge in developing nations where economic growth and earnings power are accelerating rapidly, and where commercial agriculture is less advanced (see Exhibit 2).

Exhibit 2: Urban Population as % of Global Total

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1960 1970 1980 1990 2000 2009 2015E 2025E 2035E 2045E

Po

pu

lati

on

(m

lns)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Dev

elo

pin

g n

atio

ns

as %

of

glo

bal

to

tal

Developed nations Least developed nations Developing nation population as % of global total

Global population grow th is expected to be primarily centered w ithin the developing w orld.

Source: UN, Raymond James Ltd.



2. Dietary Evolution—Middle Classes Migrating Up the Food Chain

Robust population growth in emerging markets is also expected to support a prolonged urbanization wave, helping fuel rising disposable incomes, and a shift toward higher-quality, protein rich diets. A greater emphasis on processed, pre-packaged foods is also likely to emerge, in our view. These trends will likely have a favourable impact on several of the Ag names we cover, most notably: Alliance GrainTraders, GLG Life Tech, Asia Bio-Chem, and BioExx (see below for more details).

Urbanization Tsunami—Cities within emerging markets, many already the

largest on the planet, are poised to continue growing. Driven by the prospect of superior economic growth, better pay, and a higher standard of living, hundreds of millions of rural workers are expected to migrate into urban centers over the next four decades. Specifically, the World Bank expects global urbanization rates to reach 53.2% and 60.3% by 2020 and 2030, respectively, versus only 27.4% in 1990 and 44.9% in 2010 (see Exhibit 3).

Middle Class Explosion—Mass urbanization, as a direct consequence, is fuelling robust income growth and an explosion of the urban middle class within emerging markets. According to the UN, per capita income growth in emerging markets has surged 11.3% CAGR, far outstripping the 4.6% CAGR of developed nations (see Exhibit 4). In other words, emerging market city dwellers are, on average, becoming far wealthier.

Middle Class Migrating Up the Food Chain—Meat is rapidly becoming a dietary staple within the emerging market middle class. As disposable incomes have risen, so too have dietary expectations. As such, middle class consumers have steadily migrated up the food chain to demand greater quantities of meat, milk, eggs, and related dairy products (see Exhibit 5). On a global basis, meat consumption is estimated by the World Bank to grow by 22.8% from 257,453 kt in 2009 to 316,022 kt in 2019. Given the forward looking trends described thus far, we expect this to continue.

Foods of Convenience On The Rise—Wealthier middle class consumers have also demonstrated their growing preference for foods of convenience. With increasingly busy lives and greater disposable income, semi-prepared, pre-packaged foods and dining out have become more important daily considerations. Refrigerator ownership and a developing cold-storage supply chain have also allowed the frozen products industry to blossom, delivering an array of product variety and convenience previously unavailable. Chinese food and beverage industry data indicates a growth of 25.0% over the past 10 years (see Exhibit 6).



Exhibit 3: Urban Population as % of Global Total Exhibit 4: Global Growth in Mean GNI per Capita

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,00019

60

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2020

2040

Glo

bal

Urb

an P

op

ula

tio

n (

mln

s)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Urb

an P

op

ula

tio

n a

s %

of

To

tal

(%)

Total population (mlns)

Urban population (% of total)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Lo

w &

Mid

dle

In

co

me

Na

tio

ns

GN

I p

er

Ca

pit

a (

cu

rre

nt

$U

S)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Hig

h I

nc

om

e N

ati

on

s G

NI

pe

r C

ap

ita

(c

urr

en

t $

US

)

Low & Middle Income Nations High Income Nations

Source: World Bank, UN FAO, Raymond James Ltd. Exhibit 5: Meat & Dairy Consumption Growth ‘09-’19 Exhibit 6: Chinese F&B Industry Market Value

$-

$100

$200

$300

$400

$500

$600

$700

$800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US

$ M

illi

on CAGR = 25%

Beef & Veal

3.3%6.1%

13.2%

4.3%

14.6%

22.9%

33.3%33.4%

38.6%37.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

∆ i

n V

lm C

on

sum

ed 2

009-

2019

(%

)

OECD Nations Developing Nations

Butter CheesePork Poultry

Source: World Bank, HK Monetary Authority, GLG Life Tech Corp., Raymond James Ltd.



3. Pulses Evolution

The long-term outlook for global pulse demand is compelling, in our view. Specifically, we believe that pulses will continue to play an increasingly prominent role in both developed and emerging markets as an efficient (see Exhibit 7), economical source of protein, offering tremendous health and ancillary benefits. Growth in pulse consumption will, in our view, have the greatest positive impact on Alliance Grain Traders, followed by Viterra (see below for more).

Pulse crops are expected to become a growing source of dietary protein within the emerging markets. Consisting of dry beans, peas, lentils, and chickpeas, pulses currently make up approximately ~10.0% of protein and ~5.0% of caloric intake within low income nations. However, because they require only a fraction of the water to produce an equivalent ounce of protein (vs. meat), we expect consumption to grow steadily, most rapidly in the world’s arid regions and emerging markets. The FAO corroborates this view, expecting pulses demand in emerging markets to reach 45.4 mln tonnes by 2030, up considerably versus the 38.3 mln tonnes expected for 2015 (see Exhibit 8).

According to the UN FAO, emerging markets represent the lion’s share of global pulse demand, accounting for over 60.0% of consumption in 2007. Furthermore, the world’s poorest, least developed nations made up almost 20.0% of global consumption in this same period. Given the pulse attributes described above, demand growth is expected to remain healthy with rapid population growth serving as the single most important demand variable (per capita consumption is expected to be flat). Major importing nations including India, Egypt, and Turkey are expected to increase their imports over time, while exporters such as China are expected to soon become net importers of product.

In Canada, pulses have steadily increased their position within the agricultural landscape. Specifically, the value of pulse crops (measured in terms of farm cash receipts) grew at CAGR of ~7.3% from 2001 to 2009 to make up 7.3% of all crop value. Although total Canadian pulse production volumes in 2010 exceeded crops such as soybeans and oats, they remain below staple crops such as wheat and corn, according to Agriculture Canada.

Exhibit 7: Protein Content by Weight (%) Exhibit 8: Emerging Market Pulses Demand

2.2

25.3

3.4

31.0

3.8

38.3

45.4

4.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Pu

lses

Dem

and

fo

r F

oo

d (

mln

to

nn

es)

1979-1981 1997-1999 2015 2030

Pulse crop demand for food is expected to grow at a much faster pace in developing countries

36%

23% 22%

19%

12%11% 10% 9%

7%

4%2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Milk

Pou

ltry

Pul

ses

Bee

f

Egg

s

Whe

at

Bar

ley

Mai

ze

Ric

e

Cor

n

Cas

sava

Pro

tein

co

nte

nt

by

wei

gh

t (%

)

Pulses provide protein content by weight equivalent to meats

Developing Countries Industrial Countries

Source: World Pulses Organization, UN FAO, Raymond James Ltd.



Putting Feed in the Barnyard

Animal feed (‘feed’) consumption is generally expected to increase in tandem with global meat consumption. Feed consumes a wide variety of grains and seeds, including wheat, cereals, corn, soybean, sorghum, and even cotton seed. The FAO estimates, for instance, that feed production currently accounts for ~40.0% of agricultural production globally and more than 50.0% in the developed nations, with several key factors poised to push this threshold even higher. We believe these trends will most positively benefit Asia Bio-Chem, Viterra and BioExx within our coverage universe (see below for more).

1. Meat Consumption Driving Feed Demand

Accelerating meat consumption in emerging markets is driving a commensurate surge in livestock production and animal feed requirements, competing directly with human consumption of cereals. According to the FAO, approximately 35.0% or ~660.0 mln tonnes of world cereals production is currently used as animal feed, expected to increase to ~40.0% of total cereal demand or 1.15 bln tonnes by 2030 (see Exhibit 9). These figures may in fact be conservative, in our view, as other estimates peg cereal usage for feed exceeding 50.0% of total cereal production by 2030. The FAO also predicts rapid growth in coarse grain usage for animal feed within developing countries, where they currently are a critical part of the human food supply (~80.0% used for human consumption).

2. Meat’s Multiplier Effect

Rising meat consumption carries significant downstream implications on feed grain demand due to meat’s embedded multiplier effect. Beef is the highest intensity form of meat, with 1kg of beef requiring up to 8kg of grain, or an 8x multiplier. Poultry, the lowest intensity, still requires 2kg of grain for each 1kg meat resulting in a 2x multiplier (see Exhibit 10). Along with grains used for feed, there are strains exerted throughout the entire supply chain such as fertilizer and water consumption. We do note however, trends within the developed world have resulted in consumption of beef dropping globally as a proportion of total meat consumption resulting in a steady ‘trade’ from higher to lower multiplier.

Exhibit 9: Cereal Demand for Feed vs. Total Exhibit 10: Grains Required to Produce Meat

2

4

8

0 2 4 6 8 10

Poultry

Pork

Beef

Kg Grains to Produce 1kg Meat

0

500

1,000

1,500

2,000

2,500

3,000

Cer

eal

Dem

and

(m

ln t

on

nes

)

1980 1998 2015 2030

712

1,129

1,544

1,917

* shaded areas represent feed use

1,437

1,864

2,379

2,831

428525

599

652

World Industrial Countries

Developing Countries

Source: USDA, FAO, Raymond James Ltd.



Putting Fuel In the Gas Tank

Rising energy prices and global energy security concerns have spawned robust growth in bio-fuels production (i.e. ethanol) over the past half-decade, introducing another major competing use for global grain production. Despite the economic folly behind the argument, government incentives (i.e. subsidies) and long-term renewable fuel mandates have played a critical role in promoting bio-fuels as a legitimate blending agent for gasoline. According to the OECD, global bio-fuels production is therefore expected to grow from 89,427 mln litres in 2009 to 158,849 mln litres in 2019, representing a 5.9% CAGR (see Exhibit 11).

1. Food for Fuel, the Evolution of Ethanol in the U.S.

Ethanol has played a profound role in diverting U.S. corn from the food supply chain to conversion into fuel (see Exhibit 12). Strong regulatory induced domestic demand for ethanol as well as increased exports is expected to keep planted U.S. corn acreages high (in the range of 88-90 mln acres). The USDA predicts ethanol production in America now accounts for ~35.0% of the nation’s corn production, expanding only slightly to ~36% by 2021. This expected moderation in growth is based on expiration of U.S. ethanol subsidies as well as limited potential for future market penetration given constraints in the North American E-15 (15% ethanol blend) market and a slim E-85 market. If subsidies continue to be extended, as they recently were for 2011, growth rates may indeed surpass these noted forecasts.

2. Vegetable Oil for Biodiesel

Industrial and energy applications for vegetable-derived oils have been growing most prominently within the EU. Here again, government regulations provide incentives to farmers to grow oilseed crops such as rapeseed and linseed for non-food, vegetable-oil based industrial and energy applications. In addition, mandates within the EU stipulate vegetable-based biodiesel providing 10.0% of the transportation sector’s energy needs by 2019. Despite great strides being made in closing the gap to economic viability, biodiesel and other biofuels remain economically unviable without government assistance.

Exhibit 11: Global Biofuel Production Forecast Exhibit 12: Ethanol’s Share of US Corn Production

-

4,000

8,000

12,000

16,000

20,000

24,000

2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21

Co

rn p

rod

uct

ion

(m

ln b

ush

els)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Eth

ano

l as

%

of

corn

pro

du

ctio

n

Corn for other uses

Corn produced for ethanol

Ethanol as % of total corn prdn

0

50,000

100,000

150,000

200,000

250,000

Bio

fuel

pro

du

ctio

n (

mln

lit

res)

Biodiesel Ethanol

USA

2009 2019

37,2047

71,737

12,931

38,508

89,427

200,020

EU

2009 2019

Brazil

2009 2019

26,266

58,077

World

2009 2019

* figures are cumulative

Source: USDA, FAO, Raymond James Ltd.



Supply-Side Pressures

Supply-induced challenges have also introduced powerful stressors on the global Ag complex. One of the biggest challenges in this respect is output variability, with factors such as weather, pest and disease delivering increasingly powerful, unpredictable supply-side shocks. Longer term issues such as climate change, declining arable land, water scarcity, and stubbornly low productivity also present challenges that, if not addressed, will place mounting strains on the complex’s ability to feed the planet. Declining Arable Land per Capita

Sharp declines in global arable land per capita could represent a material threat to global food security over time, in our view. While total land under cultivation is expected to grow—as it has for several decades—the pace is expected to significantly lag population growth and other powerful forces driving global food demand.

1. Not Keeping Pace; Arable Land per Capita Declining

A multi-decade decline in arable land per capita is raising profound questions about future output requirements. While land dedicated to agriculture use has increased by 12.0% since the early 1960s, this has been far outstripped by a doubling in the world’s population over the same period. The corollary is that arable land, when measured on a per capita basis, has declined precipitously from 0.43 ha in 1962 to 0.23 ha in 2008, representing a nearly 40.0% decline. Looking forward, this trend is expected to continue for the foreseeable future (see Exhibit 13).

2. Structural Impediments Make Rapid Growth Difficult

Several factors continue to limit cultivation growth. First, roughly half of the uncultivated land resides in just 10 countries, five of which are in Africa (see Exhibit 14), and limited by small-scale subsistence farming, geopolitical instability, lack of infrastructure, and meek productivity. Second, in regions such as Latin America, a large portion of the available land remains under tropical rainforest cover, thereby raising concerns over deforestation and ecological implications. Finally, water scarcity and climate change are expected to further compound challenges for these regions over time (see below for more).

Exhibit 13: Arable Land per Capita Exhibit 14: Global Net Potential Arable Land

200 400 600 800 1,000 1,200

Sub-Saharan Africa

South and Central America

Asia & The Pacific

North America

Europe

North Asia

North Africa & Near East

Net Potential Arable Land (Million ha)

Area Cultivated

Net Potential Arable Land

-

0.1

0.2

0.3

0.4

0.5

1961 1970 1980 1990 2000 2008 2015E 2030E

Ara

ble

Lan

d p

er C

apit

a (H

a)

Source: World Bank, Raymond James Ltd.



Water Scarcity

Water scarcity is expected to limit future growth in crop yield. Historically, yield gains have relied upon improved irrigation. As a result, the Ag sector is now the single largest consumer of fresh water globally, accounting for ~75.0% of all water drawn from rivers, lakes and aquifers. However, many studies suggest that current extraction levels are unsustainable, most notably in China, South Asia, the Middle East and North Africa.

Water available for agriculture and future yield growth is expected to diminish due to competing requirements from rapid urbanization and industrialization. This issue is expected to be particularly acute in the same semi-arid regions where uncultivated arable land remains plentiful. The pace of growth in irrigated land has slowed considerably in the last decade (see Exhibit 15) and without structural changes, pressure on water resources is forecasted to result in significant gaps between supply and demand in major emerging markets (see Exhibit 16). Exhibit 15: Irrigated Land Expansion Exhibit 16: 2030 Water Supply/Demand Gap

0

200

400

600

800

1,000

1,200

1,400

1,600

2030

Wat

er (

Bln

s cu

bic

met

ers)

Industry Agriculture Municipal & Domestic

India

Supply Demand

*Base case, assuming no structural changes

China

Supply Demand

50% gap

25% gap

0

50

100

150

200

250

300

350

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Irri

gat

ed l

and

(m

lns

ha)

World Developing countries Developed countries

CAGR = 2.70% CAGR = 0.96%

Source: FAO, McKinsey & Company, Raymond James Ltd.



Climate Change

Notwithstanding plentiful debate surrounding its underlying causes, climate change is widely expected to have an adverse impact on global agriculture output and food security over time. The World Bank recently cited, for instance, that the atmospheric, physiological and agro-ecological side effects associated with climate change could impair global agricultural productivity by as much as 16.0% by 2080. While several studies suggest there could actually be a short-term lift to productivity due to carbon fertilization (i.e. higher CO2 levels) and extended growing seasons in northern regions, the world’s most vulnerable areas (i.e. emerging markets) are expected to bear the brunt of the negative impact, resulting in heightened global food security concerns.

1. Physiological & Agro-Ecological Impacts to Pressure Yields

Rising temperatures, shifting precipitation patterns, and more frequent pest and disease outbreaks are expected to pressure global agriculture yields. While certain northern countries may benefit from longer growing seasons, gains will be more than offset by declines in hotter, southern latitude nations where temperatures are already near critical productivity thresholds. Sub-Saharan Africa and, to a lesser extent, S.E. Asia are cited as the most vulnerable regions. A recent study by Nelson et al. (2009) estimates climate change could reduce wheat yields in developing countries as much as 34.0% by 2050. The effect is expected to be a greater reliance by these regions on imports, amplifying global food security concerns.

2. More Frequent Extreme Weather Events, Unpredictable Shocks

Evidence suggests climate change will give rise to more frequent extreme weather events resulting in greater output losses. Traditional crop model forecasting does not capture the catastrophic impacts of drought, flooding, and cyclones, for instance. Last year, for example, Russia’s worst drought in 50 years wiped out 20-25% of the country’s wheat crop (see Exhibit 17), sparking sharp price increases and an export ban by government still in effect today (see Exhibit 18). A recent study by McKinsey & Co. corroborates the influence of extreme weather, indicating that flooding and drought have been responsible for steadily increasing crop loss in China since the 1950s, including last year’s drought which wiped out 10.0% of the country’s domestic sugar cane crop resulting in a 3 mln tonne output shortfall.

Exhibit 17: Russian Wheat Production/Consumption Exhibit 18: Russian Wheat Export Prices

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1987/1988 1991/1992 1995/1996 1999/2000 2003/2004 2007/2008

Ru

ssia

n w

hea

t (1

000

MT

)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

As

% o

f w

orl

d p

rod

uct

ion

Russian w heat consumption

Russian w heat productionRussian as % of global production

Russian production falls below estimated consumption needs for 2010/2011 harvest

0

50

100

150

200

250

Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10

Ru

ssia

n W

hea

t E

xpo

rt P

rici

ng

($U

SD

/t)

Russian wheat exports halted in August 2010 after production concerns & dramatic rise in prices.

~57% rise in price within 1-month

Source: USDA, Bloomberg, Raymond James Ltd.



Stagnating Productivity Growth

In light of the compounding demand and supply side factors reviewed thus far, productivity gains will, in our view, remain the single most important variable in driving global food output. Productivity growth has been the dominant source of incremental output gains over the past century and agro-ecological models suggest further increases are attainable. On the other hand, several leading bodies point out that productivity growth may be a ‘false panacea’ as cereal crop yield growth has plummeted sharply since the early 1980s and mounting socio-economic and resource limitations portend increasingly difficult hurdles toward achieving higher growth.

1. Yield Gains Have Dominated Output Growth Historically

Agriculture output is generally a function of three factors, namely: yield, quantity of arable land, and cropping intensity (i.e. double-cropping, reduced fallow area). Over the past century, with the latter two variables subject to various pressures, output growth has largely been a function of strong yield gains. The World Bank (Bruinsma, 2009) estimates, for example, that 70.0% of the world’s increase in crop production between 1961 and 2005 was due to yield increases, versus 23.0% from arable land expansion and 8.0% from higher cropping intensity. Were it not for the healthy yield gains achieved, much larger areas of arable land would have needed to be brought under cultivation. These same yield gains are also widely recognized as responsible for ushering in the ‘Green Revolution’ that led to several decades of cheap food.

2. Promising New Practices & Technologies

Our own observations, as well as those of other industry sources, indicates that several new cultivation practices and applicable equipment technologies are expected to help advance current output and yield growth. Zero tillage, for example, is a rapidly expanding practice—predominantly in the developed world to date—involving direct seed injection into the soil without the need to plough or sow fields. Combined with proper residue management, this practice boasts benefits such as soil moisture preservation, increased water filtration, minimized nutrient run-off, and ultimately, higher yields. Development of precision agriculture techniques and equipment has also been a steady source of incremental improvement. Targeted, optimally timed water and fertilizer application, for example, have been credited with reducing nutrient run-off, bolstering water-use efficiency, and increasing the output of high intensity operations in developed countries. Remote sensing technologies have also proven highly beneficial in precisely monitoring soil moisture data to prevent unnecessary watering.

3. Yield Growth Rapidly Deteriorating

While agro-ecological models suggest that further yield increases are attainable, critics point out that yield growth in key cereal crops has been deteriorating since the early 1980s. USDA and FAPRI data corroborate this view with wheat yield CAGR dropping from ~2.3% between 1960 and 2000 to ~0.9% this past decade and a forecast of only ~0.7% for the decade (see Exhibit 19). Sharply higher commodity prices should in theory help slow, or even reverse, these declines. This should not, however, be considered a given outcome due to mounting socioeconomic and resource limitations (i.e. water scarcity), most notably in developed nations where the biggest opportunities for yield growth lie. Yield growth remains the dominant source of forecasted potential crop productivity gains over the next 40 years (see Exhibit 20) portending the need to reverse the aforementioned recent trends.



Exhibit 19: Global Mixed Grain Yields Exhibit 20: 2007-2050 Crop Productivity

-0.1

-0.1

0.0

0.1

0.1

0.2

0.2

1960/1961 1970/1971 1980/1981 1990/1991 2000/2001 2010/2011

Glo

bal

wh

eat

yiel

d (

MT

/HA

)

YoY % Yield Gain/Decline

2.29%CAGR:

Slowing CAGR growth in yield

0.86% 0.73%

-20%

-5%

10%

25%

40%

55%

70%

85%

100%

World Developingcountries

LatinAmerica

sub-Saharan

Africa

S. Asia E. Asia Near East /NorthAfrica

So

urc

e o

f c

rop

pro

du

cti

on

gro

wth

(%

)

Arable land expansion Cropping intensity Yield increases

Source: FAO, USDA, FAPRI, Raymond James Ltd.



Farm Income

One obvious implication from rising food prices is higher incomes for farmers. Although there are other important factors to consider—such as operating costs (fuel prices, for example, have been offsetting some of the benefits related to higher crop prices), technological innovations, financing incentives, trade-in values, fleet age, etc.—higher farm incomes tend to effect a great propensity to spend on Ag machinery. We see such a trend favourably impacting the growth outlook for the two Ag dealers that we cover, namely Rocky Mountain and Cervus. Higher farm incomes also increase farmer spending on seeds, crop protection, and other inputs that ensure greater productivity. We believe this has positive implications for Viterra.

Vertical integration within the global food supply chain is, however, resulting in higher consumer and production standards that contribute to a growing gap between farmers in developed countries and those in the developing world that may not have the resources to comply with stringent standards. This is further exasperated by policies within most OECD nations designed to protect producers (i.e. farmers) from price fluctuations which are not always replicated in the developing world.

1. North American Farms Poised for Big Numbers

The USDA estimates 2011 net farm income of $94.7 bln, up 20.0% y/y and 46.0% higher than the previous 10-yr average of $64.8 bln. The gains are across the board but do vary by sector. Specifically, the y/y gain in value for food grains is projected to be ~15.0% while cotton and oil crops are expected to increase by ~35.0% and ~27.0% respectively. These numbers are driven primarily by strength in agriculture commodity prices. Although large y/y swings in net farm income are typical of the industry, an overall improvement over time is clearly evident (see Exhibit 21) in tandem with increasing prices, dropping input costs, and strong export demand.

2. Increased Expenditures

The noted recent increased farmer income has translated into strength in demand for equipment and supplies. Notwithstanding the already strong farm balance sheets and historically low debt levels as measured by an average debt-to-asset ratio of 11.3% (see Exhibit 22), we note N.A. farmers also benefit from low interest rates associated with debt financing including equipment financing. Indeed, OEM financing incentives have been very aggressive lately. This represents a significant risk to future demand, in our view, if (when?) rates start to normalize. In the meantime, however, we expect the outlook for Ag machine sales to remain robust.

Exhibit 21: Farm Spending Trends Exhibit 22: Healthy U.S. Farmer Solvency

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

$US

Mil

lio

ns

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Deb

t R

atio

n %

Farm debt Farm equity

Debt-to-equity Debt-to-asset

0

10

20

30

40

50

60

70

80

90

100

1990 1993 1996 1999 2002 2005 2008 2011E

$US

Bln

s

Net farm income Feed purchasedFertilizers Non-dwelling Capex

Steady increase in spending in line with income

Source: USDA, Raymond James Ltd.



3. Emerging Markets Farmer Income Also Growing

Farmer income within the emerging markets is growing rapidly, resulting in continued spending on higher inputs (e.g. better quality seed and fertilizers) as well as capital spending in effort to improve yields. For context, research firm Global Insight positions the Ag sector amongst the top-10 growth sectors within G-20 countries through to 2020 (see Exhibit 23). During this same period, it is estimated “BRIIC” nations (Brazil, Russia, India, Indonesia, and China) will account for 80.0% of global Ag sector growth, a higher proportion contribution than to any other sector (see Exhibit 24). While this growth is primarily attributed to higher selling prices, it is also due to increasing government incentives. China’s Ministry of Agriculture, for example, reports farmer subsidies of 140 bln RMB for 2010 (~$21.2 bln in USD), representing CAGR of 45.1% from only 15 bln RMB in 2004. Brazil has approved farmer subsidies of R$116 bln for 2010/2011 (~$69.5 bln in USD) with the bulk going towards large-scale farms.

4. Size Matters: The Big Get Bigger

Commercial scale farms account for 12.0% of all U.S. farms but provide 80.0% of total production and 54.0% of net income generation. Intermediate-sized farms, however, are quickly growing in scale, accounting for the greatest gains in net income (78.0% y/y) often graduating into the commercial production category. In our view, this potential to step-up gives intermediate farms the greatest incentive to increase spending on leading-edge farm inputs and equipment such as breeding innovations, zero-tillage, heavy equipment, and IT-based automation. The developing world is also exhibiting this trend towards commercial-scale farming and, in some cases, is further along. Institutional capital is being partnered with local land ownership and labour to create large-scale farming operations. In fact, the few publicly-traded farming companies are all located in developing economies.

Exhibit 23: G-20 Value Added by Sector Exhibit 24: % of Global Sector Growth in BRIIC Nations

Public Admin, Sanitary & Personal Srvs 1,324 3.2Other Business Activities 1,136 2.9Real Estate & Dwellings 1,060 2.1Wholesale Trade 1,058 3.2Medical, Dental, Veterinary, Other Health 826 2.9Transportation & Storage 762 3.4Educational Services 692 2.9Financial Institutions 657 2.8Construction 621 2.4Agriculture, Hunting, Forestry, Fishing 588 2.9Communications 583 3.6Retail Trade ex. Motor Vehicles & Motorcycles 543 2.6Restaurants and Hotels 373 2.8Electricity, Gas, and Water 370 3.1Energy, Mining & Quarrying 318 2.9Computer & Related Activities 318 3.5Radio, TV, and Communications Equipment 313 4.5Processed Food 231 3.7Insurance 222 2.4Motor Vehicle Sales, Repair, Maint. 218 2.3

Value added 2008-2020 ($ Blns)

CAGR 2008-2020 (%)

Sector80

7066

5956

5246

4439

3836

3534

322828

272323

18

Agriculture, Hunting, Forestry, FishingEnergy, Mining & Quarrying

ConstructionProcessed Food

Electricity, Gas, and WaterTransportation & Storage

Wholesale TradeMotor Vehicle Sales, Repair, Maint.

CommunicationsRestaurants and Hotels

Financial InstitutionsPublic Admin, Sanitary & Personal Srvs

Radio, TV, & Communications EquipmentEducational Services

InsuranceReal Estate & Dwellings

Retail Trade ex. VehiclesComputer & Related Activities

Other Business ActivitiesMedical, Dental, Veterinary, Other Health

Source: USDA, Deere & Company, Raymond James Ltd.



Supply-Demand Implications

The corollary, in our view, is that we are in the preliminary stages of a long-term bull market in agriculture products. With global food reserves hovering near multi-decade lows, and many foodstuffs trading at multi-decade highs, we believe that prices are likely to remain both elevated and volatile for the foreseeable future. After decades of underinvestment, we also believe the sector is ripe for change, requiring significant investment in research and development, productivity enhancement, and commercialization, a process which is expected to create a wealth of investable opportunities. Structural Decline in Stocks-to-Use Ratios; Near-Record Prices

We believe that a structural decline in global food reserves, as measured by their respective stock-to-use ratios, suggests that prices are likely to remain both elevated and volatile going forward. Global wheat and rice ratios have, for example, declined by 15.6% and 42.6% respectively since 1990, touching levels not witnessed since the early 1980s (see Exhibit 25). Historically, these declines have been associated with elevated prices. Looking forward, with the USDA forecasting these ratios to remain near, or at, historical lows over the next decade, we believe world agricultural commodity prices are likely to remain susceptible to short-term supply shocks and the rapid evolution of powerful long-term demand variables. Despite lingering macroeconomic concerns surrounding the recent global recession, market prices for major food commodities are pushing multi-decade highs (see Exhibit 26). Wheat and corn prices, for example, have experienced CAGR of ~21.3% and ~13.5% respectively over the past 5 years, setting record highs. Recent food riots in North Africa and the Middle East have alerted governments around the world to the risks of food inflation. We echo these concerns, particularly in the context of the long-term secular forces reviewed earlier. Exhibit 25: Global Stocks-to-Use Ratios (Historical) Exhibit 26: UN Food Indices (Historical)

0

50

100

150

200

250

300

350

400

450

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

vs

. In

de

x (

20

02

-20

04

=1

00

)

Food price index Meat price index

Sugar price index Oils price index

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009

Glo

bal

sto

cks

to u

se r

atio

(%

)

Wheat stocks-to-use ratio Rice stocks-to-use ratio

Corn stocks-to-use-ratio

Stocks-to-use ratios have been on the decline

Source: FAO, USDA, Raymond James Ltd.



Collision of Factors Also Warrant Near-Term Caution

While we remain demonstrably bullish on agriculture commodities over the long-term, we believe short-term caution is warranted. As discussed herein, the collision of powerful secular forces such as accelerating demand, strained supply, and dwindling global reserves have all played a role in the widespread price advances. The sharp decline in the U.S. dollar also fits into this multi-year theme. Exacerbating the recent ‘fly-up’ in prices, in our view, has been the short-term influence of weather-induced supply shocks (i.e. Russian drought, Australian floods) and robust investment speculation.

1. Price Spikes Not Atypical; Mean Reversion Is

Large price spikes in agricultural commodities are not necessarily a new phenomenon. While prices have been generally mean reverting (i.e. flat) over the past five decades, there have been dozens of large spikes in individual commodities prices over the same period, often attributable to large weather-related supply shocks in key growing regions. According to the IMF, this has resulted in eight declines in global wheat production over 5.0%, for example, within the past 50 years. Notwithstanding the high degree of historical volatility, large price spikes driven by production shortfalls are, in most cases, followed by volume recoveries and commensurate price easing, raising red flags in light of recent price action.

2. Speculation & Dedicated Investment Dollars Redefining Landscape

The massive influx of dedicated investment dollars, and arguably speculation, into the Ag sector has introduced a powerful market force likely to sustain and further enhance price volatility, in our view. As a proxy for this inflow, Chicago Board of Trade (CBOT) open interest in major agriculture commodities has ballooned in recent years (see Exhibit 27). Similarly, the birth of large sector-based ETFs such as the Powershares DB Agriculture Fund (DBA-NYSE) and the Claymore Global Agriculture Fund (COW-TSX), sporting market capitalizations of US$2.6 bln and C$296.4 mln respectively, further illustrate the growing popularity of the sector as an investment alternative (see Exhibit 28).

Exhibit 27: CBOT Open Interest, Ag Commodities Exhibit 28: N.A.-listed Ag ETFs & ETNs

ETF NameMcap

($mlns)

PowerShares DB Ag Fund 2,660.0 Market Vectors Agribusiness ETF 2,130.0 ELEMENTS Rogers Intl Commodity - Ag Total Return 454.5 Claymore Glbl Agriculture 296.4 iPath DJ-UBS Grains Subindex Total Return 188.4 PowerShares Global Agriculture Portfolio 150.3 iPath DJ-UBS Ag Total Return Sub-Index 144.0 PowerShares DB Ag Double Long 123.1 Total 6,146.7

US-Listed Agriculture ETFs

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Op

en I

nte

res

t

Corn Soybeans Wheat

Source: FAO, USDA, CFTC, Raymond James Ltd.



Company Overviews



Alliance Grain Traders Inc. AGT-TSX Steve Hansen CMA, CFA | 604.659.8208 | [email protected]


Agribusiness & Food Products

Initiating Coverage: Pulse Pulse Baby

Overview

AGT has rapidly emerged to become the world’s leading provider of pulse and specialty crops. With humble Saskatchewan roots dating back to 2001 as Saskcan Pulse Trading, the company has assembled an unrivalled portfolio of global assets, largely through acquisition, that includes 24 processing plants throughout Canada, the United States, Turkey, Australia, and China. In recent years, AGT has focused on building out its multi-origin sourcing and processing capabilities, and adding new products such as specialty pulses and staple foods (rice, pasta). The company trades on the Toronto Stock Exchange under the symbol “AGT” and employs approximately 400 people.

We are initiating coverage on Alliance Grain Traders Inc. (‘AGT’) with a Strong Buy rating and $30.00 target price, representing a 31.4% total return based upon the stock’s closing price on April 20, 2011.

We recommend that growth-oriented investors accumulate AGT shares in order to capitalize on robust long-term fundamentals associated with global demand for pulses and specialty crops.

Key attributes of our investment thesis include:

Strong Macro Outlook—As previously discussed, we believe the long-term demand outlook for pulse and specialty crops remains attractive, underpinned by robust population growth in emerging markets and the evolution of associated dietary patterns toward greater protein consumption. We also highlight weather-related supply shocks in recent years, which have driven global stocks to historically low levels and promoted a strong price environment. Finally, we expect mounting inflation and political unrest in key consuming regions (e.g. the Middle East) will continue to favour government stockpiling. Collectively, we believe these factors point toward robust global demand throughout our forecast horizon and beyond.

Multi-Origination Strategy, Positioned in Key Export Markets—AGT’s decision to pursue multi-origin sourcing and processing capabilities is a positive strategic move, in our view, helping reduce the firm’s exposure to adverse crop events (i.e. weather, disease). In particular, we highlight the firm’s position within Canada and Australia, two key growing regions which account for 32% and 6% of global pulse exports respectively. While the full benefits of this strategy are still accruing, we expect the approach will help smooth out earnings volatility over time. Finally, incremental geographies position the company on the doorstep to key strategic markets such as the Middle East, North Africa, India, and China.

Value-Added Capabilities; Proprietary Pulse Products—AGT’s North American facilities are equipped with highly advanced blending, color sorting, and splitting technologies that we believe create value-added margin opportunities, particularly when a high degree of crop quality variance exists. AGT’s ability to obtain exclusive commercialization rights to proprietary pulse varieties such as the B90 Amit chickpeas, King Red and Queen Green lentils (the world’s first true green lentil), and Skyline navy

Rating & TargetStrong Buy 1

Target Price (6-12 mos) C$30.00Current Price (Apr-20-11) C$23.25Total Return to Target 31%52-Week Range C$34.55-21.80Market DataMarket Capitalization (mln) C$464Current Net Debt (mln) C$93Enterprise Value (mln) C$557Shares Outstanding (mln) 20.0Average Daily Volume (000s) 120Dividend/Yield C$0.54/2.3%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

$1.00 $1.97 $2.66P/E

23.3x 11.8x 8.7xEPS - 1Q (Mar)

$0.88 $0.35 NAEPS - 2Q (Jun)

$0.13 $0.37 NAEPS - 2Q (Sep)

$0.04 $0.49 NAEPS - 4Q (Dec)

$0.03 $0.76 NARevenue (mln)

$642 $694 $760EBITDA (mln)

$36 $67 $87EV/EBITDA

15.3x 8.4x 6.4xEBITDA Margin (%)

5.7% 9.6% 11.4%Net Debt/Equity (mrq) 0.3xNet Debt/Trailing EBITDA (mrq) 2.5xBVPS (mrq, tangible) C$11.93Company Description

Source: Raymond James Ltd., Thomson One

Alliance Grain Traders is a Canadian TSX-listed provider of pulse and specialty crops that engages in sourcing, value added processing and merchandising of pulses, primarily for export.

1 Year Price Chart - Publishing will paste



beans offers the firm a differentiated product portfolio. We believe that these technologies and unique products give the firm additional avenues for growth as well as a competitive advantage over many of its peers. Exhibit 29: AGT Revenue and EBITDA Profile

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2009 2010 2011E 2012E

Se

gm

en

ted

Re

ve

nu

e (

C$

00

0s

)

Pulses & Specialty Crops Milled Grains: Pasta, Semolina & BulgarRice Other Commodities

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2009 2010 2011E 2012E

Co

ns

olid

ate

d E

BIT

DA

(C

$ 0

00

s)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Co

ns

olid

ate

d E

BIT

DA

ma

rgin

(%

)

Consolidated EBITDA (C$ 000s) EBITDA Margin (%)

Source: Alliance Grain Traders Inc., Raymond James Ltd.

International M&A Opportunities Still Plentiful—Notwithstanding AGT’s impressive growth profile in recent years, we believe the company’s international growth opportunities remain plentiful, most notably in key strategic markets such as the United States, China, and India. The U.S. bean market for example, represents a well established, low-risk marketplace with attractive growth attributes. Similarly, India represents the largest lentil and chickpea market globally and is heavily dependent on Canadian imports. The ability to add additional staple foods (pasta, rice) and pulse crops (chickpeas, beans) to its portfolio further supplement these opportunities, in our view.

Ripe Organic Growth Opportunities—AGT has embarked on several organic growth initiatives in recent years that we also expect to add shareholder value. In Turkey, the firm is investing C$15.0 mln towards a new 65,000 mt rice plant and the addition of a fifth pasta line that is expected to boost production by ~25.0%. In China, the company is expected to triple its bean processing capacity. These initiatives, plus several in other regions, are expected to drive healthy organic growth throughout our forecast horizon.

Solid Balance Sheet—AGT finished 2010 with a healthy balance sheet, providing ample dry powder to pursue further organic and acquisitive growth, in our view. Net debt ended the period at $92.8 mln. Net debt-to-EBITDA (ttm) ended the year at 2.6x, however, we expect this metric to fall materially during 2011 due to strong cash flow. By our account, the company has ~$200.0 mln in dry powder available including credit-line availability, to pursue its growth objectives without the need to raise equity.

Attractive Valuation—Given the sharp recent decline in its share price, AGT currently trades at an attractive valuation of 7.7x and 5.3x our 2011 and 2012 EBTDA estimates, a notable discount versus its Ag processing and handling peers. This is even more attractive when considering the healthy take-out multiples paid in recent M&A transactions within the consolidating grain handling sector, such as AWB by Agrium at 9.7x and ABB by Viterra at 11.8x.

Initiating with Strong Buy Rating—We are initiating coverage on AGT with a Strong Buy rating and $30.00 target price. Our target is predicated on a 6.9x EV/EBITDA multiple applied to our 2012E EBITDA estimate. This is at a discount to its peers and at the lower-end of its historical trading range to account for some acquisition integration risk, and more importantly lingering challenges associated with weather events, and farmer tendency to hold back on crops in a bid for higher prices.



Asia Bio-Chem Group Corp. ABC-TSX Steve Hansen CMA, CFA | 604.659.8208 | [email protected]



Cornucopia—Satisfying China’s Sweet Tooth

Overview

Asia Bio-Chem Group Corp. (‘ABC’) is one of China’s leading manufacturers of corn starch and corn related by-products (gluten, germ, fiber). ABC operates two plants strategically located in China’s northeastern corn-belt, with its products sold into the food and beverage, animal feed, and pharmaceutical sectors. Headquartered in Toronto, the company‘s shares trade on the Toronto Stock Exchange under the symbol ABC.

We recommend that investors buy ABC shares in order to capitalize on China’s burgeoning economic growth and the commensurate shift in middle class dietary patterns toward processed foods and protein consumption. We reiterate our $2.25 target price and Outperform rating.


Corn Starch: Satisfying China’s Sweet Tooth—Several compelling themes suggest to us that Chinese demand for corn starch, a critical component used in corn-based sweeteners, is on a long-term secular uptrend. First, a tidal wave of rural workers continues to migrate toward China’s urban centers where economic growth and lucrative jobs are more prevalent. Second, the higher disposable income associated with this urbanization wave is driving a commensurate increase in processed food and beverage demand. Third, manufacturers are increasingly turning to corn-based sweeteners as a cheaper alternative to traditional sugar, which has experienced large price spikes in recent years due to rapid demand growth and unreliable supply. Collectively, these macro forces bode well for corn starch demand and ABC, in our view.

Solid Competitive Position in an Attractive Industry—ABC is positioned as one of the largest, low-cost corn starch producers in China, a competitive position which we believe is defensible over time. A handful of incumbents currently boast more than 1.0 mln tonnes of annual processing capacity, while the rest of the sector remains highly fragmented. At the same time, government policy encourages industry consolidation and restricts new greenfield capacity. We believe this industry backdrop will enable growth-orientated incumbents like ABC to capture greater market share over time.

Low-Cost Position Underpinned by Location, Feedstock Supply—ABC’s two production facilities are strategically located in China’s northeastern corn-belt, where favourable access to low-cost feedstock (i.e. corn) affords the company a material cost advantage over its peers. Its location also grants the company access to lower cost labour and incentives by local governments keen to promote jobs and economic development.

Rating & TargetOutperform 2

Target Price (6-12 mos) C$2.25Current Price (Apr-20-11) C$1.15Total Return to Target 96%52-Week Range C$1.64-1.01Market DataMarket Capitalization (mln)* C$99.9Current Net Debt (mln)* C$49.8Enterprise Value (mln)* C$146Shares Outstanding (mln)* 86.9Average Daily Volume (000s) 127Dividend/Yield C$0.00/0%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

$0.14 $0.25 $0.37P/E

8.1x 4.6x 3.1xEPS - 1Q (Mar)

$0.03 $0.03 NAEPS - 2Q (Jun)

$0.06 $0.06 NAEPS - 2Q (Sep)

$0.02 $0.08 NAEPS - 4Q (Dec)


$193 $256 $323EBITDA (mln)



9.6% 12.5% 14.3%Net Debt/Equity (mrq)* 0.7xNet Debt/Trailing EBITDA (mrq)* 2.6xBVPS (mrq, tangible)* C$0.77Company Description

Source: Raymond James Ltd., Thomson One *Pro-forma of recent financing.

Asia Bio-Chem (ABC) is a TSX-listed corn processor in China. With 900,000 tpy of wet-milling processing capacity, corn is converted into starch, gluten, and fiber, all sold within China.




Exhibit 30: ABC Revenue and EBITDA Profile

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2007 2008 2009 2010 2011E 2012E

Rev

enu

e b

y S

egm

ent

($00

0s) Crystalline Glucose

Fiber

Germ

Gluten

Starch

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2007 2008 2009 2010 2011E 2012E

Co

nso

lid

ated

EB

ITD

A (

$000

s)

Source: Asia Bio-Chem Group, Raymond James Ltd.

Vertical Integration Strategy Unfolding—ABC announced its decision to pursue downstream sweetener markets earlier this year, including plans to construct a 250k tpy crystallized glucose plant adjacent to its flagship Daqing facility. We view this decision positively based upon: (i) attractive end-market fundamentals, with crystallized glucose enjoying 25.0% CAGR demand; (ii) ABC’s ability to leverage many of its existing competitive strengths (i.e. infrastructure, low-cost feedstock); and (iii) the ability to extract greater margins. ABC completed a $10.0 mln bought deal financing in Jan-11 to help fund plant construction.

Strong Revenue, Earnings Growth on Horizon—ABC has yet to realize the combined earnings contribution of its two key assets. The company’s flagship Daqing plant, which was originally commissioned in October 2009, only reached full capacity during late 2010 due to initial growing pains associated with feedstock quality and logistics. At the same time, the company also just completed the relocation and upgrade of its original Changtu plant, with the plant now certified to comply with international standards and marquee customer requirements. With both plants poised to demonstrate their full potential by mid-2011, we expect to see a corresponding step change in the company’s earnings performance.

Attractive Valuation—ABC is currently trading at just 5.2x and 2.8x our respective 2011E and 2012E EV/EBITDA estimates, a material discount versus both its domestic and international peers. While a modest discount is reasonably justified to account for ABC’s small stature and limited liquidity, we believe the current discount is too excessive and fails to account for the company’s progress to date and future earnings power. Precedent transactions also lend support to our target valuation.

Reiterate Outperform Rating; $2.25 Target Price—We continue to remain encouraged by ABC’s operational progress, attractive growth prospects, and exposure to strong macro fundamentals associated with Chinese sweetener demand. Our $2.25 target price represents a 4.9x EV/EBITDA multiple and 0.15 CNY/CAD FX rate applied to our 2012E estimate, a modest discount to the firm’s domestic and international peers and at the lower end of its 2-year historical trading range.



BioExx Specialty Proteins Ltd. BXI-TSX Steve Hansen CMA, CFA | 604.659.8208 | [email protected]



Initiating Coverage: Move over Whey, Canola may be the new Heavyweight

Overview

BioExx Specialty Proteins Ltd. (‘BXI’) is an early stage venture engaged in the development of proprietary technologies used for extraction of high-quality proteins from oilseeds. With a 40,000 tpy plant located in Saskatchewan, the company is currently attempting to demonstrate its ability to produce canola-based protein isolates on a commercial scale—a potential industry first. Boasting high nutritional value and compelling functional attributes, we believe that BXI’s isolates, once available, are likely to enjoy strong uptake in traditional protein additive markets. The company trades on the Toronto Stock Exchange under the symbol “BXI”.

We are initiating coverage on BXI with an Outperform rating and $2.50 target price, representing a 43.7% total return based upon the stock’s closing price on April 20, 2011.

We recommend growth-oriented investors buy shares of BXI to capitalize on what we view as the firm’s large growth opportunities in the global protein additive market.


Strong Macro Fundamentals: Protein Outlook Attractive—We believe that global macro fundamentals support strong growth in the protein additive market, underpinned by a strong shift in consumer preference towards healthy lifestyles and improved dietary patterns. Moreover, while animal-based protein additives (i.e. whey, casein) dominate the market today, we expect plant-based proteins (i.e. soy, canola) to steadily gain market share owing to their favourable economics, superior environmental efficiencies, and reduced allergy concerns. We believe these fundamentals bode well for BXI’s growth prospects.

Move Over Whey; Canola Poised to Go Mainstream—BXI has developed a new, potentially disruptive, protein extraction technology for use on oilseeds. With a 40,000 tpy plant located in southern Saskatchewan, BXI is currently attempting to demonstrate its ability to produce canola-based protein isolates at a commercial scale—a potential industry first. Boasting high nutritional value and impressive functional attributes, we believe BXI’s isolates, once available, are likely to enjoy strong uptake in the global protein additive market. Specifically, we expect BXI’s products will initially be embraced by consumers of plant-based protein additives (i.e. soy), followed by a gradual transition into higher-end markets dominated by animal-based additives (i.e. casein, whey).

Key Global Partners—BXI has secured a number of key global partners to assist in its commercialization efforts. For distribution, the company has struck a long-term agreement with global chemical and nutrition conglomerate HELM AG that calls for purchase of 70% of the protein isolate produced at its initial Saskatoon plant. We expect this relationship to play a key role facilitating in new customer development, expanding distribution for upcoming plants, and exploring joint venture/partnership opportunities in sectors complementing BXI’s technology. In terms of feedstock, BXI has secured a long-term agreement with Viterra for the supply of certified non-GMO canola seed.


Target Price (6-12 mos) C$2.50Current Price (Apr-20-11) C$1.74Total Return to Target 44%52-Week Range C$2.93-1.28Market DataMarket Capitalization (mln) C$303Current Net Debt (mln) ($10)Enterprise Value (mln) C$293Shares Outstanding (mln) 174.0Average Daily Volume (000s) 867Dividend/Yield C$0.00/0.0%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

-$0.09 -$0.07 $0.02P/E

n.m. n.m. n.m.EPS - 1Q (Mar)

-$0.03 -$0.02 NAEPS - 2Q (Jun)

-$0.02 -$0.02 NAEPS - 2Q (Sep)

-$0.02 -$0.02 NAEPS - 4Q (Dec)

-$0.03 -$0.01 NARevenue (mln)

$3 $11 $57EBITDA (mln)

-$14 -$14 $12EV/EBITDA

n.m. n.m. 25.1xEBITDA Margin (%)

n.m. n.m. 20.5%Net Debt/Equity (mrq) -0.1xNet Debt/Trailing EBITDA (mrq) 0.8xBVPS (mrq, tangible) C$0.42Company Description


BioExx is a Canadian TSX-listed technology and food ingredients company focused on the extraction of premium plant proteins.




Build It & They Will Come; Scalable Plant Footprint—Rather than license its technology to an established global heavyweight, BXI has elected to go it alone and prove out the global market opportunities open to its extraction technology. Following commercialization, the company plans to aggressively expand capacity, with initial plans calling for five plants totaling 800,000 tonnes in capacity, all based upon a standardized, scalable plant design to facilitate a quick roll out. Exhibit 31: BXI Revenue and EBITDA Profile

-

50,000

100,000

150,000

200,000

250,000

2010 2011E 2012E 2013E 2014E 2015E

Rev

enu

e b

y P

rod

uct

($0

00s)

Isolexx ProteinVitalexx Protein

Canola MealCanola Oil

(20,000)

-

20,000

40,000

60,000

80,000

100,000

2010 2011E 2012E 2013E 2014E 2015E

EB

ITD

A (

$000

s)

Source: BioExx Specialty Proteins Ltd., Raymond James Ltd.

Potential Acquisition Candidate—The food additive and ingredient space has become a major focus for global agriculture companies in recent years, marked by several notable recent acquisitions. Given the market opportunities we foresee for canola-based protein additives, we view BioExx as an attractive acquisition target once the company demonstrates the full-scale commercial viability of its proprietary extraction technology.

Large Option Value Embedded in Share Price—Presuming BXI’s commercialization efforts are successful, we highlight that that the market is currently attributing very little value to the company’s second plant planned for Minot, North Dakota, and zero for future plant expansions—each of which could add an additional $2.00 to $3.00 per share in incremental value, in our view. In this context, we believe the stock boasts a relatively attractive risk-reward profile at current levels, although we highlight that the commercialization risk over the next six to nine months remains high.

Initiating with Outperform Rating; $2.50 Target—We are initiating coverage on BXI with an Outperform rating and $2.50 target price. Based upon the stock’s most recent close, our target price represents a 43.7% total return. Given the company’s early stage of development and strong future projected cash flows, we employ a DCF analysis to derive our target price. To risk adjust our DCF analysis for BXIs near-term commercialization risk, we apply an additional 25.0% discount to our DCF output.



Cervus Equipment Corp.

CVL-TSX Ben Cherniavsky | 604.659.8244 | [email protected]

Theoni Pilarinos CFA (Associate) | 604.659.8234 | [email protected]

Greg Jackson (Associate) | 604.659.8262 | [email protected]

Infrastructure & Construction | Equipment Distributors

A Great Play on Ag Without Betting the Farm

Overview

Cervus’ main business, making up ~75% of top-line revenues, is distributing John Deere agricultural equipment, the leading brand among farmers, in western Canada and New Zealand. Cervus also distributes construction and industrial equipment including Bobcat, JCB, and JLG brands, exclusively in western Canada. Headquartered in Calgary, the company’s shares trade on the Toronto Stock Exchange under the symbol CVL.

We recommend investors purchase shares of Cervus in order to capitalize on the company’s promising growth outlook. We view Cervus as a ‘low risk’ (albeit less torqued) way of playing many of the themes discussed in this report since the dealership business is inherently quite stable and only tangentially affected by the ag cycle. Furthermore, we believe that Cervus, with a net debt-to-equity ratio of 0.1x (including interest bearing FPF), is extremely well-positioned to act on any number of acquisition opportunities over the next few months. We reiterate our $20.00 target price and Strong Buy rating. Cervus is one of our ‘Top Picks’ in the equipment dealer space.


Favourable Leverage to Solid Ag Fundamentals—With Ag as its primary end market, Cervus is poised to benefit from some of the themes discussed in this report. Farm income, in particular—determined by commodity prices and yield—has a direct bearing on the company’s sales. Record commodity prices provide farmers with confidence to purchase new machinery and invest in the newest technology. There are, of course, many other factors that go into the purchasing decision, but ultimately the price that the farmer receives for his crop has a significant bearing on capital expenditure decisions. One of the important ‘other’ factors that can influence sales is weather. Indeed, the price of wheat on world markets matters little if there is nothing in ‘the bin.’ This was the case in 2010, when an exceptionally wet spring, summer, and fall dampened crop production and, in turn, farm machine sales in western Canada (our see our Jul-05-10 INsight Rain, Rain, Go Away; You’ve Hurt the Market for Tractors Today). Assuming more normal conditions prevail in 2011, we expect today’s high commodity prices to effect strong tractor sales for Cervus. In addition to our bullish outlook for ag and the nascent recovery in construction markets that we expect to fuel Cervus’ sales, we also like the company’s stock as it offers investors (i) diversified end market and geographic exposure; (ii) continued growth opportunities through acquisitions and partnership agreements; and (iii) an impressive track record of growth, profits, and free cash flow.

Increasing its Stakes; An Appetite for Growth—In the last 18 months, Cervus has grown the Ag part of its business by obtaining equity interests in partnerships. More specifically, last July, Cervus increased its equity interest from 20% to 60% in its subsidiary Agriturf, gaining more exposure to the highly-fragmented New Zealand Ag market. A little closer to home, Cervus obtained a 20% interest in Maple Farm


Target Price (6-12 mos) C$20.00Current Price (Apr-20-11) C$17.62Total Return to Target 16%52-Week Range C$18.40-10.10Market DataMarket Capitalization (mln)* C$258Current Net Debt (mln)* C$14Enterprise Value (mln)* C$271Shares Outstanding (mln)* 14.6Average Daily Volume (000s) 27Dividend/Yield C$0.72/4.1%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

$0.91 $1.38 $1.71P/E

19.4x 12.8x 10.3xEPS - 1Q (Mar)

-$0.04 NA NAEPS - 2Q (Jun)

$0.25 NA NAEPS - 2Q (Sep)

$0.54 NA NAEPS - 4Q (Dec)

$0.16 NA NARevenue (mln)

$469 $526 $556EBITDA (mln)





Based in Calgary, Alberta, CVL operates and acquires authorized agricultural and construction equipment dealers. Cervus is the largest owner of John Deere agricultural equipment franchises in Canada.




Equipment by combining two of its existing branches (located in Moosomin, SK and Russel, MB) with Maple’s five locations in Saskatchewan in January last year.

Getting the ‘Green’ Light from Deere—Cervus has more recently taken the partnership route on the Deere side of its business (vs. the outright purchase of dealers), to strike a balance between expanding its footprint and threatening to control potentially ‘too much’ of the distribution channel. As discussed in previous missives (see our Oct-14-11, Deal Me In! Report for details), OEMs like Deere often face a trade-off in allowing their dealers to get larger through the consolidation of territories. Namely, bigger dealers can drive market share higher but also wield more bargaining power with the OEM. That said, Deere recently announced its intention to nearly double its sales to $50 bln by 2018, which in our view, will only be achieved by further consolidation of its distribution network. With this goal in place, we believe Cervus, one of Deere’s top performing dealers, has an ever stronger case to manage more territories.

Balance Sheet Ripe for Consolidation Opportunities—Be it a Deere dealer or an additional line to the construction or industrial part of its business, we believe Cervus is well positioned for growth with a net debt-to-equity ratio of 0.1x (including interest bearing FPF) and almost $20 mln of cash on its balance sheet. Its well capitalized position has been achieved by diligent management of its business. In fact, by almost any financial metric, Cervus has met or outperformed all of its peers in the space over the last 10 years (see the ‘Analyzing Returns’ section of our Oct-14-11 Report for details). The company’s exceptionally strong financial performance is one of the reasons we have recently selected it as our ‘Top Pick’ among the equipment distribution stocks that we cover.

Reiterate Strong Buy Rating; $20.00 Target Price—We recently upgraded Cervus from Outperform to Strong Buy and identified the company as one of our ‘Top Picks’ in the equipment dealer space (see our Mar-28-11 Equipment Dealer Report Digging Deeper For Earth Moving Returns for more details). We continue to remain bullish on the equipment distribution sector in general and believe Cervus, in particular, will post above average Y/Y growth results. Our $20.00 target price equals 12.0x our fully-taxed 2011E EPS, plus the present value of Cervus’ tax losses. The former equals the same target multiple that we are using for the company’s closest peer (RME-TSX).



GLG Life Tech Corp. GLG-TSX | GLGL-NASDAQ Steve Hansen CMA, CFA | 604.659.8208 | [email protected]



Initiating Coverage: Trimming Waistlines and Adding to Portfolios

Overview

GLG Life Tech Corporation (‘GLG’) is one of the world’s leading, low-cost producers of high-purity stevia extract, a zero-calorie, naturally-derived sweetener made from the stevia plant. With vertically-integrated operations strategically positioned throughout ten Chinese provinces, GLG boasts industry-leading R&D, growing operations, processing capacity, and product formulation expertise. Backed by a pioneering and well respected management team, the company has already secured key heavyweight customers such as Cargill, and signed up an impressive group of global distribution partners. Earlier this year, the company made its initial foray into the Chinese beverage market, launching a line up of ANOC-branded (All Natural Zero Calorie) teas sweetened with GLG’s proprietary stevia blend. The company is dual-listed on the TSX and NASDAQ under the symbols “GLG” and “GLGL” respectively.

We are initiating coverage on GLG with a Strong Buy rating and $12.50 target price, representing a 38.1% total return based upon the stock’s closing price on April 20, 2011.

We recommend that investors buy shares of GLG in order to capitalize on what we view as positive long-term fundamentals for zero-calorie, naturally-derived, sweeteners and the company’s tremendous associated growth prospects.


Positive Macro Fundamentals—The long-term fundamental outlook for zero-calorie, naturally-derived, sweeteners is compelling, in our view. In developed markets, as obesity and health-related risks continue to escalate (e.g. diabetes, heart disease), consumers are increasingly adopting strong views toward health and wellness, paying closer attention to their food labels and dietary intake. These same themes have also surfaced in emerging markets, where disposable incomes are rising, processed food and beverage consumption is surging, and health-related issues are escalating. Finally, the soaring cost of sugar—which recently surpassed 30-yr highs—has made alternative sweeteners far more attractive from a price-point perspective.

Stevia is a Potential Game-Changer; Poised to Take Global Share—Stevia is a zero-calorie, naturally-derived sweetener that offers consumers a viable alternative to traditional high-caloric sweeteners (i.e. sugar, corn syrup) and chemically-derived alternative sweeteners (i.e. sucralose, aspartame). These positive attributes, coupled with rapidly evolving consumer preferences, swift uptake by global food and beverage manufacturers and falling regulatory barriers, suggest stevia is poised to rapidly take market share in the $60.0 bln global sweetener market. Recent estimates by food and drink consultancy Zenith International support this view, suggesting the global market for stevia extract is likely to reach US$825 mln by 2014 versus only US$285 mln in 2010.

Global Leader; Unrivalled, Low-Cost Infrastructure—GLG is one of the world’s leading, low-cost producers of high quality stevia extract. With vertically integrated operations strategically positioned to take advantage of favourable growing conditions throughout 10 Chinese provinces, GLG boasts industry leading R&D, processing capacity, and new


Target Price (6-12 mos) C$12.50Current Price (Apr-20-11) C$9.05Total Return to Target 38%52-Week Range C$12.27-6.85Market DataMarket Capitalization (mln)* C$322.3Current Net Debt (mln)* C$27.8Enterprise Value (mln)* C$350.1Shares Outstanding (mln)* 35.6Average Daily Volume (000s) 38Dividend/Yield C$0.00/0.0%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

-$0.11 $0.28 $0.79P/E

NA 32.3x 11.5xEPS - 1Q (Mar)

-$0.05 -$0.07 NAEPS - 2Q (Jun)

-$0.01 -$0.02 NAEPS - 2Q (Sep)

$0.07 $0.17 NAEPS - 4Q (Dec)

-$0.12 $0.20 NARevenue (mln)

$59 $169 $308EBITDA (mln)




Source: Raymond James Ltd., Thomson One *Pro-forma of recent financing.

GLG Life Tech Corporation is TSX-listed vertically integrated leading producer of stevia extract, a zero calorie, 100% natural sweetener derived from a stevia plant.




product development initiatives that afford the company an unrivalled low-cost position and distinct competitive advantage.

Chinese Market Key; Enormous Growth Potential—China represents GLG’s largest, fastest growing market, enabling enormous growth opportunities on a standalone basis, in our view. We believe that rising disposable incomes, a burgeoning middle class, and increasing processed food and beverage demand will continue to drive robust growth in domestic sweetener demand. These factors, as well as multi-decade high sugar prices, translate into strong demand growth opportunities for stevia extract sales, in our view.

Premiere Partnership with Cargill; Additional Partners for ROW Distribution—Historically, the bulk of GLG’s stevia sales have been to Cargill, an international provider of food and agricultural products and services. Cargill’s use of GLG stevia extract within its branded sweetener TRUVIA, which is then sold to major North American beverage companies including Coca-Cola, has served as a significant ‘stamp of approval’. Beyond Cargill, GLG is continuing to focus on additional growth within the rest-of-the world markets through multi-year, international distribution agreements with a distinguished list of regional partners. We expect these key partnerships, many solidified over the past year, to provide strong sources of revenue and earnings growth in the future.

Next Legs of Growth: ANOC and Blendsure—GLG recently launched a joint venture, ANOC, aimed at introducing zero-calorie, stevia-based beverages to the rapidly growing Chinese consumer market. With an experienced management team already in place, six initial products nationally-approved, and distribution channels secured, ANOC launched its products on March 31, 2011 and within only three weeks shipped 6 million bottles. Given the size of this opportunity, management is targeting more than half a billion in sales by 2013. GLG’s new ‘Blendsure’ product is a potential game-changing formulation aimed at providing F&B companies with half-calorie (blended) product ideal for consumer products. Exhibit 32: GLG Revenue and EBITDA Profile

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2009 2010 2011E 2012E

Se

gm

en

ted

Re

ven

ue

(C$

00

0's

)

Stevia Revenue ANOC Revenue

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2009 2010 2011E 2012E

ET

BID

A (

C$

00

0's

)

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

Gro

ss

Mar

gin

(%)

EBITDA Gross Margin (%)

Source: GLG Life Tech Corp., Raymond James Ltd.

Attractive Valuation—With the stock trading at just 11.5x and 6.3x our 2011 and 2012 EV/EBITDA estimates, we believe little, if any, of the growth from the aforementioned ANOC joint venture is priced into GLG’s stock price. Furthermore, our current estimates lie at the bottom end of guidance for 2011, use reasonable estimates for 2012, and do not account for the even stronger growth we expect in 2013 (and beyond), arguably providing a great deal of conservatism at this point.

Initiating with Strong Buy Rating; $12.50 Target Price—Our $12.50 target price is based on a sum-of-parts valuation resulting in a consolidated 8.4x EV/EBITDA target multiple applied to our 2012E estimate. This multiple is at a modest discount to GLG’s sweetener and global f&b peers, given its size and relatively early stage of development.



Rocky Mountain Dealerships RME-TSX Ben Cherniavsky | 604.659.8244 | [email protected]

Theoni Pilarinos CFA (Associate) | 604.659.8234 | [email protected]

Greg Jackson (Associate) | 604.659.8262 | [email protected]

Infrastructure & Construction | Equipment Distributors

Shifting Near-Term Focus to Harvest Internal Growth

Overview

Rocky Mountain’s primary business is the sale and repair of new and used ag tractors and construction machinery to farmers and contractors in western Canada. Rocky Mountain is the largest Canadian Case Construction and Case IH’s equipment dealer and sells the majority of its equipment to large-scale farmers in western Canada. Headquartered in Calgary, the company’s shares trade on the Toronto Stock Exchange under the symbol RME.

We advise investors buy Rocky Mountain’s shares. We remain bullish on the equipment distribution sector in general and view Rocky Mountain as one of the best (and few remaining) value ideas in the space. Similar to our view on Cervus, we see it as a ‘low risk’ (albeit less torqued) way of playing many of the themes discussed in this report since the dealership business is inherently quite stable and only tangentially affected by the ag cycle. We rate Rocky Mountain Outperform with a $14.00 target price.


Strong Agricultural Commodity Prices to Fuel Growth—Several trends discussed in this report have been—and we believe will continue to be—positive drivers of Rocky Mountain’s ag business, which represents over 80% of its revenues. Farm income, in particular—determined by commodity prices and yield—has a direct bearing on Rocky Mountain’s sales. Record commodity prices provide farmers with confidence to purchase new machinery and invest in the newest technology. There are, of course, many other factors that go into the purchasing decision, but ultimately the price that the farmer receives for his crop has a significant bearing on capital expenditure decisions. One of the important ‘other’ factors that can influence sales is weather. Indeed, the price of wheat on world markets matters little if there is nothing in ‘the bin.’ This was the case in 2010, when an exceptionally wet spring, summer, and fall dampened crop production and, in turn, farm machine sales in western Canada (see our see our Jul-05-10 INsight Rain, Rain, Go Away; You’ve Hurt the Market for Tractors Today). Assuming more normal conditions prevail in 2011, we expect today’s high commodity prices to effect strong tractor sales for Rocky.

Consolidation, Consolidation, Consolidation—As discussed in our Oct-14-10 Dealer report, the equipment dealership business remains highly fragmented and ripe for further consolidation, in our view. A key part of our bullish investment thesis on Rocky Mountain is its aptitude to capitalize on this opportunity. The company has been extremely active on the consolidation front—in fact since going public in 2007 the company has acquired 13 dealers, 25 locations (from 12) and over $275 mln in revenues (see Exhibit 33). Consolidation has allowed Rocky to (i) eliminate price pressure and profit cannibalization; (ii) expand its acquired dealers’ service offering and decrease their reliance on used equipment sales; and (iii) implement top-notch infrastructure and inventory systems amongst its network. Consolidation has also resulted in acquiring an


Target Price (6-12 mos) C$14.00Current Price (Apr-20-11) C$10.05Total Return to Target 41%52-Week Range C$11.00-7.50Market DataMarket Capitalization (mln)* C$197Current Net Debt (mln)* C$180Enterprise Value (mln)* C$377Shares Outstanding (mln)* 19.6Average Daily Volume (000s) 47Dividend/Yield C$0.18/1.8%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

$0.83 $1.15 $1.44P/E

12.1x 8.7x 7.0xEPS - 1Q (Mar)

$0.10 NA NAEPS - 2Q (Jun)

$0.17 NA NAEPS - 2Q (Sep)

$0.20 NA NAEPS - 4Q (Dec)

$0.34 NA NARevenue (mln)

$633 $787 $909EBITDA (mln)





RME is the largest independent dealer of Case Construction and Case IH Agriculture equipment in Canada and represents one of Alberta's largest agriculture and construction equipment dealerships.




additional construction line (Doosan), a second ag equipment line (New Holland), and better servicing the needs of the large scale, sophisticated farming customer base.

Increased Focus on Harvesting Internal Growth—All of the companies Rocky Mountain has acquired fit a similar profile—i.e. they typically distribute Case or New Holland equipment and are based in western Canada—making integration a fairly streamlined process. That said, with the recent high level of activity (5 acquisitions were made last year; two acquisitions have been made YTD), we expect Rocky Mountain to be more internally focused this year as they strive to fully optimize some recently acquired dealers. We believe that this ‘harvesting’ process will produce accelerated results in 2H11 and 2012.

Reiterate Outperform Rating; $14.00 Target Price—We continue to remain bullish on the equipment distribution sector in general and view Rocky Mountain as one of the best (and few remaining) value ideas in the space. We also are encouraged by Rocky Mountain’s near-term shift to focus on improving the performance of previously acquired stores. To arrive at our $14.00 target price, we apply a ~12.0x our revised 2011 forecast of $1.15. This represents a liquidity-adjusted discount to the current peer group average. Our 2011 forecast assumes no further acquisition will be made in the remainder of the year. Our 2012 EPS forecast is $1.44 and we assume that the company will resume making acquisitions (totaling ~$130 mln in revenues) next year. Exhibit 33: Rocky Mountain’s Acquisition History Since Inception

Date Company Acquired

Annual Revenues ($000's)

1-Jan-11 Agritrac Equipment Ltd. 47,000

1-Apr-11 J&B Equipment Ltd 18,000

2011- 2 Acquisitions YTD 65,000

1-Mar-10 Roydale New Holland Inc. 22,000

7-Jun-10 Wardale Equipment 39,000

1-Sep-10 Gateway Farm Equipment 12,300

1-Sep-10 Allen Agrocentre Ltd 5,800

15-Oct-10 K&M Farm Equipment Ltd 16,900

2010 - 5 Acquisitions 96,000

1-Apr-09 Heartland Equipment Ltd. 28,100

1-Nov-09 Enns Agri 13,000

1-Nov-09 Mayor Equipment 15,000

2009 - 3 Acquisitions 56,100

9-Jun-08 Roydale International Ltd. 8,000

27-Aug-08 Miller Farm Equipment Inc. 101,000

9-Oct-08 Lakeland Implements Ltd 8,000 2008 - 3 Acquisitions 117,000

Source: Rocky Mountain Dealerships, Raymond James Ltd.



Viterra Inc. VT-TSX | VTA-ASX Steve Hansen CMA, CFA | 604.659.8208 | [email protected]



Initiating Coverage: Canada’s Global Grain Giant; Feeding the World

Overview

Viterra Inc. (‘VT’) is a world-leading international grain handler and agri-business enterprise boasting unrivalled infrastructure throughout western Canada and South Australia, two of the world’s most prominent growing and export regions. Complimenting its dual-origin grain sourcing capabilities, the company operates a diversified platform of Agri-Products and Processing assets that enable it to capture margin at all stages of the value chain and bestow it with a formidable competitive position, in our view. Based in Regina, Canada, the company has ~5,500 employees and is listed on the Toronto Stock Exchange (VT-TSX) in addition to its CDI’s trading in Australia (VTA-ASX).

We are initiating coverage on VT with a Market Perform rating and $12.50 target price, representing a 13.5% total return based upon the stock’s closing price on April 20, 2011.

Notwithstanding our positive view toward VT’s strong competitive position and macro fundamentals, we believe the stock is appropriately valued at this time.


Positive Long-Term Grain Fundamentals—As reviewed, we believe the long-term outlook for global food and grain demand remains robust, particularly in emerging markets where population growth and rising disposable incomes are fuelling a seismic shift in dietary patterns toward high-quality, nutritious food. However, given that many of these same regions suffer from inadequate domestic grain supplies, we believe they will increasingly rely on imported products to satisfy demand. The corollary, in our view, is that international grain handlers with global sourcing capabilities will become increasingly vital to global food security over time.

Dominant Footprint in Key Export Markets; High Barriers to Entry—Viterra is one of the world’s leading agri-businesses, boasting unrivalled grain handling infrastructure throughout western Canada and South Australia, two of the world’s most prominent growing regions accounting for ~40% of global exports in wheat, barley, and canola. Its footprint includes control of major portions of western Canada’s elevator, storage and terminal capacity, as well as almost total control of South Australia’s grain handling and storage infrastructure. We believe these long-lived, infrastructure assists erect steep barriers to entry.

Geographically Diversified, Dual-Origin Sourcing Capabilities—Viterra’s acquisition of Australian-based ABB Inc. in 2009 was a transformational deal that bestowed the firm with dual-origin sourcing capabilities and helped diversify its weather-related exposure. As a dominant growing region for wheat, barley, and canola, it also came with a world class malting business and greater export access to Asian markets. We believe these attributes, coupled with the firm’s broader strategy to diversify its product offering, will continue to reduce Viterra’s risk profile and smooth earnings volatility over time.

Margin Capture at All Stages of Supply Chain—Viterra’s core Grain Handling unit is complimented by the company’s Agri-Products and Processing platforms that facilitate

Rating & TargetMarket Perform 3

Target Price (6-12 mos) C$12.50Current Price (Apr-20-11) C$11.10Total Return to Target 14%52-Week Range C$12.28-6.96Market DataMarket Capitalization (mln) C$4,126Current Net Debt (mln) C$1,518Enterprise Value (mln) C$5,644Shares Outstanding (mln) 371.7Average Daily Volume (000s) 1,292Dividend/Yield C$0.10/0.9%Key Financial Metrics

2010A 2011E 2012EEPS (C$)

$0.47 $0.85 $0.77P/E

23.7x 13.1x 14.4xEPS - 1Q (Mar)

$0.03 $0.27 NAEPS - 2Q (Jun)

$0.05 $0.16 NAEPS - 2Q (Sep)

$0.25 $0.34 NAEPS - 4Q (Dec)


$8,256 $9,675 $9,689EBITDA (mln)

$518 $728 $701EV/EBITDA




Viterra Inc. is a leading vertically integrated Canadian grain handling and food ingredients company operating across Western Canada and internationally.




margin capture at all stages of the supply chain. In western Canada, Viterra operates the largest network of retail stores, totaling 261 locations, boasting a 34.0% market share in key crop inputs (seed, crop protection products and fertilizer) and ag-equipment. Downstream, the firm’s processing activities include the world’s largest industrial oat miller and N.A.’s third largest pasta producer.

Exhibit 34: VT Revenue and EBITDA Profile

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011E 2012E

Seg

men

ted

Rev

enu

e (C

$ 00

0's)

Processing

Agri-Products

Grain Handling & Marketing

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011E 2012EE

TB

IDA

(C

$ 00

0's)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

EB

ITD

A M

arg

in (

%)

EBITDA EBITDA Margin (%)

Source: Viterra Inc., Raymond James Ltd.

Organic & Acquisitive Growth in Food Processing—VT has strategically identified food processing as a business unit primed for organic and acquisitive growth to take advantage of value-added margins, predictable demand growth, and attractive diversification benefits. The company also expects to leverage its up-stream market position in grain handling in order to extract additional margins.

Strong Management Team—CEO Mayo Schmidt has accomplished a great deal in a relatively brief tenure, transforming Viterra from a regional, government-controlled co-operative (i.e. Saskatchewan Wheat Pool) into one of the world’s leading agri-business companies today. With a demonstrated ability to strategically identify high value targets and subsequently integrate such acquisitions, we believe Mr. Schmidt and his team are well suited to continue growing the business going forward.

Near-Term Grain Outlook Positive—We believe that forward-looking crop expectations bode relatively well for VT. In Canada, a modest projected decline in seeded acres is expected to be offset by sharply improved y/y crop fundamentals (i.e. crop quality), abundant storage volumes and strong export demand. That being said, extensive current flooding across the central prairies could introduce downside risk to this outlook—we will be monitoring the situation closely. In Australia, a record crop and limited on-farm storage has also triggered near-record grain shipments (receivals) into VT’s large storage system. Commensurate with these moves, we expect positive results from VT’s Australia operations over the next two quarters as well as strong carry-over stocks into fiscal 2012. Early indications from ABARE also suggest that Australia’s forthcoming crop will be well above average.

Initiating with Market Perform Rating; $12.50 Target Price—Notwithstanding our positive view toward VT’s strong competitive position and positive macro fundamentals, we believe the stock is close to fairly valued at this time. With only 13.5% upside to our target price, we advise investors to patiently wait for a more opportune entry point. Our $12.50 target price is based upon a 7.0x EV/EBITDA target multiple applied to our F2012E estimate. This multiple is near the middle of the company’s historical trading range between 6.0x and 8.5x.



Appendix A: Industry Comparables

Company Name Ticker Fx FY END 2010A 2011E 2012E 2010A 2011E 2012E(mln) (mln) (mln) (mln) (%) (x) (%)

Agri-Products/ProcessingAlliance Grain Traders Inc. AGT.CA CAD 31-Dec 23.25 20 464 93 557 23.3 8.2 6.6 n.m. 6.4 5.1 16.7 1.5 2.4%Archer Daniels Midland Company ADM.US USD 30-Jun 35.81 637 22,822 11,526 34,348 11.7 10.7 10.2 8.9 8.9 8.4 33.6 1.6 1.8%Bunge Limited BG.US USD 31-Dec 72.88 147 10,728 4,264 14,992 17.6 12.3 11.2 10.3 8.0 7.5 28.4 0.9 1.2%GrainCorp Ltd. GNC.AU AUD 30-Sep 7.98 198 1,583 240 1,823 20.1 11.8 11.6 8.6 6.3 6.3 13.2 1.2 3.1%Monsanto Co. MON.US USD 31-Aug 67.53 536 36,195 138 36,333 28.0 23.8 20.1 14.3 12.2 10.7 0.4 3.6 1.7%Syngenta AG SYNN.VX CHF 31-Dec 308.90 93 28,631 1,597 30,228 19.7 15.7 13.9 12.4 10.4 9.5 5.3 3.8 --The Andersons, Inc. ANDE.US USD 31-Dec 48.68 19 901 515 1,417 14.0 12.6 12.0 12.1 8.8 8.5 36.4 2.0 0.9%Viterra VT.CA CAD 31-Oct 11.34 372 4,126 1,518 5,644 23.7 13.1 14.4 10.9 7.8 8.1 26.9 1.1 0.9%

19.8 13.5 12.5 11.1 8.6 8.0

Food Ingredients CompaniesBioExx Specialty Proteins Ltd. BXI.CA CAD 31-Dec 1.74 174 303 (10) 292 n.m n.m n.m. n.m. n.m. n.m. (3.5) 4.8 --Burcon Nutrascience Corp. BU.CA CAD 31-Mar 9.50 30 283 (13) 270 n.m n.m 15.3 n.m. n.m. 11.1 (4.8) n.m. --CSM nv CSM.AE EUR 31-Dec 25.35 66 1,669 631 2,300 14.5 12.6 10.4 8.0 7.6 6.7 27.4 1.5 3.6%Danisco A/S DCO.KO DKK 30-Apr 663.00 48 31,578 3,626 35,204 24.9 21.9 20.1 14.4 11.5 10.8 10.3 2.5 1.3%Kerry Group plc KRZ.DB EUR 31-Dec 27.29 175 4,783 1,155 5,937 14.0 12.8 11.6 9.6 9.4 8.8 19.4 2.9 1.1%Tate & Lyle plc TATE.Ln GBP 31-Mar 5.99 458 2,741 561 3,302 16.1 13.4 12.5 8.0 7.9 7.6 17.0 3.3 3.8%

17.4 15.2 14.0 10.0 9.1 9.0

Global Sugar & Sweetener CompaniesAsia Bio-Chem Group Corp. ABC.CA CAD 31-Dec 1.15 87 100 50 150 8.1 4.6 3.1 8.0 4.7 3.2 33.3 1.6 --Corn Products International Inc. CPO.US USD 31-Dec 53.64 76 4,093 1,467 5,560 16.6 13.2 12.1 9.6 7.0 6.6 26.4 2.1 1.0%GLG Life Tech Corporation GLG.CA CAD 31-Dec 9.05 36 322 28 350 n.m. 32.3 11.5 n.m. 10.7 5.8 7.9 1.8 --Global Sweeteners Holdings Ltd. 3889.HK HKD 31-Dec 1.94 1,149 2,230 518 2,748 24.6 13.0 10.5 11.8 10.0 7.7 18.8 1.2 --Imperial Sugar Co. IPSU.US USD 30-Sep 13.01 12 160 41 201 n.m. n.m. 7.4 0.9 14.7 4.1 20.5 0.7 0.6%Purecircle Ltd. PURE.GB GBP 30-Jun 1.06 154 163 77 240 n.m. n.m. 24.5 n.m. n.m. 13.9 32.0 1.0 --Rogers Sugar Inc. RSI.CA CAD 30-Sep 5.41 89 480 186 666 11.4 11.4 11.3 11.4 8.2 8.0 27.9 1.7 10.6%Xiwang Sugar Holdings Co. Ltd 2088.HK HKD 12/31 2.47 1,006 2,486 1,016 3,502 11.8 9.4 8.1 9.0 6.4 5.9 29.0 1.5 --

14.5 14.0 11.1 8.4 8.8 6.9

Niche Food & Beverage CompaniesCott Corporation COT.US USD 01-Jan 8.66 95 820 571 1,391 12.7 11.5 9.6 7.4 5.6 5.2 41.1 1.6 --Dr. Pepper Snapple Corp DPS.US USD 31-Dec 38.87 221 8,603 1,771 10,374 16.2 14.2 13.1 9.0 8.2 7.8 17.1 3.5 2.3%Hansen Natural Corp. HANS.US USD 31-Dec 63.81 88 5,640 (599) 5,041 28.0 23.3 20.1 14.0 12.1 10.6 (11.9) 6.9 --National Beverage Corp. FIZZ.US USD 01-May 13.68 46 632 (98) 535 19.3 15.9 14.7 8.3 7.2 6.7 (18.3) 4.3 --The Hain Celestial Group, Inc. HAIN.US USD 30-Jun 33.72 43 1,451 214 1,664 33.1 26.1 22.8 n.m. 13.5 12.2 12.8 1.8 --

21.8 18.2 16.1 9.7 9.3 8.5

Chinese F&B CompaniesBesunyen Holdings Company Limited 926.HK HKD 31-Dec 2.94 1,681 3,754 (1,170) 2,583 26.7 18.4 14.0 11.4 7.1 5.6 (45.3) 2.8 0.3%Bright Dairy & Food Company 600597.SH CNY 31-Dec 10.44 1,049 10,954 (342) 10,612 n.m. n.m. 29.0 6.5 5.2 4.2 (3.2) 4.7 1.1%China Huiyuan Juice Group Ltd. 1886.HK HKD 31-Dec 5.30 1,478 7,833 2,734 10,567 n.m. 28.5 19.7 n.m. n.m. 12.4 25.9 1.6 0.7%Inner Mongolia Yili Industrial Group 600887.SH CNY 31-Dec 35.35 800 28,295 (1,798) 26,498 n.m. 26.3 21.2 n.m. 12.9 10.4 (6.8) 8.2 --Tingyi (Cayman Islands) Holdings Corp 322.HK HKD 31-Dec 20.25 5,587 113,133 (248) 112,885 n.m. n.m. n.m. n.m. n.m. n.m. (0.2) n.m. 1.6%Uni-President China Holdings Ltd. 220.HK HKD 31-Dec 4.40 3,599 15,838 (2,262) 13,576 30.6 26.8 20.8 13.6 11.8 9.1 (16.7) 2.4 1.2%

28.6 25.0 20.9 10.5 9.3 8.4

Ag EquipmentAgco Corp. AGCO.US USD 31-Dec 53.50 95 5,071 (2) 5,069 23.1 17.6 14.1 10.5 8.0 6.7 n.m. 1.9 --Ag Growth International Inc. AFN.CA CAD 31-Dec 45.90 13 582 95 677 17.5 15.2 13.6 11.3 9.5 8.3 14.1 3.5 5.2%Catepillar Incorporated CAT.US USD 31-Dec 108.28 660 71,421 23,591 95,012 n.m. 17.5 13.5 n.m. 11.2 9.1 24.8 6.6 1.6%CNH Global NV CNH.US USD 31-Dec 45.09 238 10,751 11,968 22,719 21.7 15.9 13.0 n.m. 13.8 12.3 52.7 1.5 --Deere & Company DE.US USD 31-Oct 93.89 421 39,532 21,341 60,873 20.1 15.1 13.0 14.1 13.7 12.2 35.1 6.3 1.5%Harsco Corp. HSC.US USD 31-Dec 33.97 81 2,739 761 3,500 n.m. n.m. 16.8 7.3 6.8 5.9 21.7 1.9 2.4%Hemisphere GPS, Inc. HEM.CA CAD 31-Dec 1.22 56 68 (5) 63 n.m. n.m. 13.6 n.m. 12.1 7.1 (8.0) 0.9 --Vicwest Inc. VIC.CA CAD 31-Dec 15.64 17 272 54 327 23.3 13.9 10.1 n.m. 8.6 6.5 16.6 4.8 6.8%

21.1 15.9 13.5 10.8 10.5 8.5

Equipment DistributorsAshtead Group Plc. AHT.GB BPN 30-Apr 2.00 503 1,007 774 1,781 n.m. n.m. n.m. 7.0 6.3 5.7 43.5 2.0 1.6%Cervus Equipment Corp. CVL.CA CAD 31-Dec 17.62 15 258 14 272 19.2 12.8 10.3 11.1 7.8 6.4 5.3 2.2 4.1%Finning International Inc FTT.CA CAD 31-Dec 26.66 172 4,598 696 5,294 22.4 16.7 13.7 11.6 9.3 8.0 13.1 3.3 1.8%H&E Equipment Services Inc. HEES.US USD 31-Dec 19.35 35 678 299 976 n.m. n.m. 24.3 12.1 7.4 5.6 30.6 2.7 --Richie Bros Auctioneers Inc. RBA.US USD 31-Dec 28.39 106 3,015 69 3,084 n.m. n.m. n.m. n.m. 19.7 15.4 2.2 5.2 1.5%Rocky Mountain Dealerships RME.CA CAD 31-Dec 10.05 20 197 180 377 12.1 8.7 7.0 11.1 7.5 6.2 47.8 1.8 1.8%Rush Enterprises Inc. RUSHA.US USD 31-Dec 12.10 27 328 470 798 18.9 9.2 6.8 13.9 7.4 5.5 58.9 n.m. --Speedy Hire Plc. SDY.GB BPN 31-Mar 0.27 517 140 124 264 n.m. n.m. n.m. 3.9 4.2 3.6 47.1 0.0 0.0%Strongco Corp. SQP.CA CAD 31-Dec 5.20 11 55 92 146 n.m. 10.9 9.5 6.5 3.8 3.4 62.7 1.0 0.0%Titan Machinery Inc. TITN.US USD 31-Jan 31.27 18 560 282 842 n.m. 22.6 18.0 15.9 15.9 13.1 33.5 n.m. --Tormont Industries Ltd. TIH.CA CAD 31-Dec 32.91 77 2,534 246 2,780 n.m. 14.1 12.5 11.8 7.7 7.1 8.8 2.1 1.9%United Rentals Inc. URI.US USD 31-Dec 28.37 61 1,733 2,658 4,391 n.m. 18.5 10.6 6.4 5.0 4.2 60.5 n.m. --Wajax Corp. WJX.CA CAD 31-Dec 39.88 17 673 37 710 19.5 14.0 12.1 10.9 8.7 7.6 5.2 3.3 4.5%

18.4 14.2 12.5 10.2 8.5 7.1

Notes:1.) All figures are in CAD unless otherwise noted.2.) All estimates are from Thomson except ABC, AGT, BXI, CAT, CVL, FTT, GLG, RBA, RME, SQP, TIH, VT, and WJX are Raymond James estimates.3.) P/E Values > 30.0x and EV/EBITDA multiples > 30.0x have been discarded (n.m.)

Ent. Value Market Price

Shares O/S

Market Cap Net Debt Price /Book

Div. Yield

Net Debt / Cap

P/E EV/EBITDA



Company Initiations



Alliance Grain Traders Inc. April 27, 2011

AGT-TSX Company Report - Initiation of CoverageSteve Hansen CMA, CFA | 604.659.8208 | [email protected]



AGT: Initiating Coverage: Pulse Pulse Baby

Event We are initiating coverage on Alliance Grain Traders Inc. (‘AGT’) with a Strong Buy rating and $30.00 target price, representing a 31.4% total return based upon the stock’s closing price on April 20, 2011. Action We recommend that growth-oriented investors accumulate AGT shares in order to capitalize on robust long-term fundamentals associated with global demand for pulses and specialty crops. Analysis AGT has rapidly emerged to become the world’s leading provider of pulse and specialty crops. With humble Saskatchewan roots, the company has assembled an unrivalled portfolio of global assets, largely through acquisition, that includes 24 processing plants throughout Canada, the United States, Turkey, Australia, and China. In recent years, AGT has focused on building out its multi-origin sourcing and processing capabilities, and adding new products such as specialty pulses and staple foods (rice, pasta). We believe the long-term demand outlook for pulse and specialty crops remains attractive, underpinned by robust population growth in emerging markets and the evolution of associated dietary patterns toward greater protein consumption. We also highlight weather-related supply shocks in recent years, which have driven global stocks to historically low levels and promoted strong pricing. Finally, we expect mounting inflation and political unrest in key consuming regions will continue to favour government stockpiling. We have observed that investor expectations have clearly been reset lower in recent months on the back of extreme weather events and the deleterious impact on Canadian pulse crop quality and harvest timing. However, because these events do little to impact the underlying intrinsic value of AGT’s business, we argue the sharp recent pullback in share price represents a good entry point for investors. Our conviction is further bolstered by AGT’s solid pipeline of growth opportunities and a distinguished management team with the vision and fortitude to redefine the global pulse industry. Valuation Our $30.00 target price is based upon a 6.9x EV/EBITDA target multiple, at the lower end of AGT’s historical trading range, applied to our 2012E estimate (see Valuation & Recommendation section for more details).

EPS 1Q 2Q 3Q 4Q Full Revenues EBITDA Mar Jun Sep Dec Year (mln) (mln)

2010A C$0.88 C$0.13 C$0.04 C$0.03 C$1.00 C$642 C$36

2011E 0.35 0.37 0.49 0.76 1.97 694 67

2012E NA NA NA NA 2.66 760 87


Rating & Target Strong Buy 1Target Price (6-12 mos): C$30.00Current Price ( Apr-20-11 ) C$23.25Total Return to Target 31%52-Week Range C$34.55 - C$21.80Market Data Market Capitalization (mln) C$464Current Net Debt (mln) C$93Enterprise Value (mil.) C$557Shares Outstanding (mln, f.d.) 20.0Average Daily Volume (000s) 118Dividend/Yield C$0.54/2.3% Key Financial Metrics 2010A 2011E 2012E

P/E 23.3x 11.8x 8.7x

EV/EBITDA 15.3x 8.4x 6.4x

EBITDA Margin (%) 5.7% 9.6% 11.4% BVPS (mrq, tangible) C$11.93Net Debt/Equity (mrq) 0.3xNet Debt/Trailing EBITDA (mrq) 2.5x Company Description Alliance Grain Traders is a Canadian TSX-listed provider of pulse and specialty crops that engages in sourcing, value added processing and merchandising of pulses, primarily for export.

Alliance Grain Traders Inc. Canada Research | Page 37 of 183


Table of Contents

Investment Overview.......................................................................................................................... 38

Company Overview............................................................................................................................. 40

Industry Analysis ................................................................................................................................. 47

Company Strategy............................................................................................................................... 53

Financial Analysis & Outlook............................................................................................................... 57

Valuation & Recommendation ........................................................................................................... 61

Appendix A: Financial Statements ...................................................................................................... 63

Appendix B: Industry Comparables .................................................................................................... 66

Risks .................................................................................................................................................... 67

Canada Research | Page 38 of 183 Alliance Grain Traders Inc.


Investment Overview

Strong Macro Outlook—As discussed in our Apr-27-11 Industry Report Clash of the Titans: Food vs. Feed vs. Fuel, we believe the long-term demand outlook for pulse and specialty crops remains attractive, underpinned by robust population growth in emerging markets and the evolution of associated dietary patterns toward greater protein consumption. We also highlight weather-related supply shocks in recent years, which have driven global stocks to historically low levels and promoted a strong price environment. Finally, we expect mounting inflation and political unrest in key consuming regions (e.g. the Middle East) will continue to favour government stockpiling. Collectively, we believe these factors point toward robust global demand throughout our forecast horizon and beyond.

Dominant Position in the Global Pulse Industry—AGT has rapidly emerged to become the world’s leading provider of pulse and specialty crops. With humble Saskatchewan roots dating back to 2001, the company has assembled an unrivalled portfolio of global assets, largely through acquisition, that includes 24 processing plants throughout Canada, the United States, Turkey, Australia, and China.

Multi-Origination Strategy, Positioned in Key Export Markets—AGT’s decision to pursue multi-origin sourcing and processing capabilities is a positive strategic move, in our view, helping reduce the firm’s exposure to adverse crop events (i.e. weather, disease). In particular, we highlight the firm’s position within Canada and Australia, two key growing regions which account for 32% and 6% of global pulse exports respectively. While the full benefits of this strategy are still accruing, we expect the approach will help smooth out earnings volatility over time. Finally, incremental geographies position the company on the doorstep to key strategic markets such as the Middle East, North Africa, India, and China.

Product Diversification—AGT’s strategy to diversify its product offering is also viewed favourably, helping it leverage existing distribution channels and reduce the seasonality of its earnings profile. In particular, we highlight the key product additions including new pulse crops such as beans, and staple foods such as pasta and rice. Although many of these products still represent only a small proportion of AGT’s revenues, they are expected to provide key new pillars of growth going forward.

Value-Added Capabilities; Proprietary Pulse Products—AGT’s North American facilities are equipped with highly advanced blending, color sorting, and splitting technologies that create value-added margin opportunities, particularly when a high degree of crop quality variance exists. AGT’s ability to obtain exclusive commercialization rights to proprietary pulse varieties such as the B90 Amit chickpeas, King Red and Queen Green lentils (the world’s first true green lentil), and Skyline navy beans offers the firm a differentiated product portfolio. We believe that these technologies and unique products give the firm additional avenues for growth as well as a competitive advantage over many of its peers.

International M&A Opportunities Still Plentiful—Notwithstanding AGT’s impressive growth profile in recent years, we believe the company’s international growth opportunities remain plentiful, most notably in key strategic markets such as the United States, China, and India. The US bean market for example, represents a well established, low-risk marketplace with attractive growth attributes. Similarly, India represents the largest lentil and chickpea markets globally and is heavily dependent on Canadian imports. The ability to add additional staple foods (pasta, rice) and pulse crops (chickpeas, beans) to its portfolio further supplement these opportunities, in our view.



Ripe Organic Growth Opportunities—AGT has embarked on several organic growth initiatives in recent years that are also expected to add shareholder value. In Turkey, the firm is investing C$15.0 mln towards a new 65,000 mt rice plant and the addition of a fifth pasta line that is expected to boost production by ~25.0%. In China, the company is expected to triple its bean processing capacity. These initiatives, plus several in other regions, are expected to drive healthy organic growth throughout our forecast horizon.

Solid Balance Sheet—AGT finished 2010 with a healthy balance sheet, providing ample dry powder to pursue further organic and acquisitive growth, in our view. Net debt ended the period at $92.8 mln, comprised of $93.5 mln in short-term debt, $22.9 mln in long-term debt, and $23.6 mln in cash. Net debt-to-EBITDA (ttm) ended the year at 2.6x, however, we expect this metric to fall materially during 2011 on account of strong cash flow generation. By our account, the company has ~$200.0 mln in dry powder available including credit-line availability, to pursue its growth objectives without the need to raise equity.

Attractive Valuation—Given the sharp recent decline in its share price, AGT currently trades at an attractive valuation of 7.7x and 5.3x our 2011 and 2012 EBTDA estimates, a notable discount versus its Ag processing and handling peers. This is even more attractive when considering the healthy take-out multiples paid in recent M&A transactions within the rapidly consolidating grain handling sector, such as AWB by Agrium at 9.7x and ABB by Viterra at 11.8x.

Initiating with Strong Buy Rating—We are initiating coverage on AGT with a Strong Buy rating and $30.00 target price. Our target is predicated on a 6.9x EV/EBITDA multiple applied to our 2012E EBITDA estimate. This is at a discount to its peers and at the lower-end of its historical trading range to account for some acquisition integration risk, recent weather-related crop challenges, and farmer tendency to hold back on crops in a bid for higher prices.



Company Overview

Alliance Grain Traders Inc. (‘AGT’) is one of the world’s leading providers of pulse and specialty crops. With 24 facilities strategically positioned throughout Canada (12), the United States (1), Turkey (7), Australia (3) and China (1), AGT has grown aggressively via acquisition to become the world’s largest originator, value-added processor, and exporter of lentils and split peas. Headquartered in Regina, Saskatchewan, the company sells to 85 foreign countries that make up more than 95% of its sales. The company trades on the Toronto Stock Exchange under the symbol ‘AGT’ and employs approximately 402 people.

Business Mix

AGT is the world’s largest provider of pulse and specialty crops, including: lentils, peas, chickpeas, beans, and bird seeds. In 2010, pulse and specialty crops represented 74.7% of total sales. The balance of business is made up of other staple foods such as milled grains, pasta and rice (see Exhibit 1). Europe, the Middle East, and North Africa represent AGT’s largest buying regions, collectively accounting for ~55.8% of 2010 revenues. Asia and the Americas represent 22.4% and 21.8% of 2010 total revenues, respectively (see Exhibit 2).

Customers—AGT’s international customer base is diversified, with no single customer accounting for more than 5% of total revenue. Customers include importers, packagers, canners, ingredient users and wholesale importers and distributors, with sales typically direct or through a local pulse broker.

Suppliers—Ingredients are sourced from local producers in the five countries within which AGT has processing facilities: Canada, US, Turkey, Australia and China. Subsidiary Arbel Group sources its ingredients in Turkey, with a small portion coming from around the world. Approximately 10% of crop purchases are through fixed price production contracts, with the remainder purchased at the spot market. AGT’s supplier base is diversified, with no single supplier accounting for more than 1% of purchases.

Exhibit 1: Sales by Products Exhibit 2: Three Year Sales by Region

Grains3%

Rice2%

Other 2%

Pulses & Specialty

Crops93%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009

C$

000s

Americas Asia Europe / Middle East / North Africa




Pulse Primer

What is a Pulse?

‘Pulse’ is a broad term used to describe the edible seeds of legumes. There are four traditional pulse crops: peas, beans, lentils, and chickpeas (see Exhibit 3). However, within these four broad categories, we note that there are dozens of species and thousands of different varieties globally.

Pulse Applications

Pulses are a valuable source of dietary protein. Packing roughly twice the protein content of traditional cereal grains, according to a study by the Department of Agricultural, Food and Resource Economics at the Michigan State University, they account for ~10% of the world’s aggregate protein intake. In some developing markets, where animal protein is still consumed in far lower quantities, this figure is substantially higher on a per-capita basis. Specific applications and end-markets where pulses are used include (see Exhibit 4):

Human Food—Pulses are consumed as a less expensive alternative to meat given their high concentration of protein (two times the level of wheat and three times that of rice).

Liquid Fuel—Vegetable oil derived from pulses can be transformed into biodiesel. The chemical process of creating biodiesel by combining vegetable oil, alcohol and a catalyst is known as transesterification. Fuels resulting from this process can be transformed into ethanol, making pulses an ideal substitute for corn.

Health Benefits—Pulses are deemed as being high in nutritional value given their low glycemic index factor (GI) and high levels of fiber, iron, and energy. Foods with low GI help regulate blood sugar levels while dietary fiber and iron regulate the digestive system, prevent obesity, and are critical to organ functioning. Increasing awareness of these health benefits, most notably in emerging markets, has been a key driver of demand.

Animal Feed—Pulses and their by-products are widely used in animal feed, aquaculture and pet food particularly as an excellent source of protein, energy, and amino acids.

Exhibit 3: Pulse Crops: The Edible Seeds of Legumes

… in a variety of colours, shapes, and forms:

Lentils Chickpeas Beans Peas




AGT Product Mix

AGT’s product mix is currently segmented according to three broad product categories including Pulse and Specialty Crops, Grain and Milling Products, and Other Commodities.

Pulse and Specialty Crops—This category include lentils (red and green), chickpeas, white beans, barbunia beans, soya beans, peas (green and yellow), red beans, and canary seeds. Over 70% of AGT’s processing volume is allocated to the lentil and specialty crops segment. The company has strategically located its pea production facilities within key growing regions in Canada, widely regarded as the world’s production and export leader. Furthermore, positioning of lentil facilities within Canada (the world’s largest exporter) and Turkey (the world’s largest producer) has contributed towards the company’s dominant position in that market.

Grain and Milling Products—Focused on durum wheat, pasta, and bulgur, this segment operates facilities located primarily in Turkey. Approximately 10% of AGT’s grain and milling product is used by subsidiary Arbel as feedstock in pasta and semolina production.

Other Commodities—Other commodities produced by AGT include sugar, salt, edible oils, pistachio nuts, hazelnuts, roasted chickpeas, sunflower seeds and potatoes. This segment accounts for 3.7% of total revenue.

Exhibit 4: Pulse End Uses




Operating Facilities

AGT has built out a geographically diversified sourcing and processing footprint. Through its wholly owned subsidiaries, AGT now operates 24 facilities, positioned throughout Canada (12), the United States (1), Australia (3), Turkey (7) and China (1). The company’s aggregate processing capacity is ~1.5 mln tpy.

North America—AGT’s 12 processing facilities are primarily located in the province of Saskatchewan (see Exhibit 5). These facilities focus on value-added pulse processing such as cleaning, sizing, color sorting, peeling, splitting and packaging. AGT also owns the largest pulse facility in the US, located in North Dakota.

Turkey—AGT entered the Turkish market in 2009 through the acquisition of Arbel Group, a leading domestic processor of pulses and grains. With seven facilities in place, and plans to open one more, the acquisition was a game-changer. Arbel is comprised of three subsidiaries: Arbel Bakliyat (pulses), Durum Gida (semolina and pastas), and Turkpulse (bulgur). In addition to the benefits of geographic diversification, this acquisition provided product diversification, providing an immediate entry into semolina and pasta, rice and bulgur (a whole-grain cereal food most popular in the Middle East and Greece).

Australia—AGT owns and operates three processing and handling facilities in Australia through its Australia Milling Group subsidiary. In September 2010, the company doubled its footprint in the key growing region, via two acquisitions including Northern York Processing and Balco Grain that closed in mid-November.

China—The November 2010 acquisition of Poortman Ltd. added a dedicated pulse processing facility in Tianjin, China. AGT has committed to investing in expansion at the Tianjin plant as part of its cited objective of long-term growth within China.

Europe—AGT’s acquisition of Poortman, an international pulse and birdseed importer, distributor and merchandiser, provided it with a European distribution network that includes sales and trading offices in the UK and Netherlands, as well as warehouses in the UK, Netherlands, Spain, and Italy.

Exhibit 5: AGT Subsidiaries Overview

Brands Description

Western Canada

United States

Australia

Turkey

Europe and China

Facility

Supplies all types of Australian pulses and specialty crops

o Saskcan Pulse Tradingo Saskcan Rosetowno Saskcan Agtech

o Saskcan Milestoneo Saskcan Horizono Saskcan Pulse Depot

o Saskcan Parento Saskcan Assiniboiao Saskcan Gibbonso Finora Wilkie

Supplies all types of Canadian pulses and specialty crops

Largest pulse processing plant in the Americas; supplies all types of

U.S. pulses and specialty crops

o United Pulse Trading Willston

o Balco Grain (3 facilities)o Northern Yorke Processorso Australia Milling Group Horsham Victoria

Grains & Pulseso Three processing facilitieso Storage & processing complex in Mersin (~120,000 MT of storage)

Pastao 4 facilities (~140,000 tpy)o 1 additional line under constructionBulguro 1 facility (~85,000 tpy)

Buying, processing and marketing lentils and grain,

producing and selling pasta and semolina and producing

and selling bulgur

Sales & Tradingo London, UKo Waalwijk, Netherlands

Bean Processingo Tianjin, Chinao Committed C$2mln for expansion

An international importer, distributor

and stockist of pulses




Company History

AGT’s history dates back to 2001 when current CEO Murad Al-Katib formed Saskcan Pulse Trading. In 2007, the company effected a public listing through an RTO with Agtech Income Fund, resulting in the formation of Alliance Grain Traders Income Fund. In 2009, the fund converted into a corporation and bought its largest private competitor, the Arbel Group (see Exhibit 6). AGT has carried out 10 acquisitions since inception, with Arbel being the most sizeable (C$104 mln).

Most recently, in November 2010 AGT completed its purchase of Balco Grain and Northern Yorke Processors, both based in Australia, for approximately C$10 mln.

Exhibit 6: AGT Acquisition Timeline & Associated Purchase Prices

2007 2008 2009 2010 2011

Saskcan Pulse

$22.0 mln (Aug 07)

Renamed as Alliance Grain

Traders

D I= Domestic = International

Pulse Depot Rosetown$9.3 mln(Aug 08)

Harvest Grain$2.2 mln(Nov 07)

Tradewind$2.9 mln(Aug 08)

Conversion into a corporation

Arbel Group$104.1 mln

(Oct 09)

FinoraUS$8.9 mln

(Dec 09)

Parent Seed$10.0 mln(Dec 09)

Horizon Seed

$1.4 mln(Nov 08)

A. Poortman£8.3 mln(Nov. 10)

Balco Grain &Northern Yorke

10.0 mln(Sep. 10)

Source: Alliance Grain Traders Inc., Bloomberg, Raymond James Ltd.



Management Team

Murad Al-Katib, President and CEO—Murad Al-Katib helped establish Saskcan Pulse Trading in 2001, later taking over as CEO and President of AGT after the AgTech-Saskcan Pulse merger in 2007. He is a recipient of multiple management awards for his entrepreneurial work done with Saskcan Pulse Trading. In 2006 Mr. Al-Katib was appointed to the Canadian Minister of International Trade’s Advisory Board for Small and Medium Enterprises. Mr. Al-Katib holds a Master’s degree in International Management from the American Graduate School of International Management in Thunderbird, Arizona. He graduated from the University of Saskatchewan with a Bachelor of Commerce in Finance.

Huseyin Arslan, Chairman & President of the Arbel Group—Mr. Arslan is Chairman of the Arbel Group and has been its President for the past 15 years. His family founded the Arbel Group over 50 years ago. The Arslan family is also a cofounder of Saskcan Pulse Trading, leading to Mr. Huseyin Arslan’s appointment as a trustee of the AGT Income Fund in 2008. After AGT Traders acquired the Arbel Group, Mr. Arslan took over as Chairman. Mr. Arslan holds a Bachelor of Science in Electronics Engineering from the Middle East Technical University in Turkey and has over two decades of experience in the trading of agricultural and food products globally. He is also an elected member of the executive committee of the International Pulse Processors and Exporters Federation.

Lori Ireland, CFO—Ms. Ireland is a Certified Management Accountant (CMA) with over 10 years of experience in Agricultural Accounting. Ms. Ireland joined Saskcan Pulse as CFO in 2002, following several years in Special Crops Accounting at the Saskatchewan Wheat Pool. Other experience includes working as an accountant for Heartland Livestock (formerly the Saskatchewan Wheat Pool, Livestock Division) for 3 years and managing the implementation of the Livestock Feeder Finance program through Farm Credit Canada.

Gaetan Bourassa, COO—Mr. Bourassa was appointed COO in 2009, after first joining Saskcan Pulse Trading in 2005 as a merchandiser and then progressing to VP of Marketing and Operations in 2006. Other experience includes marketing at Best Cooking Pulses as well as a 12-year career there as general manager. Mr. Bourassa holds a diploma in Marketing from Saskatchewan Institute of Applied Science and Technology.



Ownership and Share Structure

AGT’s common shares trade on the Toronto Stock Exchange under the ticker “AGT”. As of April 13, 2011, there were 19,706,078 common shares outstanding. Institutional investors represent the largest group of holders, holding approximately 61.4% of the shares outstanding. Insiders also hold a significant ~23.9% position, with the Arsal family owning ~21.9% of this total.

Exhibit 7: Shareholder Summary (as of Apr-13-11)

Shares Held / Controlled % O.S. Management. Directors and Other Insiders

Arslan, Huseyin 2,334,796 11.85%Arslan, Mahmut 1,989,636 10.10%Al-Katib, Murad 296,326 1.50%Bourassa, Gaetan 34,700 0.18%Ireland, Lori 17,000 0.09%Arsenault, Denis C. 13,000 0.07%Rosen, Howard N 10,000 0.05%Renwick, Jeffrey 4,600 0.02%

Arslan Family 4,324,432 21.94%Total Management & Insiders 4,700,058 23.85%

Corporations / InstitutionsRoyal Bank of Canada, Banking Investments 2,722,525 13.82%RBC Global Asset Management 1,719,223 8.72%IG Investment Management 793,657 4.03%Phillips Hager & North 678,420 3.44%Mawer Investment Management Limited 670,042 3.40%

Top Corporations / Institutions 6,583,867 33.41%Total Corporations / Institutions 12,098,004 61.39%

Other 2,841,961 14.42%Total Shares Outstanding 19,706,078 100.00%

Shareholder Summary

Corporations Institutions

61.4%

Insiders 23.9%

Other14.4%

Source: Capital IQ, Raymond James Ltd.



Industry Analysis

The long-term outlook for global pulse demand is compelling, in our view. Specifically, we believe that pulses will continue to play an increasingly prominent role in both developed and emerging markets as an efficient, economical source of protein, offering tremendous health and ancillary benefits. Below we review the global pulse industry, several of its key characteristics, and the underlying drivers that we expect to stoke demand going forward.

Global Production—Small & Concentrated

The global pulse industry is a relatively niche sector within the global agriculture complex. According to the FAO, 2009 global pulse production was ~61.5 mln tonnes (see Exhibit 8) valued at ~$100.0 bln. For context, these volumes pale in comparison to global heavyweight crops such as corn (~771 mln tonnes) and wheat (~676 mln tonnes). Other notable attributes include:

Beans & Peas Top By Volume—Beans stand out as the largest pulse crop globally, accounting for 40% of 2009 global production. This is followed by chickpeas (25%), peas (23%), and lentils (6%), respectively (see Exhibit 9).

Concentrated Production Base—Global pulse production is heavily concentrated with five countries accounting for more than 50% of global output. India is the largest producer by a healthy margin, totaling 13.7 mln tpy or roughly 22.3% of total supply in 2009. Canada is a close second, totaling 5.2 mln tpy, or 8.5%, of production during the same period. China, Myanmar, and Brazil round out the top five producing regions.

Exhibit 8: Global Pulse Production & Per Capita Consumption Exhibit 9: Global Pulse Production (2009)

Other6%

Peas, dry23%

Lentils6%

Chick peas25%

Beans, dry40%

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pul

se p

rodu

ctio

n (0

00s

tonn

es)

8.8

8.9

9.0

9.1

9.2

9.3

9.4

9.5

Kg

per

capi

ta

Dry beans Chickpeas Lentils

Dry peas Other Pulses per capita

Steady pulse production vs. declining per capita

Source: FAO, Raymond James Ltd.

Country Specialization—Crop specialization is prevalent within the key growing regions highlighted above. India and Brazil, and Canada for example, have pulse crops that are heavily skewed towards chickpea, bean and pea production, respectively. Turkey produces large volumes of lentils and chickpeas but little else, while the US and Mexico are generally more balanced in their respective production profiles (see Exhibit 10).



Exhibit 10: Pulse Production by Region (2009)

Brazil Beans99.9%

Peas0.1%

India Chick peas53%

Lentils8%

Beans19%

Peas20%

Canada

Chick Peas1%

Beans4%

Lentils29%

Peas66%


Canada & Australia Major Exporters; Global Importance Rising—On the back of

healthy production (see Exhibit 11), Canada stands out as the world’s largest pulse exporter (see Exhibit 12), representing 3.1 mln tpy or 32.3%, of global export volumes in 2008. According to Agriculture Canada, this figure has steadily increased to reach ~3.9 mln tpy in 2010. Australia is a top-five exporter at ~0.61 mln tpy or 6.3% of global 2008 exports. With large tracts of land suitable for farming, advanced storage and transportation infrastructure, and limited domestic demand, we believe the export contribution of these two countries is likely to rise over time. The US, China, and Myanmar round out the top five exporting nations.

Exhibit 11: Top Pulse Producing Nations Exhibit 12: Top Pulse Exporters (2008)

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20002001200220032004 20052006200720082009

Pu

lse

pro

du

cti

on

(0

00

s t

on

ne

s)

Brazil Canada China

India U.S. Myanmar3,126

1,1181,032

758608

500

1,000

1,500

2,000

2,500

3,000

3,500

Canada USA China Myanmar Australia

20

08

Ex

po

rt v

lms

(0

00

s t

on

ne

s)




Highly Efficient, Economical Source of Nutrition

As noted previously, pulses are a valuable source of dietary protein, making them a critical food staple in emerging markets. At the same time, we highlight several complimentary factors that are helping stoke pulse demand around the world. Key attributes underpinning this demand include:

Health Attributes—Pulse crops are packed with nutritional advantages. High in protein (more than any other plant – see Exhibit 13), complex carbohydrates, fibre, and other key minerals and vitamins (iron, calcium, potassium), they provide a high degree of energy (kcals) with a low glycemic index. They can also be stored over long periods of time due to their low moisture content and hard-coating.

Land Efficient—Pulses are a highly efficient source of protein production, requiring a fraction of the land required by traditional animal-based protein. According to the World Pulses Organization, livestock currently use 33% of global arable land. Meat is also highly inefficient from a conversion standpoint, requiring 15 tonnes of agricultural inputs for every 1 tonne of meat produced. This has resulted in ~4x more land being used today to grow animal food versus human food. As global arable land per capita is projected to continue decreasing (see Exhibit 14), we believe pulses will gain prominence as a more efficient source of protein.

Exhibit 13: Protein Content by Weight (%) Exhibit 14: Global Avg. Arable Land per Capita

36%

23% 22%

19%

12%11% 10% 9%

7%

4%2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Milk

Poultr

y

Pulses

Beef

Eggs

Whe

at

Barley

Maiz

eRice

Corn

Cassa

va

Pro

tein

co

nte

nt

by

we

igh

t (%

)

Pulses provide protein content by weight equivalent to meats

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1961 1970 1980 1990 2002 2025 2050

Acr

es

pe

r ca

pita

Arable land on a precipitous per capita decline


Smaller Water Footprint—Pulse crops require a fraction of the water footprint used by other sources of protein. For example, only ~43 gallons of water are required to produce one pound of pulses, versus ~1,857 gallons of water to produce one pound of beef (see Exhibit 15). According to a UN and McKinsey Group study, switching to more water-efficient foods will be an important strategy required to meet the 40% increase in water demand foreseen within 20 years. We note the increase in water demand is estimated to be even higher in the world’s most rapidly developing countries, the same areas that depend most on pulse crops as a source of protein.



Fertilizer Cost Reduction—The nitrogen-fixing ability of pulse crops is becoming an increasingly important source of output improvement while reducing fertilizer requirements. Nitrogen fertilizer represents ~50% of the energy cost on N.A farms, according to the Alberta Pulse Growers Commission. Utilizing pulse crops as part of a crop rotation program has proven to provide subsequent staple crops such as wheat with a renewable source of natural nitrogen. This reduces input costs and the crop’s energy footprint, while also increasing output. This trend is beginning to become more common in North America and could, over time, represent an important source of yield improvement in developing countries where nitrogen fertilizer usage is still limited due to cost.

Fewer Greenhouse Gases—Meat production emits more greenhouse gases than do all forms of global transportation or industrial processes (see Exhibit 16), only exceeded by energy production. In fact, Scientific America reports that pound for pound, beef production generates 13x more greenhouse gases than chicken production and 57x more than potatoes.

Taken together, pulses are deemed to be a highly economical source of protein, most notably in the developed markets where disposable incomes remain relatively low, while also contributing to water efficiency, greenhouse gas reduction, and providing a source of natural fertilizer to farmers who practice crop rotation.

Exhibit 15: Water Footprint for Various Foods Exhibit 16: Greenhouse Gas Emissions by Sector

1,857

756

469368

216

43

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Beef Pork Chicken Peanuts Soybean Pulses

Wat

er f

oo

tpri

nt*

(g

allo

ns

/ lb

)

Pulses require significantly less gallons of water per lb of protein versus other foods

21%

18%

14%

12%

12%

10%

7%

4%

3%

Energy production

Livestock (beef, chicken, pork)

Transportation

Fossil-fuel retrieval

Agriculture

Residential

Manufacturing

Land use

Waste disposal & treatment




Emerging Markets Dominate Demand

Emerging markets represent the lion’s share of global pulse demand, accounting for over 60% of consumption in 2007. Furthermore, industry data indicates that of this emerging markets demand, almost one-third was made of up the world’s least developed and most destitute nations (see Exhibit 17). Given this geographical demand profile, global pulse demand is expected to grow alongside robust population growth within these regions. Major importing nations including India, Egypt, and Turkey are expected to increase their imports over time, while exporters such as China are expected to soon become net importers of product.

In Canada, pulses have steadily increased their position within the agricultural landscape. Specifically, the value of pulse crops (measured in terms of farm cash receipts) grew at CAGR of ~7.3% from 2001 to 2009 to make up 7.3% of all crop value (see Exhibit 19). Total 2010 pulse production volumes in Canada exceeded soybeans and oats though remain below staple crops such as wheat and corn.

Exhibit 17: Pulse Consumption as Human Food (tonnes)

Africa 7,440 7,522 7,995 8,208 8,032 8,522 9,093 9,375Americas 7,345 7,336 7,353 7,779 7,623 7,668 8,020 8,048Asia 19,096 19,687 20,606 19,949 19,932 19,920 21,237 23,440Europe 1,932 2,025 1,926 1,914 1,927 1,827 1,841 1,817Oceania 51 55 58 104 47 68 67 58World 35,864 36,626 37,937 37,954 37,560 38,006 40,256 42,739

Low Income Food Deficit Countries 23,433 24,175 25,227 24,948 24,556 24,839 26,896 29,444European Union 1,522 1,538 1,439 1,419 1,371 1,293 1,305 1,320Least Developed Countries 5,699 5,913 6,358 6,546 6,527 6,849 7,043 7,589

20072003 2004 2005 2006Region 2000 2001 2002

Asia55%

Americas19%

Africa22%

Oceania0%

Europe4%

Source: UN FAO, Statistics Canada, Raymond James Ltd.

Exhibit 18: Emerging Market Pulses Demand Exhibit 19: Canada Pulses as % of Total Crop Value

25.3

2.2

31.0

3.4

38.3

3.8 4.0

45.4

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Pu

lses

Dem

and

fo

r F

oo

d (

mln

to

nn

es)

1979-1981 1997-1999 2015 2030

Developing Countries Industrial Countries

5

10

15

20

25

1981 1985 1989 1993 1997 2001 2005 2009

Far

m c

ash

rec

eip

ts (

C$

bln

s)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Pu

lses

as

% o

f cr

op

s

Total crops Total pulses % of crops

Pulses steadily increasing as % of total crop income

Source: UN FAO, Statistics Canada, Raymond James Ltd.



Competitive Landscape

The global pulse processing industry has undergone significant change over the past decade alongside the broader agriculture sector. Consolidation and globalization, most notably, have swept across the landscape with smaller players and facilities gradually disappearing. In Canada, for example, a 2008 survey by the Saskatchewan Ministry of Agriculture found 29.0% fewer processors vs. a similar survey conducted in 2002, while total processing capacity increased by 7.0% over the same period.

AGT has very few direct competitors. There are several regional players (i.e. Walker Seeds, Simpson Seeds, Prairie Pulse, JK International) in each of the firm’s product end-markets and geographies, but there are few, if any, players that boast similar multi-origin (i.e. global) capabilities, breadth of product, and value-added processing capacity. Several multinational firms also participate in the global pulse industry (i.e. Viterra, ADM, JK Milling); however, pulses tend to be a relatively small part of their business and are often approached differently (i.e. bulk handling vs. value-added processing). A subset of these competitors includes:

Exhibit 20: Prominent Pulse Processing Competitors

Company Details Services Products

Alfred C. Toepfer (Canada) Ltd Private

► Based in Germany ► 38 branches around the globe ► Annual sales volume > 42 mln tonnes ► 2,000 employees

ExporterMustard Seed, Lentils, Feed Peas,

Edible Peas, Chickpeas

Belle Pulses Ltd. Private

► Based in Saskatchewan Processor, Exporter Chickpeas, Peas

James Richardson International Private

► 150 year history ► Large international network ► Diversified business, emphasis on canola ► > 10 % grain handling is in pulses

Grower, Cleaning and Handling,

ProcessorLentils, Peas

Roy Legumex Inc. Private

► Founded in 1940's based in Manitoba ► Exports to 75 countries ► Container and bulk shipping

Processor, Exporter, Cleaning and

Handling

White Pea Beans, Lentils, Feed Peas, Edible Peas, Faba Beans, Chickpeas,

Canary Seed, Coloured Beans

Simpson Seeds Inc. Private

► Founded in 1975 by the Simpson family ► Based in Saskatchewan ► Exports to ~ 70 countries

Processor, Packaging, Exporter

Lentils, Chickpeas, Feed Peas, Edible Peas

Viterra Inc. Public

TSX:VT

► Founded in 1924, based in Regina ► Assets in Canada, U.S. Australia and New Zealand ► Extensive international platform ► Operates in food processing

Processor, Cleaning and Handling,

Exporter

White Pea Beans, Lentils, Feed Peas, Edible Peas, Chickpeas, Sunflower, Mustard, Buckwheat, Canary Seed,

Beans, Coloured Beans

Walker Seeds Ltd. Private

► Based in Saskatchewan, established in 1982 ► Exports to 75 counrties

Processor, ExporterLentils, Feed Peas, Edible Peas, Faba

Beans, Canary Seeds

Source: Company Documents, Raymond James Ltd.



Company Strategy

AGT’s global growth ambitions are rooted in a core strategy aimed at de-risking the business platform and leveraging the firm’s existing infrastructure. Multi-origin sourcing, for example, helps reduce the risk of isolated weather-related (i.e. crop) events, balances harvest timing, allows for capitalization on feedstock pricing arbitrage opportunities, and diversifies product mix. Moreover, because the process of husking/hulling, cleaning, sizing and colour sorting of many pulses is very similar, new products also leverage off the company’s in-house processing expertise. Finally, we note that buyers of lentils, beans, chickpeas, and rice are typically the same buyers of other specialty crops such as canary seed, which allows the firm to drive more volumes and fluidity through its existing processing and distribution channels. Collectively, we believe these attributes are expected to reduce the seasonality and volatility of AGT’s earnings over time, which we discuss in more detail below.

Multi-Origination—As noted, multi-origination is aimed at reducing the risks associated with adverse crop-related events (i.e. weather, pest, disease). Different harvest schedules in North America (October), Australia (December) and Turkey (June), coupled with different climatic/precipitation regimes, should help reduce the seasonality and volatility in crop availability, quality, and price. AGT has strategically positioned its core assets in key exporting regions including Canada, US and Australia, which together account for >50% of global pulse and specialty crop exports. AGT’s infrastructure in Turkey allows the company to capitalize on the opportunity to process and distribute to key import markets in close proximity such as North Africa and the Middle East. Australian operations are ideal for penetrating China and the Indian sub-continent, where it is also considering distribution opportunities.

Product Diversification—AGT’s desire to diversify its product offering is also expected to reduce earnings volatility by adding value-added products with stable demand (i.e. pasta) to its portfolio, and leveraging its distribution capabilities by pushing more product through the same channels. AGT has specifically identified four “core platforms” for growth, including pulses (beans and chickpeas), durum and wheat milling products, rice and other. In the tables below, we outline some of the most logical avenues for growth. Finally, we also point out AGT’s recent success in obtaining exclusive commercialization rights to premium proprietary products such as the B90 Amit chickpeas, King Red and Queen Green lentils (the world’s first true green lentil), and Skyline navy beans.

Value-Added Capabilities—One of AGT’s key competitive advantages, in our view, is its ability to create a premium product when there is a high degree of crop variability. The company’s North American facilities are equipped with highly advanced blending, color sorting, and splitting technologies that create value-added margin opportunities. Plants are highly automated, equipped with a mix of off-the-shelf and proprietary equipment, and employ the expertise of professional ‘split-masters’.

Minimize Underlying Commodity Risk—AGT prides itself as a pulse merchandiser, not a commodity speculator. The company therefore considers inventory risk management a critical component of its strategy, resolving to take no speculative ‘trade’ positions on its feedstock, and generally keeping inventory levels very low (< 5,000 tonnes un-hedged). The company also hedges out its foreign exchange, transportation and customer pricing in an effort to lock-in margins at the time of sale.



Exhibit 21: AGT Organic and Acquisitive Growth Opportunities

Country Product Organic Growth Opportunity DetailsCanada Pulses Description: ► New value-added processing equipment (colour sorters) added @ Finora Wilkie & Rosetown

Rationale: ► Enhanced sorting capabilities facilitiate blending of lower quality (cheaper) grades into higher grade categories (increase margin)Timeline: ► Installation completed August 2010

Cost: ► ~$ 5.0 mln

China Beans Description: ► Expand Chinese bean processing facility acquired through PoortmansRationale: ► Bolster initial foothold in massive Chinese marketplace; low risk expansion strategyTimeline: ► Unclear

Cost: ► ~$3.0 - $5.0 mln

India Beans / Description: ► Develop local sourcing/processing/distbn network, preferably near/at port; attract local talent to familiarize with market.Chickpeas Rationale: ► World's largest producer/consumer of pulses; LARGE importer from Canada; but highly fragmeneted market; must start slow.

Timeline: ► Unclear (likely longer-term)Cost: ► Unclear

Turkey Rice Description: ► Adding new 65,000 mt processing facility.Rationale: ► Strong domestic demand (net importer); plant proximity affords export opps to Russia / East Europe; Consumption pattern differs from pulsesTimeline: ► Q1 2011

Cost: ► ~$8.0 - $10.0 mln

Turkey Pasta Description: ► Adding 5th pasta line; includes 35,000 mt of additional short-cut pastaRationale: ► Strong branded presence; top exported product; short-cut compliments existing long-cut business Timeline: ► Q1 2011

Cost: ► ~$8.0 - $10.0 mln

United States Pasta Description: ► Will look to construct a greenfield pasta plant (50 - 60k mt)Rationale: ► Large market; stiff import tariffs currently in place on imports; puts AGT at competitive disadvantageTimeline: ► Longer-term

Cost: ► ~$20.0 - $25.0 mln

Country Product Acquisitive Growth Opportunity Details

Australia Pulses Target: ► Balco Grain and Northern Yorke ProcessorsRice Rationale: ► Additional processing & shipping assets in Victoria---a major pulse growing region; access to Indian sub-continent

Timeline: ► Closed November 2010Cost: ► $10.0 mln

Canada Beans Target: ► Potential bean processing assets in southern AlbertaRationale: ► AGT could use additional presence in the regionTimeline: ► Unclear

Cost: ► $10.0 mln

China Target: ► Potential bean processing assets in ChinaRationale: ► China is expected to become net importer of beans by 2016Timeline: ► Long-term (in our view)

Cost: ► Unclear

India Target: ► Potential sourcing, processing and distribution assets in order to replicate the Turkey modelRationale: ► India is the largest pulse market in the worldTimeline: ► Unclear; India's market is highly fragmented and deemed as high risk, start out small by building a distribution network

Cost: ► Unclear

Turkey Rice Target: ► UnclearRationale: ► Arbel acquisition was a catalyst for entering the Turkish market, don't expect futher acquisitions in short termTimeline: ► Unclear

Cost: ► Unclear

United States Beans Target: ► Potential bean processing assets in the U.S. Rationale: ► Hispanic-linked bean consumption market growing rapidly, year-round consumptionTimeline: ► 1 yr

Cost: ► $25-30 mln

Rice Target: ► Potential rice processing assets in ArkansasRationale: ► Fits well with current profile - rice from Arkansas is exported to TurkeyTimeline: ► Unclear

Cost: ► Unclear




Recent Challenges—The Perfect Storm

AGT’s financial results (and share price) have been materially impaired in recent quarters owing to the residual impact of Canada’s highly irregular 2010-11 crop. Specifically, we highlight:

Record Rain, Excessive Flooding, Persistent Cool—The Canadian prairies endured a highly aberrant growing season during 2010, characterized by near-record to record rainfall, excessive flooding, and persistent cool temperatures. Collectively, these factors resulted in a number of downstream ancillary effects, most which have fared poorly for AGT.

Late Harvest—By the end of September, the Canadian harvest was only 43.0% complete versus the 5-yr average of 97.0%, resulting in a 6 week delay versus the typical harvest. This delay pushed back the start of AGTs peak processing season. Coupled with limited carryover volumes from the prior quarter, this delay crippled AGT’s plant utilization rates during 3Q—which was reflected in its financial results. At the time, this delay also had most industry observers thinking that 4Q would see a material pick-up in activity.

Major Quality Issues—Poor growing conditions also had a deleterious impact on pulse crop quality, setting off another set of unintended consequences. For context, lentils are graded and grouped according to the Canadian Grain Commission’s (CGC) four categories: No.1, No.2, No.3, and Extra-3. In a typical crop year, 75% - 80% of Canada’s lentils are No.2’s or better. Last season, it was the reverse, with most of the crop falling into the bottom two quality categories, creating a glut of low quality product.

Record Crop Volumes Exacerbate Problem—Notwithstanding the poor growing conditions described, 2010 lentil production came in almost 30% higher than prior year, and more than double the 10-year average—largely thanks to a sizeable jump in seeded area and yield. Under typical growing conditions, this type of volume lift would be a boon for AGT; however, given the aforementioned crop quality and harvest timing issues, it created serious problems.

Farmers Became Reluctant to Sell—Facing a glut of low quality product, falling prices, and concerns over export tolerances, farmers became very reluctant to part with their crops, preferring to wait in the hope of better pricing later on. For AGT, this introduced another volume sourcing problem, which subsequently impaired the company’s 4Q utilization. We now turn our attention to 1Q11.



Fighting Back—Attempting to Mitigate the Pain

In order to combat these challenges, AGT has undertaken a series of initiatives aimed at leveraging its internal processing capabilities and the reach of its global distribution network.

Leveraging their Distribution Platform—AGT’s merchandising expertise coupled with geographically diverse operations has allowed the company to leverage its size and scope in order to match the product available with suitable end-markets. In addition, AGT has been using its size and scope to minimize transportation costs and maximize leverage of pricing irregularities among markets.

Value-Added Sorting, Splitting and Blending—AGT attempts to create a margin spread through its ability to process the aforementioned lower priced, lower quality lentils (mid No.2, low No.2, and No.3) and blend them into higher-value food grade No.2 product. The efficiencies gained through converting pulses into finished products enable AGT to maximize its revenue per hour of processing time, particularly advantageous in dealing with the recent quality variances.

Moving Towards Product Diversification—AGT’s move to diversify revenues through a shift to new crops helps mitigate seasonality and sourcing risks including some of the aforementioned weather-related issues. The company’s dependence on pulses has decreased from 93% in 2009 to 75% of 2010 revenues. Some of these new products include beans and chickpeas in the pulse segment and rice and pasta in the staple food platform.



Financial Analysis & Outlook

Revenue & Earnings Profile

Notwithstanding expectations for near-term harvest timing challenges, AGT boasts very attractive long-term revenue and earnings growth prospects, in our view. Specifically, we forecast 2011 and 2012 revenues will advance 8.1% and 9.6% y/y, respectively, to $693.9 million and $760.3 million as pulse crop harvest timing is expected to normalize mid-2011 and then through to 2012, versus highly atypical 2010 weather conditions. In this context, we forecast that Pulse & Specialty crop revenues will advance 5.2% and 12.0% respectively in 2011 and 2012. Pasta and Rice revenues, meanwhile, are expected to grow respectively at 20.0% and 18.0% y/y in 2011, owing to recent acquisitions and organic growth expenditures. In 2012, we expect Pasta and Rice growth to temper to 3.0% y/y each. Exhibit 22: Segmented AGT Revenue Exhibit 23: AGT Margin History & Forecast

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2009 2010 2011E 2012E

Seg

me

nte

d R

ev

en

ue

(C

$ 0

00

s)

Pulses & Specialty Crops Milled Grains: Pasta, Semolina & BulgarRice Other Commodities

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2009 2010 2011E 2012E

Co

ns

olid

ate

d E

BIT

DA

(C

$ 0

00

s)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Co

ns

olid

ate

d E

BIT

DA

ma

rgin

(%

)

Consolidated EBITDA (C$ 000s) EBITDA Margin (%)

Source: Raymond James Ltd.

Gross margins are also expected to recover over time. In the short-term, we expect the residual headwinds associated with Canada’s abnormal 2010-11 crop will exert pressure on volumes and margin—likely into 2Q11. Thereafter, with a new Canadian crop on the horizon, we expect margins (and the company’s trading multiple) to revert back toward normalcy.

From a seasonality perspective, we expect the company to report stronger consolidated EBIT margin in 3Q and 4Q, when the bulk of the harvest is processed. Consistent with the aforementioned growth profile, we expect AGT will deliver strong EBITDA and EPS growth throughout our forecast horizon. Specifically, we forecast 2011 and 2012 EBITDA of $66.6 mln and $87.0 mln. Similarly, we expect 2011 and 2012 EPS to come in at $1.97 and $2.66, respectively.



Exhibit 24: AGT Financial Summary and RJ Forecast

2009 2010E 1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012ERevenue by Segment

Pulses & Specialty Crops 362,675 479,741 112,886 118,530 130,225 143,248 504,889 565,476Milled Grains: Pasta, Semolina & Bulgar 11,637 68,475 18,661 12,094 23,487 27,927 82,170 84,635Rice 6,788 69,659 22,261 19,435 11,419 29,107 82,222 84,689Other Commodities 6,788 23,440 1,882 0 5,753 16,977 24,611 25,473

Total revenue 387,887 641,314 155,690 150,059 170,884 217,259 693,892 760,272

EBIT $42,377 $26,163 $9,619 $10,133 $13,594 $20,941 $54,287 $74,191EBITDA $45,396 $36,436 $12,694 $13,208 $16,669 $24,016 $66,587 $87,041EPS $2.49 $0.98 $0.35 $0.37 $0.49 $0.76 $1.97 $2.66

EBIT Margin 10.9% 4.1% 6.2% 6.8% 8.0% 9.6% 7.8% 9.8%EBITDA Margin 11.7% 5.7% 8.2% 8.8% 9.8% 11.1% 9.6% 11.4%


Capital Structure

AGT maintains a sound financial position with a healthy balance sheet and sufficient liquidity, in our view. As of 4Q10, the company had total operating credit available of $255.7 mln with six global lenders, of which $80.3 mln had been drawn. The company held ~$22.9 mln in long-term debt offset by a cash position of $23.6 mln, contributing towards a current ratio of 1.5x (see Exhibit 25). We believe that healthy cash flow generation will contribute to an improvement in its net debt-to-EBITDA (trailing 12 months) from 2.6x at the end of 2010 to 0.7x by the end of 2011. This does not take into account any additional acquisitions, something we do not attempt to forecast. We believe this same strong cash flow generation will be more than sufficient for AGT to maintain operations and meet debt obligations. Finally, we highlight that AGT’s “dry-powder”—estimated at ~$200 mln—give it the flexibility to pursue both organic and acquisitive growth opportunities.

Exhibit 25: AGT Capital Structure & Debt Composition

Capital Structure

Shares outstanding - basic (mlns, mrq) 19.7

Shares outstanding - fully diluted (mlns, mrq) 20.0

Share price (as of 15-Apr-2011) 22.90

Market Capitalization (mlns) 456.9

Total Debt (mlns, mrq) 116.4

Cash & Short-Term Investments (mlns, mrq) 23.6

Net Debt (mlns, mrq) 92.8

Enterprise Value (mlns) 549.7

Debt / equity (mrq) 0.4x

Net debt / equity (mrq) 0.3x

Current ratio (mrq) 1.5x 0.0

0.5

1.0

1.5

2.0

2.5

3.0

2009 2010 2011E

Ne

t d

ebt

/ E

BIT

DA

(tt

m,

x)




Outlook

Following a challenging 2010 dominated by weather and timing related issues as well as unusual price volatility, AGT management is confident that demand and supply will come into “relative balance” in 2011. Additionally, AGT’s geographical diversification is meant to level off regional volatilities. Below we provide a more detailed account of expectations for several key AGT business units and operating regions.

1. Canada

Notwithstanding lower seeding expectations in Canada, production volumes are estimated to be similar to 2010-11 levels (see Exhibit 26). This normalization in pulse seeding (i.e. lower y/y) after abnormally high 2010 levels has been widely expected as farmers act on pre-planned rotational patterns into canola and cereal grains, before returning to pulses the following year. This is expected to be complimented by high carryover stocks as well as an ongoing transition in N.A. to continuous cropping. Taken together, AGT management expects to have access to product volumes similar to 2010 levels, sufficient for its N.A. processing and export programs. Demand is expected to be robust, especially out of India, a major consumer facing less than ideal conditions for its own crop. From a quality standpoint, however, expectations are for continued variance, creating opportunities for AGT to utilize its blending, splitting, and colour sorting capabilities. This does, however, create a degree of risk as the additional processing required for lower quality product, while creating margin opportunities, also results in an offsetting decrease in capacity utilization rates.

2. Turkey

The outlook for Turkish lentil production is mixed between various sources, ranging from production decreasing to remaining flat versus 2010. When coupled with expectations for adequate supply out of Canada and Australia, we believe capacity utilization will be high at AGT’s Arbel facilities. Furthermore, we expect a return to price stability, boding well for AGT’s processing and distribution of lentils to core consumption markets in the Middle East and North Africa.

Margins in AGT’s pasta business are expected to remain challenged in the short term as Turkish durum wheat prices (used as feedstock) remain high. This may be offset, in our view, by some ability for price increase due to continued strong demand for AGT pasta, particularly in new markets. Rice production for 2011 is expected to be flat to slightly higher. Despite this, Turkish demand for rice is expected to remain strong, reflected in continued strong imports into the country. Coupled with rising prices, partially due to supply from Egypt being knocked out, the prospects for AGT’s expanded Turkish rice processing facility are bright.



Exhibit 26: AGT Outlook

Canada

Impact

Near-Term Outlook

ProductionSeeded Area

Exports Carry Out Stocks

Dry Peas:► Exports (2010-11): 19.4% y/y increase to 2.6 Mt driven by demand from the Indian subcontinent ► Seeded area (2011-12): Marginal decrease to 1.3 Mt due to lower expected returns on relative basis► Production (2011-12): 2.2% decline in production to 2.8 Mt► Carry-out stocks (2011-12): Expected to decline to 0.2 Mt vs. 0.3 Mt in 2010-11

Lentils:► Exports (2010-11): Decline by 13.4% due to lower demand from Indian subcontinent and Middle East► Seeded area (2011-12): Expected to decrease by 21.8% due to lower expected returns on relative basis► Production (2011-12): Production will fall to 2.80 Mt vs. 2.86 Mt in 2010-11 due to lower seeded area► Carry-out stocks (2011-12): Expected to increase 11.1% to 0.5 Mt

Dry Beans:► Exports (2010-11): Forecasted to decrease slightly to 0.23 Mt due to lower demand from the U.S.► Seeded area (2011-12): Significant decrease of 26.5% driven by lower relative expected returns► Production (2011-12): Production is expected to fall 25.2% to 0.19 Mt vs. 0.25 Mt in 2010-11► Carry-out stocks (2011-12): Expected to fall significantly to 5,000 t versus 25,000 in 2010-11

Chickpeas:► Exports (2010-11): 7% y/y increase in exports driven by the demand from Middle East► Seeded area (2011-12): Expected to increase to 0.85 Mt vs. 0.83 in 2010-11 due to lower stocks and higher prices► Production (2011-12): Expected to rise to reach 135,000 in 2011-12 t vs. 128,000 t in 2010-11► Carry-out stocks (2011-12): Forecasted to increase 66% due to higher production and unchanged outlook for exports

35713379

2862 2800

266 224 254 19067 76 128 135

1043

1510 1600

1947

0

500

1000

1500

2000

2500

3000

3500

4000

2008-09 2009-10 2010-11 F 2011-12 F

Pro

du

ctio

n (

Th

ou

san

d t

on

nes

)Dry Peas Lentils Dry Beans Chickpeas

16171522

1300

706

971

1100

128 121 136 10053 3283 85

1396 1408

0

200

400

600

800

1000

1200

1400

1600

1800

2008-09 2009-10 2010-11 F 2011-12 F

Are

a S

eed

ed (

Th

ou

san

d h

a)

Dry Peas Lentils Dry Beans Chickpeas

2826

2178

2600

2300

282 256 245 23053 66 70 70

973

1386

12001300

0

500

1000

1500

2000

2500

3000

2008-09 2009-10 2010-11 F 2011-12 F

Exp

ort

s (T

ho

usa

nd

ha)


445

795

300

200

32 46

450500

8 5 25 5

6220 15 25

0

100

200

300

400

500

600

700

800

900

2008-09 2009-10 2010-11 F 2011-12 F

Ca

rry

Ou

t S

toc

ks

(T

ho

us

an

d h

a)


Source: Agriculture and Agri-Foods Canada, Raymond James Ltd.



Valuation & Recommendation

We are initiating coverage on AGT with a Strong Buy rating and $30.00 target price. Based upon the stock’s Apr-20-11 close, our target represents a 31.4% total return, inclusive of the company’s 2.3% dividend yield. To derive our target price, we apply a 6.9x EV/EBITDA multiple to our 2012E EBITDA estimate, a metric we believe is justified based upon the following factors:

Consistent with Historical Trading Range—AGT has historically traded between 3.5x and 9.0x forward EBITDA. Excluding trough levels reached during the depths of the recession, this range has traditionally spanned 6.0x to 8.5x, typically oscillating in response to volatile crop expectations and prevailing market conditions. We have chosen to assign a multiple at the low end of this normalized range to take into account our view of the risk associated with continued integration efforts at AGT’s most recent acquisitions, recent weather-related crop challenges, and farmer tendency to hold back on crops in a bid for higher prices.

Consistent with Closest Peers—In the absence of any direct, publicly traded competitors, we look to the world’s heavyweight grain handlers, including Viterra and GrainCorp, for comparable trading analysis. Despite the obvious differences in products, end-markets, and value-added processing in the bulk handling business model, we take comfort in that these agriculture enterprises share some similar crop (i.e. weather) related exposure. As Appendix B illustrates, AGT currently trades at a modest discount versus its closest comparables, most likely in response to 2011 estimates correcting downwards after two consecutive quarters of guidance misses, in addition to recent weather-related crop challenges.

Future Acquisitions Not Reflected in Estimates—As discussed herein, AGT’s growth mandate is far from complete, in our view, with an under-levered balance sheet likely to facilitate additional product and geographic tuck-in acquisitions. However, because it is very difficult to speculate on the timing, size, and specific target characteristics, we have refrained from building in bolt-on transactions. This therefore suggests the potential for revisions to our estimates.

In closing, we believe that AGT represents an attractive investment opportunity for growth orientated investors seeking exposure to the global agriculture sector. We believe that expectations have clearly been reset lower in recent months on the back of extreme weather events and the deleterious impact on Canadian pulse crop quality and harvest timing. However, because these events do little to impact the intrinsic value of AGT’s underlying business, we argue the commensurate pullback in the AGT’s share price represents a good entry point for investors. Our conviction is further bolstered by AGT’s solid pipeline of growth opportunities and a distinguished management team with the vision and fortitude to redefine the global pulse industry.



Exhibit 27: AGT Historical NTM EV/EBITDA Multiple Exhibit 28: AGT Historical NTM P/E Multiple

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11

Fo

rwa

rd P

/E M

ulti

ple

(NT

M)

AGT P/E NTM AGT P/E NTM (Avg.)

0.0

5.0

10.0

15.0

20.0

25.0

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11

Fo

rwa

rd E

V/E

BIT

DA

Mu

ltipl

e (N

TM

)

AGT EV/EBITDA NTM AGT EV/EBITDA NTM (Avg.)




Appendix A: Financial Statements

AGT Income Statement, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

Sales 387,887 642,140 693,892 760,272 Cost of sales 326,721 578,197 601,905 646,231 Gross Margin 61,167 63,943 91,987 114,041

Op. ExpensesAmortization 1,735 3,377 6,400 6,500 Amortization of Fair Value of Stock Options - - 700 850 Foreign Exchange (Gain) Loss (815) 721 0 - General & Administration 17,546 31,799 30,600 32,500 Subtotal Expenses 18,466 35,897 37,700 39,850

EBIT 42,701 28,046 54,287 74,191

Interest and Bank Charges 1,388 4,991 1,000 1,000 Interest on Long-Term Debt 611 942 400 500 EBT 40,702 22,114 52,887 72,691

Provisions for Income TaxCurrent Tax 8,339 6,597 9,916 13,630 Future Tax 2,422 (2,884) 3,305 4,543 Total Income Tax 10,761 3,713 13,222 18,173

Income b/f Non-Controlling Interest & Other 29,941 18,401 39,665 54,518

Net Income 29,941 18,401 39,665 54,518

EBITDA 46,302 36,436 66,587 87,041 EBITDA (%) 11.9% 5.7% 9.6% 11.4%

Earnings per share Basic 2.80 0.98 2.00 2.73 Diluted 2.74 0.96 1.98 2.66 Diluted (Continuing Ops) 2.74 0.96 1.98 2.66

Weighted average shares outstandingBasic 10,686 18,867 19,800 20,000 Diluted 10,945 19,171 20,075 20,500




AGT Balance Sheet, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

AssetsCurrent Assets

Cash & Cash Equivalents - 23,628 38,547 98,744 Accounts Receivable 89,013 134,886 129,883 120,810 Income Taxes Receivable - 3,211 - - Future Income Tax - 288 288 288 Inventory 94,161 110,783 121,854 115,082 Prepaid expenses 13,631 7,239 4,345 15,205

Subtotal Current Assets 196,805 280,035 294,917 350,130

Long Term AssetsPP&E 136,505 169,348 188,948 207,448 Intangible Assets 4,025 8,845 8,845 8,845 Goodwill 66,088 65,469 65,469 65,469 Investment / Other 1,000 1,000 1,000 1,000 Future Income Tax Asset - 3,216 3,216 3,216 Loan Receivable - - - -

Subtotal Long-Term 207,618 247,879 267,479 285,979 Total Assets 404,423 527,914 562,396 636,108

Liabilities & Shareholders EquityCurrent

Bank Indebtedness 46,269 80,336 55,336 55,336 Short-term financing - 24,925 24,925 24,925 Accounts Payable & Accrued Liabilities 70,147 68,157 94,461 114,562 Income Taxes Payable 1,384 1,691 1,691 1,691 Current Portion of Long-Term Debt 1,000 13,163 1,000 1,000 Distributions/Dividends Payable 2,309 - - - Subtotal Current Liabilities 121,109 188,272 177,413 197,514

Long-TermLong-term Debt (Revolving Credit Facility) 36,624 22,893 30,056 29,056 Provision for Employee Termination Benefits 239 - - - Future Income Tax Liability 14,541 13,212 16,517 21,061 Non-Controlling Interest - - - - Subtotal Liabilities 172,513 224,377 223,986 247,630

Shareholder's Equity Common Shares 187,151 267,499 268,199 269,049 Contributed Surplus 867 383 383 383 Accumulated Other Comprehensive 933 (15,419) (15,419) (15,419) Retained Earnings (Deficit) 42,959 51,073 85,247 134,465 Shareholder's Equity 231,910 303,537 338,410 388,478

Total Liabilities & Shareholder's Equity 404,423 527,914 562,396 636,108




AGT Cash Flow Statement, 2009 – 2012E (C$, mlns)

F2009 F2010 F2011E F2012E

Cash Flow from OperationsNet Income 29,941 18,401 39,665 54,518 Add:Amortization 1,735 3,377 6,400 6,500 Amortization of Cost of Sales 1,866 5,013 5,200 5,500 Loss on disposal of property plant and equipment - 505 - - Unrealized Foreign Exchange Gain (815) 721 - - Future Income Taxes 2,422 (2,884) 3,305 4,543 Amortization of Fair Value of Stock Options 540 - 700 850 Other - - - - Cash Flow from Ops b/f Changes in NWC 35,688 25,133 55,271 71,911

Changes in Net Working Capital - - - - Accounts Receivable (19,144) (54,651) 5,003 9,073 Inventories (77,422) (12,801) (11,072) 6,772 Prepaid Expenses (12,305) (4,968) 2,894 (10,860) Accounts Payable and Accrued Liabilities 38,189 (72) 26,304 20,101 Income Taxes Payable (7,545) (307) - - Income Taxes Receivable - (3,211) 3,211 - Other 57,839 7,750 - - Net Changes in NWC (20,387) (68,259) 26,340 25,086

Cash Flow from Operations 15,301 (43,126) 81,611 96,997

Cash Flows from Financing Net Increase (Decrease) in Bank Indebtedness (17,464) 46,855 (25,000) - Short term financing - (1,355) - - Proceeds from Long-Term Debt 14,047 36,141 - - (Repayment of) Long-Term Debt (10,079) (37,447) (5,000) (1,000) Cash Acquired in Business Combination 1,324 - - - Net Proceeds from Issuance of Shares 93,917 77,205 - - Repurchase of shares (25) - - - Other - - - - Cash flows from Financing 76,125 108,804 (40,692) (11,800)

Cash Flows From InvestingPurchase of PP&E (30,328) (37,590) (26,000) (25,000) Business Acquisition (60,098) (19,346) - - Restricted Cash - 6,010 - - Other Investments (1,000) - - - Cash flows from Investing (91,426) (50,926) (26,000) (25,000)

Effect of exchange rate on cash - (1,240) - -

Cash & Equivalents, Beginning of period - 10,116 23,628 38,547 Change in Cash & Equiv (during period) - 13,513 14,919 60,197 Cash & Equivalents, End of period - 23,628 38,547 98,744




Appendix B: Industry Comparables

Company Name Ticker Fx FY END 2010A 2011E 2012E 2010A 2011E 2012E

(mln) (mln) (mln) (mln) (%) (x) (%)

Agri-Products/ProcessingArcher Daniels Midland Company ADM.US USD 30-Jun 35.81 637 22,822 11,526 34,348 11.7 10.7 10.2 8.9 8.9 8.4 33.6 1.6 1.8%Bunge Limited BG.US USD 31-Dec 72.88 147 10,728 4,264 14,992 17.6 12.3 11.2 10.3 8.0 7.5 28.4 0.9 1.2%GrainCorp Ltd. GNC.AU AUD 30-Sep 7.98 198 1,583 240 1,823 20.1 11.8 11.6 8.6 6.3 6.3 13.2 1.2 3.1%Monsanto Co. MON.US USD 31-Aug 67.53 536 36,195 138 36,333 28.0 23.8 20.1 14.3 12.2 10.7 0.4 3.6 1.7%Syngenta AG SYNN.VX CHF 31-Dec 308.90 93 28,631 1,597 30,228 19.7 15.7 13.9 12.4 10.4 9.5 5.3 3.8 --The Andersons, Inc. ANDE.US USD 31-Dec 48.68 19 901 515 1,417 14.0 12.6 12.0 12.1 8.8 8.5 36.4 2.0 0.9%Viterra VT.CA CAD 31-Oct 11.34 372 4,126 1,518 5,644 23.7 13.1 14.4 10.9 7.8 8.1 26.9 1.1 0.9%Group Average 19.3 14.3 13.3 11.1 8.9 8.4

Alliance Grain Traders Inc. AGT.CA CAD 31-Dec 23.25 20 464 93 557 23.3 8.2 6.6 n.m. 6.4 5.1 16.7 1.5 2.4%

Notes:1.) All figures are in CAD unless otherwise noted.2.) All estimates are from Thomson except AGT and VT are Raymond James estimates.3.) P/E Values > 30.0x and EV/EBITDA multiples > 30.0x have been discarded (n.m.)

Price /Book

Div. Yield

Ent. Value

P/E EV/EBITDA Net Debt /

Cap

Market Price

Shares O/S

Market Cap

Net Debt

Source: Thomson, Capital IQ, Raymond James Ltd.



Risks

Weather risk–Weather conditions significantly impact size and quality of the crop, and in turn, impact the volumes handled and processed by AGT. AGT’s dual origin strategy is meant to mitigate the weather risk.

Transportation and Transloading–AGT is dependent on third parties and container availability for the transportation of its products. In Canada, a large portion of AGT’s products are transported by rail, with another significant portion by road. In Turkey, AGT’s products are transported exclusively by road. As the majority of AGT’s products are exported, AGT also relies on shipping companies and vessel space. All exported products also pass through third party transloading facilities to facilitate their final containerization for export. Strikes, work stoppages, labour disputes, failure or substandard performance of equipment or other interruptions to the rail or road networks, haulage companies, transloading facilities or shipping companies used by AGT and limited container availability may have a material adverse effect on the business, financial condition and results of operations of AGT.

Distribution and Supply Contracts–AGT typically does not enter into formal long-term agreements with clients, distributors, or suppliers. As a result, such parties may, without notice or penalty, terminate their relationship with AGT at any time. In addition, even if such parties should decide to continue their relationship with AGT, there can be no guarantee that the consideration or other terms of such contracts will continue on the same basis. If any of these clients chose to terminate or alter their relationship with AGT that could have a negative effect on the company’s business.

Reliance on Key Personnel–AGT is dependent on the abilities, experience and efforts of its senior management. The business could be negatively impacted should any of these persons leave, in particular CEO Mr. Murad Al-Katib.

M&A Risk–AGT’s growth-through-acquisition strategy exposes the company to M&A risk in the event that it does not succeed in achieving a certain level of synergies. Specifically, these expansions expose the company to new geographic, regulatory, industry, operating and financial risks.

Foreign Exchange Risk – A significant proportion of AGT’s revenues are generated in US dollars, while its costs are incurred in Canadian dollars and Turkish lira. As a result, AGT is exposed to currency exchange rate risks. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ Entity Agrium Inc. AGU NYSE NC Viterra Inc. VT TSX C$ 11.34 NC Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.



BioExx Specialty Proteins Ltd. April 27, 2011

BXI-TSX Company Report - Initiation of CoverageSteve Hansen CMA, CFA | 604.659.8208 | [email protected]



BXI: Initiating Coverage: Move over Whey, Canola may be the new Heavyweight

Event We are initiating coverage on BioExx Specialty Proteins Ltd. (‘BXI’) with an Outperform rating and $2.50 target price, representing a 43.7% total return based upon the stock’s closing price on April 20, 2011.

Action We recommend growth-oriented investors buy shares of BXI to capitalize on what we view as the firm’s large growth opportunities in the global protein additive market. Analysis BXI is an early stage venture engaged in the development of proprietary technologies used for extraction of high-quality proteins from oilseeds. With a 40,000 tpy plant located in Saskatchewan, the company is currently attempting to demonstrate its ability to produce canola-based protein isolates on a commercial scale—a potential industry first. Boasting high nutritional value and compelling functional attributes, we believe that BXI’s isolates, once available, are likely to enjoy strong uptake in traditional protein additive markets.

Global fundamentals support robust growth in the protein additive market, in our view, underpinned by a shift in consumer preference towards healthy lifestyles and improved dietary patterns. Moreover, while animal-based proteins (i.e. whey, casein) dominate the market today, we believe that plant-based proteins such as canola are poised to steadily take market share owing to favourable economics, environmental efficiency, and allergy concerns.

BXI has developed a disruptive new technology with tremendous market potential, in our view. Demonstrating the commercial viability of this technology will be critical over the next two to three quarters; failure to do so would be a negative development, in our view. That being said, if commercial viability is ultimately proven (as we expect), we believe BXI shares have significant upside, particularly in light of management's goal to build out a series of larger plants to capitalize on the technology’s global opportunities.

Valuation Our $2.50 target price is based upon a risk-adjusted DCF analysis. Until commercialization is proven, our valuation accounts for only two BXI plants (Saskatoon and Minot). Our target also equates to 12.3x our 2013 EPS estimate (see Valuation & Recommendation section for more details).


2010A C$(0.03) C$(0.02) C$(0.02) C$(0.03) C$(0.09) C$3 C$(14)

2011E (0.02) (0.02) (0.02) (0.01) (0.07) 11 (14)

2012E NA NA NA NA 0.02 57 12


Rating & Target Outperform 2Target Price (6-12 mos): C$2.50Current Price ( Apr-20-11 ) C$1.74Total Return to Target 44%52-Week Range C$2.93 - C$1.28Market Data Market Capitalization (mln) C$303Current Net Debt (mln) -C$10Enterprise Value (mil.) C$293Shares Outstanding (mln, f.d.) 174.0Average Daily Volume (000s) 867Dividend/Yield C$0.00/0.0% Key Financial Metrics 2010A 2011E 2012E

P/E NA NA NA

EV/EBITDA NA NA 25.1x

EBITDA Margin (%) NA NA 20.5% BVPS (mrq, tangible) C$0.42Net Debt/Equity (mrq) -0.1xNet Debt/Trailing EBITDA (mrq) 0.8x Company Description BioExx is a Canadian TSX-listed technology and food ingredients company focused on the extraction of premium plant proteins.

BioExx Specialty Proteins Ltd. Canada Research | Page 69 of 183


Table of Contents









Risks .................................................................................................................................................... 97

Canada Research | Page 70 of 183 BioExx Specialty Proteins Ltd.


Investment Overview

Strong Macro Fundamentals: Protein Outlook Attractive—We believe that global macro fundamentals support strong growth in the protein additive market, underpinned by a strong shift in consumer preference towards healthy lifestyles and improved dietary patterns. Moreover, while animal-based protein additives (i.e. whey, casein) dominate the market today, we expect plant-based proteins (i.e. soy, canola) to steadily gain market share owing to their favourable economics, superior environmental efficiencies, and reduced allergy concerns. We believe these fundamentals bode well for BXI’s growth prospects.

Move Over Whey; Canola Poised to Go Mainstream—BXI has developed a new, potentially disruptive, protein extraction technology for use on oilseeds. With a 40,000 tpy plant located in southern Saskatchewan, BXI is currently attempting to demonstrate its ability to produce canola-based protein isolates on a commercial scale—a potential industry first. Boasting high nutritional value and impressive functional attributes, we believe BXI’s isolates, once available, are likely to enjoy strong uptake in the global protein additive market. Specifically, we expect BXI’s products will initially be embraced by consumers of plant-based protein additives (i.e. soy), followed by a gradual transition into higher-end markets dominated by animal-based additives (i.e. casein, whey).

Key Global Partners—BXI has secured a number of key global partners to assist in its commercialization efforts. For distribution, the company has struck a long-term agreement with global chemical and nutrition conglomerate HELM AG that calls for purchase of 70% of the protein isolate produced at its initial Saskatoon plant. We expect this relationship to play a key role facilitating new customer development, expanding distribution for upcoming plants, and exploring joint venture/partnership opportunities in sectors complementing BXI’s technology. In terms of feedstock, BXI has secured a long-term agreement with Viterra for the supply of certified non-GMO canola seed.

Build It & They Will Come; Scalable Plant Footprint—Rather than license its technology to an established global heavyweight, BXI has elected to go it alone and prove out the global market opportunities open to its extraction technology. Following commercialization, the company plans to aggressively expand capacity, with initial plans calling for five plants totaling 800,000 tonnes in capacity, all based upon a standardized, scalable plant design to facilitate a quick roll out.

Potential Acquisition Candidate—The food additive and ingredient space has become a major focus for global agriculture companies in recent years, marked by several notable recent acquisitions. Given the market opportunities we foresee for canola-based protein additives, we view BioExx as an attractive acquisition target once the company demonstrates the full-scale commercial viability of its proprietary extraction technology.

Large Option Value Embedded in Share Price—Presuming BXI’s commercialization efforts are successful, we calculate that the market is currently attributing very little value to the company’s second plant planned for Minot, North Dakota, and zero for future plant expansions—each of which we forecast could potentially add an additional $3.00 to $5.00 per share to our current NAV estimate, in our view.

Initiating with Outperform Rating; $2.50 Target—We are initiating coverage on BXI with an Outperform rating and $2.50 target price. Based upon the stock’s most recent close, our target price represents a 43.7% total return. Given the company’s early stage of development and strong future projected cash flows, we employ a DCF analysis to derive our target price. To risk adjust our DCF analysis for BXIs near-term commercialization risk, we apply an additional 25.0% discount to our DCF output.



Company Overview

BioExx Specialty Proteins Ltd. (‘BXI’) is a Canadian-based company engaged in canola seed processing for the purpose of extracting high-quality protein isolates, oil, and meal. The company currently operates a single 40,000 tpy facility based in Saskatoon, Saskatchewan where commercial production of oil and meal began in April 2009. BXI has since been working to upgrade this plant to facilitate production of two canola-based protein isolates, trademarked as ISOLEXX and VITALEXX, based upon the company’s proprietary extraction technology. While initial protein volumes are flowing at low rates, full-scale commercial production is not expected until the latter half of 2011. BXI has developed plans to build additional facilities around the world once commercial viability is established. The company trades on the Toronto Stock Exchange under the symbol “BXI”. Extraction Technology

We believe BXI’s extraction technology offers several proprietary advantages versus conventional canola crushing processes. First and foremost, it uses refrigerant-based, non-toxic solvents at relatively low temperatures, which allows for successful extraction of high quality protein. Conventional technology, by comparison, uses a toxic hexane solvent and high temperatures, typically leading to protein damage and limiting end markets to oil and meal (see Exhibit 1). BXI’s extraction methods are also deemed more environmentally friendly than conventional methods (see Exhibit 2), due to their lower energy and water requirements, lower toxicity (no hexane), and minimal carbon emissions.

The financial benefits associated with BXI’s proprietary technology are significant. Given the high-quality nature of the proteins extracted—an incremental product over conventional technology—they are expected to significantly bolster the revenue and gross margin potential of BXI’s plants on a consolidated per tonne basis. Management estimates, for example, that revenue and margins will be roughly 3.0x and 9.5x greater than a conventional crushing operation.

BXI’s proprietary extraction process is not exclusive to canola seed. Testing indicates that it can be applied to other oilseed feedstock such as soybeans and flax, and perhaps marine algae. End-market applications for the technology are equally diverse, with possibilities extending into the nutraceutical and pharmaceutical industries. BXI views these markets as a potential licensing opportunity in the future.



Exhibit 1: BXI Extraction Process

Canola seed sourced through 10-year Viterra

agreement

Low temperature mechanical pressing

Extraction

Super Degummed Canola Oil

Oil processing Meal processing

BioExx Meal

70% 30%

Patented and patent pending processes

BioExx Products

DistributorsDistributors

End Markets

Salad dressing,

cooking oil, margarine

Animal feed and

fertilizer

Specialty Proteins

DistributorsHelm AG

Food as functional ingredient, sports nutrition, pediatric nutrition, adult/therapeutic nutrition


Exhibit 2: Comparison of Extraction Technologies (BXI vs. Conventional)

Extraction Attributes BioExx Conventional

Temperature Low Temperatures > 100 °C

SolventProprietary

non-toxic & non-volatileHexane

toxic & volatile

Energy Low energy High energy

Water Moderate Substantial

Output(i) Oil

(ii) Meal (iii) Protein

(i) Oil (ii) Protein

Revenue/tonne $1,520 $520

Revenue-COGS Differential/tonne

$1,144 $120

Source: BioExx Specialty Proteins Ltd., Canola Council of Canada, Raymond James Ltd.



Business Mix

BXI currently produces two products at its Saskatoon plant: canola oil and canola meal. In 2010, the company generated revenues of $2.3 mln and $1.0 mln, respectively, with the bulk of sales going into domestic markets (see Exhibits 3 and 4). On the Cusp: Poised to Demonstrate Commercial Protein Production

BXI is on the cusp of a definitive corporate milestone with plans to achieve commercial protein isolate production in 2H11, in addition to its oil and meal core end products. Given the high quality nature of its protein isolates, the company expects sales into human food markets. Initially, the company expects to garner pricing comparable to plant-based proteins such as soy. As the high-quality nature of its product is proven in the market over time, BXI expects to garner even higher pricing more comparable to premium, animal-based proteins. Based upon prior batch testing, management expects the future output of its products will be in a ratio of 40% oil, 35% meal, 18% protein isolates, and 7% sugar solution byproduct.

Exhibit 3: BXI Historical Revenue Exhibit 4: 2010 Revenue Mix

500

1,000

1,500

2,000

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Rev

enu

e $

(in

th

ou

san

ds)

30%

70%

OilMeal




Products Overview

Below we review BXI’s portfolio of products and their respective end-market applications.

Canola Oil—Canola oil is primarily used for human consumption in cooking, with the balance of typically lower grade product used to manufacture bio-diesel. Canola oil has become increasingly popular in Canada and Japan, comprising ~50% of the vegetable oil market in these countries. Other markets include Mexico, for instance, where canola oil currently accounts for ~25% of the vegetable oil market. BXI distributes all of its canola oil through Vancouver-based Shafer Commodities based on a 10-year agreement signed in January 2009. Shafer subsequently re-sells the oils to downstream refiners for further processing, packaging, and final sale. Pricing is based on the market price at time of sale, adjusted upwards to account for any specialty features of the BXI product.

Canola Meal—Canola meal is used primarily in animal feed (i.e. livestock, aquaculture) as a source of protein and fiber. BXI’s meal is currently considered a premium product based upon the un-denatured quality of its protein versus conventional canola meal. However, upon commissioning of the plant’s protein isolate production, it is expected that BXI’s meal protein content will drop by roughly half. While this will have a negative effect on the company’s associated meal pricing, management is confident this drop will be far outweighed by the sale of incremental protein isolates. In 2008, BXI secured a 10-year agreement with the above-noted Shafer Commodities to distribute all of the canola meal produced at its Saskatoon plant.

Canola Protein—Canola-based protein isolates are not currently available in the specialty protein market due to conventional crushing technology that inhibits their extraction and limits the economic feasibility. BXI’s unique extraction process, as described previously, has allowed it to achieve self-affirmed GRAS status for its first two new canola-based protein isolate entrants into the US market. It has also developed a variation of its technology aimed at third-party licensing.

ISOLEXX—A protein isolate with roughly 92% (as-is) purity level, ISOLEXX has a strong nutritional profile and functional characteristics that position it well to compete in the human food market. In particular, the protein is well suited for applications in sports nutrition and weight loss, segments traditionally dominated by whey and soy proteins. ISOLEXX delivers over 100% of the recommended essential amino acids and has a high 95% level of digestibility (see Exhibit 5).

VITALEXX—A hydrolyzed protein isolate with +87% (as-is) purity, aimed at the nutritional beverage and snack market for use in protein-fortified beverages and energy bars. What makes this product particularly attractive in these protein-fortified products is its high digestibility (>98%), delivery of 117% of essential amino acids, solubility, and minimal effect on processing.

Protein Concentrates from Toasted Meal—In 2009, BXI filed a patent for a unique variation of its technology for production of protein concentrates (up to 70% purity) from toasted oilseed meal produced in conventional, high-temperatures crushing facilities. This process allows for conventional operators to produce protein concentrate end product for sale into specialty feed markets at 3-5x the price of regular meal end product. Because this protein would not compete with BXI’s isolate products in the human food market, its easy application within a wide variety of crushing facilities used in N.A. and Europe make it highly attractive for third-party licensing, in our view.



Exhibit 5: ISOLEXX and VITALEXX Attributes

ISOLEXX VITALEXX

Description

► Made with non-GMO canola seed ► Spray dried tan powder appearance ► Bland flavour ► pH = 7+/- 0.5 ► Solubility > 90% at 1g/100 ml pH7

► Made with non-GMO canola seed ► Spray dried tan powder appearance ► Characteristic flavour ► pH = 7+/- 0.5 ► Solubility (water) > 98% ► Colour in solution = tan/transparent

End Use

► Bakery product - bread rolls, cakes, cookies, etc ► Meat products - hot dogs, sausages, baked meat ► Vegetarian food products and meat analogues ► Nutritional and high protein bars, drinks & supplements

► Nutritional beverages ► Healthy food applications to improve absorption and digestibility ► Nutritional and protein bars ► Infant formulas

Technical Data

► Protein = 88.1% (as is) or 91% (dry basis) ► High amino acid score = ~ 1.15 ► Fat (acid hydrolysis) = 1.8% ► Saturated Fat = 0.0% ► Cholesterol = 0.0%

► Amino acids (typical)= 82% (as is) or 87% (dry basis) ► High amino acid score = ~ 1.15 ► Fat (acid hydrolysis) < 0.2% ► Saturated Fat = 0.0% ► Cholesterol = 0.0%

Functional Characteristics

► Excellent water solubility vs. soy & pea proteins ► Emulsifying and foaming, comparable to whey and egg proteins ► Excellent gel forming properties and firmness ► Shelf Life = 12 mo. from date of manufacture ► Rich in muscle building amino acids

► Excellent and balanced amino acid profile comparable to whey ► High in threonine, an amino acid important for brain activity ► Low foaming ► Minimal effect on processing ► Shelf Life = 12 mo. from date of manufacture




Superior Performance Profiles

Although BXI’s protein isolates remain in pre-commercial stage, extensive testing and third party verification indicate that both ISOLEXX and VITALEXX demonstrate superior performance attributes versus conventional plant proteins (i.e. soy, peas). In particular, we highlight:

Superior Efficiency Ratio—Canola proteins score very favourably with respect to protein efficiency, a measure of weight gain per unit of protein consumed. In fact, as illustrated in Exhibit 6, canola proteins such as BXI’s upcoming isolate products score not only in excess of other plant-based proteins, but also above milk/whey, widely viewed as a premium animal-based protein that commands substantially higher pricing.

Superior Amino Acid Profile—BXI’s ISOLEXX and VITALEXX products rank favourably with respect to their amino acid content and overall protein quality. This is corroborated by their Protein Digestibility Corrected Amino Acid Score (PDCAAS) of 1.15, ranking well above all other plant and animal-based proteins (see Exhibit 7). For context, the PDCAAS methodology takes into account the protein’s: (i) amino acid profile; (ii) digestibility; and (iii) ability to supply 2-5 year olds with their daily amino acid requirements.

Exhibit 6: Protein Efficiency Ratio Exhibit 7: Protein Efficiency Ratio

0 0.5 1 1.5

WheatPeanuts

Pinto BeansKidney

Black BeansPea

BeefCassein

SoyMilk (w hey)

VITALEXXISOLEXX

Egg White

0 0.5 1 1.5 2 2.5 3 3.5 4

Wheat

Soy

Pea

Peanuts

Cassein

Beef

Whey

Canola

Egg White

Superior prote in e fficiency exhibited by Canola prote ins

Superior am ino acid profile in ISOLEXX & VITALEXX

Source: BioExx Specialty Proteins Ltd., Solae, Raymond James Ltd.



Target Markets

BXI’s initial focus in the protein additive market is high-end existing applications, including the sports, infant and child, and adult (therapeutic) nutrition sectors. Given the positive attributes described herein and recent discussions with customers, management is confident that its canola-based isolates will initially support a ‘soy-like’ price point (~$5,500/mt). Longer-term, as market acceptance for its products improves and the company demonstrates its abilities as a reliable supplier, management believes it will be able to sell into the premium animal-based protein markets (i.e. whey, casein) where prices can fetch $9,000/mt to $12,000/mt.

BXI is relying heavily on its distribution partner HELM to facilitate new customer development. According to recent management commentary, the company is currently working with ‘30+ customers’ that range from small niche producers to major multi-nationals, most of whom have been introduced via HELM (see below). Key Partners

BXI has enlisted the help of several key partners at this juncture to help facilitate its protein commercialization plans. These include:

HELM AG—BXI has signed a 10-year agreement with global chemical and nutrition conglomerate HELM AG for purchase and distribution of at least 70% of the protein isolate product produced at its Saskatoon plant. Pricing for HELM’s end-product is set by BXI (thus protecting this nascent market), with BXI in return agreeing to avoid direct competition in the European market.

Viterra—BXI currently secures all of its feedstock (canola seed) through a 10-year supply agreement with Viterra (VT-TSX), Canada’s largest grain handler. Under the agreement, Viterra will supply 40,000 tpy of Canada Number 1 canola.

Shafer Commodities—BXI secured a 10-year agreement with the Shafer Commodities for distribution of all canola meal and a portion of canola oil produced at its Saskatoon plant. The agreement stipulates premium canola meal pricing based on BXI product meeting pre-determined specifications. With the addition of protein isolates the protein content within meal will drop to roughly half of what it typically contains now, which will impact the historical premium pricing. Oil pricing is to be based on market prices, adjusted upwards where possible based on the specialty features of the product.



Company History

BioExx was founded in 2003 with the intention to develop and commercialize low temperature extraction technologies. The company effected a public listing in 2006 through a $14 mln capital pool company reverse takeover. BXI is currently completing Phase II of its protein development process (see Exhibit 8) and is expected to launch its protein isolate in 2011. As previously mentioned, BXI plans to expand beyond the current Saskatoon facility once commercial viability of its technology has been proven.

Exhibit 8: BXi Timeline and Milestones

2007 2008 2009 2010 2011

Private Placement$11 mln

(Jan. 2008)

Private Placement$5.3 mln

(May 2009)

Bought Deal$15 mln

(Oct. 2009)

Bought Deal$17.3mln(Mar. 2010)

Bought Deal$34.5 mln(Oct. 2010)

ISO (HACCP/GMP) Certification(Feb. 2011)

Entered Continuous Production( )

Completed End-to-End Production

(Sep. 2010)

Produced First Isolate

(Aug. 2010)

Started Isolate Production(Jun. 2010)

Completed Minot Enviromental Certification

(Dec. 2009)

FDA GRAS Self-Affirmation(Nov. 2009)

Graduates

to TSX(Dec. 09)

Re-branded to BioExx Specialty Proteins Ltd.

Signs Long Term Sales Agreement

with Helm AG(Dec. 08)

Signs Long Term Supply Agreement with Viterra

(May 08)

Lifesciences acquires

Bioexx Ltd. (RTO)

(May 07)

Re-named Bio-Extraction Inc. and Listed on

TSXV: BXI(May 07)

Source: BXI Specialty Proteins Ltd., Raymond James Ltd.



Management Team

Christopher D. Carl, President and CEO—Mr. Carl has over 20 years of experience in project finance, plant construction and mill management with a focus on commercializing new technologies. Prior to BXI, Mr. Carl spent 11 years developing and operating The CanFibre Group Ltd., which utilized laboratory-scale technology developed by a Canadian Government sponsored organization. This was preceded by several years at a Canadian subsidiary of Tenneco Inc. producing environmentally desirable bleaching chemicals for the pulp & paper industry.

Chris Schnarr, CFO—Chris Schnarr has 17 years of experience founding, managing, and advising successful high growth companies in a variety of areas including strategy, corporate finance, capital markets, corporate development, and operations. Mr. Schnarr was a founder of Wireless Matrix Corporation in 1993. He is also the founder and a Director of Endura Capital Inc., a private tax, risk advisory, and wealth management firm with offices in Toronto and Montreal.

Dean Pittman, VP of Engineering—Mr. Pittman has over 30 years of experience, much of that within project construction and engineering. Most recently, Dean was the project director for construction of a $100 mln research and discovery facility for Sanofi Pasteur. Prior to that, he oversaw over $700 mln in capital projects and start-ups as director of engineering and construction services for pharmaceutical company Apotex. Dean has also held similar engineering and quality control positions with the likes of Proctor & Gamble and Molson Breweries. He holds a Mechanical Engineering degree from McGill University.

Samah Garringer, VP of Product and Business Development—Ms. Garringer has spent more than 20 years of experience focused on business development, sales, administration and finance at retail companies, technology and manufacturing start-ups in Canada and Brazil. Prior to BioExx, she spent 4 years in charge of a plastics-related import/export business in Brazil as well as holding senior management positions for over 10 years at a retail company with over 170 locations in Canada.

Clinton Smith, VP of Operations—Clinton Smith has over 20 years of senior management experience in the food industry within key roles including operations management, sales, capital improvements and procurement. Over a nine year period, Mr. Smith held the role of VP of Canadian Operations for the food supply operations of one of Canada’s largest grocery chains, following other similar VP of Operations roles at regionally-focused Canadian companies.




BioExx shares trade in the TSX under the ticker symbol “BXI”. As of March 10, 2011, there were 191,771,575 common shares outstanding of which ~5.6% were owned by the company insiders and ~20.1% by institutions (see Exhibit 9). CEO Christopher Carl is the largest single shareholder with 4.7% of shares outstanding, implying that no single shareholder owns more than 5.0%. Exhibit 9: Shareholder Summary (as of March 10, 2011)

Shares Held /

Controlled% O.S.

Management. Directors and Other InsidersCarl, Christopher D. 8,951,497 4.67%Ollerhead, William W. 1,481,402 0.77%MacDonald, John 127,000 0.07%Schnarr, Chris 160,000 0.08%Lacey, Peter Allen 100,000 0.05%

Total Management & Insiders 10,819,899 5.64%

Corporations / InstitutionsAGF Management Ltd. 11,096,563 5.79%Winslow Management Company, LLC 6,500,000 3.39%Sprott Asset Management 4,000,900 2.09%Invesco Trimark Ltd. 3,663,800 1.91%Jupiter Asset Management Limited 2,107,286 1.10%



Shareholder Summary

Insiders, 5.6%

Institutions, 20.1%

Other, 74.3%

Source: Bloomberg, Capital IQ, BioExx Specialty Proteins Ltd., Raymond James Ltd.



Industry Analysis

Below we highlight several industry attributes and trends that influence BXI’s core business:

1. Protein Additives Poised for Growth; Strong Plant-Based Fundamentals

Global macro fundamentals support robust growth in the protein additive market, in our view. Specifically, market research firm Global Industry Analysts (GIA) forecasts that global demand will grow at a 6.0% CAGR over the next 5 years, reaching US$24.5 billion by 2015 underpinned by a strong shift in consumer preferences toward healthy lifestyles, most notably in U.S. and Europe. At present, market research indicates that animal-based proteins (i.e. whey, casein, egg) represent ~60% of the global sector, while plant-based varieties (i.e. soy, pea) account for the residual ~40%. More recently, however, plant-based proteins have been experiencing even stronger momentum. Consistent with this view, GIA estimates that plant-based proteins will grow at a 7.3% CAGR for period 2000-2014 (see Exhibit 10). Key factors behind this trend include:

Cost / Economics—Plant based proteins boast very high production efficiency ratios that translate into lower relative cost of production. For example, one acre of land is capable of yielding 356 lbs of soy protein versus only 20 lbs of beef protein. In other words, soy protein is ~17.0x times more efficient than beef protein. This delta has enabled manufacturers to bring protein price points down significantly, which are reflected in end-market prices (see Exhibit 11).

Exhibit 10: Global Protein Market Exhibit 11: Protein Additive Pricing

0

5,000

10,000

15,000

20,000

25,000

2000 2002 2004 2006 2008 2011 2013 2015

US

$ M

illio

ns

Plant Protein Animal/Fish Protein

Plant Prote in: 7.3% CAGRAnim al/Fish Prote in: 5.5% CAGRConsolidated: 6.0% CAGR

$6.00

$10.60

$12.80 $13.20

Soy Whey Casein Egg-White

Pri

ce

CN

D/k

g

Source: Global Industry Analysts, Frost & Sullivan, Canada Food Inspection, Raymond James Ltd.



Health & Safety Related Benefits—Plant-derived protein additives offer consumers several health and safety related benefits. First, they are less allergenic than milk-derived proteins (casein and whey), which present allergy problems for many consumers given that substantial portions of the population are subject to some form of lactose intolerance or low-level milk-protein allergy. In many cases, soy-based proteins may not be an ideal alternative given that the Asthma and Allergy Foundation of America cites it as one of the most common foods causing some degree of allergic reaction. Second, they are perceived to be less exposed to animal-related diseases (e.g. mad cow disease) than animal-based proteins. Finally, while reliable data is difficult to obtain, anecdotal evidence would point to a growing number of consumers within developing economies moving to vegetarian or reduced-meat diets, providing further support to growth in plant-based protein additives.

BXI’s canola protein isolates allow the company to benefit from strong plant-based protein market fundamentals, attractive economics, and increasing health and safety-related consumer concerns. Furthermore, BXI’s canola-based isolates exhibit superior allergenicity traits compared to soy, while their functionality could, in our view, prove them to be a substitute for higher-value whey and even casein proteins over time.

Exhibit 12: Production Energy Efficiencies Exhibit 13: Protein Land Efficiencies per Acre

4 6 11 18 21

415

0

100

200

300

400

500

Pork Beef Eggs Chicken Milk Soy

En

erg

y O

utp

ut

vs.

Inp

ut

(Kca

ls)

2045

78 82

192211

265

356

0

100

200

300

400

Beef Meat Eggs Milk Legum es Corn Rice Soy

Pro

tein

Pro

du

ctio

n (

lbs/

acre

)

Source: Solae, FAO/WHO/UNICEF/ Protein Advisory Group (2004), Raymond James Ltd.



Competitive Landscape

BXI arguably has few direct competitors given its unique, proprietary technology surrounding canola-based protein extraction. That being said, there are many specialty protein manufacturers, both small and large, that will ultimately compete head-to-head against BXI’s ISOLEXX and VITALEXX products. Initially, these companies will be soy protein manufacturers, as this is the market segment and price-point where BXI has its sights set. Over time, as the company’s products gain market acceptance and migrate up the value chain, we also believe that whey and casein protein manufacturers will become more relevant competitors.

While Burcon is often cited as BXI’s most direct competitor, we are not convinced, given the stark differences in business model and risk profile. Specifically, while we acknowledge that Burcon is also focused on canola-based protein extraction technology, the company has elected to license its extraction technology to Archer Daniels Midland under a 20 year agreement wherein ADM is responsible for all production, marketing and selling of protein isolates world wide. ADM bears all the risk of building commercial facilities and proving commercial viability, in exchange for reaping the greatest potential rewards. Taken together, we list below specialty protein manufacturers we deem to be potential competitors to BXI (see Exhibit 14). Exhibit 14: BXI Competitors in the Protein Additive Market

Canola SoyWheat Gluten

Cassein/Whey Fish

Burcon NeutraScience Corp (TSX:BU)

Burcon is a Vancouver based company focusing on plant protein extraction and

purification.

MCN Bio-Products (Private)

MCN, based in Saskatoon, is a technology company focused on canola protein

extraction for the feed industry.

Solae (DuPont-Bunge JV)

Solae is a leading soy-based technology and ingredients company. Headquarterd in St.Louis, Missouri, the company is a joint

venture between DuPont and Bunge.

Cargill Food Ingredients (Private)

A division of Cargill Inc, Food Ingredients & Systems group focuses on R&D of

various food ingredient products.

International Dairy Ingredients Inc. (Private)

A private Canadian company offers variety of dairy ingredients including protein, milk

powders and butter fats.

Westland Milk Products (Private)

The New Zealand co-operative produces high quality nutritionals, milk powders, milk

fat and milk protein products.

Minildra Group (Private)

Australia's largest user of wheat for industrial purposes; manufactures starch,

gluten, proteins, glucose, and syrups.

MGP Ingredients Inc (Nasdaq: MGPI)

MGP produces ingredients and distilled products derived from wheat flour and

corn. The company is headquartered in Atchison, Kansas.

Omega Protein Corp (NYSE: OME)

World's largest producer of omega-3 fish oil and North America's largest

manufacturer of protein-rich specialty fish meal and organic fish solubles.

Plant Protein Animal ProteinCompany Description




Company Strategy

Build It & They Will Come—In our view, BXI has developed a potentially disruptive, new technology with tremendous market potential. Rather than license this technology to an industry bellwether, as might be expected for a relatively early stage venture, BXI has elected to go it alone, prove out the technology commercially, and develop the canola protein additive market. This is presumably all in order to reap a larger piece of the proverbial pie assuming its success. Exhibit 15 illustrates company’s execution to date, as well as some key future milestones.

Scalable Plant Footprint—BXI plans to expand its processing capacity in order to capitalize on strong global demand fundamentals for protein additives. Initially, the company has earmarked plans for five plants totaling 800,000 tonnes in capacity, all based upon a standardized, scalable plant design to facilitate a quick roll out (see Exhibit 16). Beyond its current Saskatoon plant and its next plant planned for North Dakota, BXI has indicated it would like to take advantage of strong rapeseed supply in Europe and canola in Australia by locating two or three of its plants within these regions. We note, however, that BXI remains prudent with regards to its plant expansion strategy and timeline given that it is, for all intents and purposes, creating a new market for its products.

Exhibit 15: Saskatoon Plant Milestones Exhibit 16: BXI Capacity Expansion Plan

Completed Minot Environmental Certification (Dec. '09)

Comissioned Saskatoon Plant (Jun '10)

Produced First Full Scale Protein Isolate (Aug. '10)

Completed First Full Plant Production (Sep. '10)

Commenced Continuous Operations (Nov. '10)

ISO (HACCP/GMP) Certification (Feb. '11)

First Human Food Shipment

Continuing Commercial Validation

Minot Groudbreaking

Minot Startup

FDA GRAS Certification Confirmed (Nov. '09)

Completed

In ProgressExpected date:

FY2011

In ProgressExpected date:

FY2011

100

200

300

400

500

600

700

800

900

SaskatoonPlant

Minot Plant Plant # 3 Plant # 4 Plant # 5

An

nu

al P

rod

uc

tio

n C

apac

ity

(tp

y)

Capacity per Plant Cumulative Capacity

Current capacity 40,000 tpy

Expected capacity by year 5 ~ 780,000 tpy




Product and Revenue Diversification—Core to BXI’s strategy is the diversification of its revenue streams on a long term basis (see Exhibit 17). We believe this serves to help maximize margins, reduce execution risk, and build stable cash flows allowing for financing of the capital investments required to expand its plant footprint.

Oil, Meal, and Protein—BXI’s proprietary process allows it to extract oil, meal, and protein from canola, all products that have significant markets or market potential. While the much higher selling price of protein isolates would have us expect this to be BXI’s primary revenue source in the future, oil and meal products are expected to provide steady baseline sales as well as diversification. Consumer healthy-living trends, as explored previously and in our accompanying macro report have bolstered demand for vegetable-based cooking oils, while increased global meat consumption provides support for animal feed demand

Licensing to Open New Product Markets—BXI plans to further diversify and expand its revenue stream by licensing a patent-pending variation of its technology designed for production of lower purity (60-70%) protein ideal for specialized animal feed applications and aquaculture. This process is to be licensed to third parties, creating ongoing revenue streams without threatening BXI’s own high-purity protein isolate market targeted at human consumption.

Complementary Products—On a long term basis, BXI plans to explore applications of its technology beyond the oil, meal, and protein markets. Specifically, this includes application of its technology to other crops such as rapeseed and soybean, as well as applications in the pharmaceutical and nutraceutical sectors. Given the sectors in question, we would expect the potential addressable market to be vast though difficult to quantify at this point. BXI’s current agreement with HELM, also a major pharmaceutical distributor, positions the firm to pursue these sectors through partnerships and joint ventures.

Focus on Margins—BXI pursues a strategy of maximizing its protein isolate output in relation to oil and meal for the feedstock it processes in order to increase margins. Although BXI may have a diversified line of three end products, each garners vastly different margins. Specifically, BXI expects to garner initial protein prices equivalent to soy at ~$6,000/tonne, still well below whey at ~$12,000/tonne, followed by a steady migration higher as product acceptance grows. Oil and meal products, by contrast, command ~$1,000/tonne and ~$250/tonne, respectively. The profitability of its oil and meal products will be highly dependent on feedstock prices (crush margins).

Exhibit 17: BXI Potential Product Lines & Selling Prices

Protein Super-Concentrate

Purity: 70-85%ASP: $2,500-$3,500/tonne

Protein Isolates

Purity: +90%ASP: $6,000-$12,000/tonne

Canola Oil

ASP: $1,000/tonne

Protein Concentrate

Purity: 60-70%ASP: $1,000-$1,500/tonne

Conventional Meal

ASP: $250/tonne

Animal Consumption Human Consumption

Through JV




Partnering with Key Global Players—Rather than attempt to develop the canola-based protein isolate market on its own from the ground up, BXI has chosen to partner with key global players, most notably through a 10-year agreement with global chemical and nutrition conglomerate HELM AG. This helps to significantly mitigate execution risk, in our view, as the company works to develop end markets and customers for canola-based protein isolates. While the HELM agreement relates to sales into countries that follow the US GRAS approval system, this association has, in our view, helped open up the ~30 other customer discussions that management has indicated are ongoing. We believe such partnerships will also prove critical to BXI’s exploration of further applications of its technology in the pharmaceutical and nutraceutical sectors in the future.

N.A. and European Focus; ROW through Joint Venture—BXI is currently focused on developing and expanding in the N.A. and European markets, both through its plant footprint and end-market distribution agreements. Over the long term, the company plans to expand through the rest-of-the-world (ROW) by establishing joint ventures and strategic partnerships.




Critical to any reasonable BXI forecast at this stage of development is determining: (i) the timeframe over which full-scale, commercial protein production will be achieved at Saskatoon; (ii) the timing associated with subsequent processing plant construction/ operation (i.e. Minot); (iii) protein isolate pricing trends; and (iv) canola crush margins. In this context, below we highlight recent developments at Saskatoon, management’s current guidance (where applicable), and how this guidance compares to our current forecast (see Exhibit 18):

Operational Hiccups Give Reason for Caution—BXI has run into several ‘hiccups’ in recent months during its attempt to achieve full-scale, continuous protein production at Saskatoon. Initially, vendor-related equipment challenges cropped up, but were subsequently resolved. More recently, unexpected ‘foaming and emulsion issues’ (not experienced at the pilot stage) have prevented management from scaling up protein production—highlighting the ongoing technical risk associated with commercializing the company’s promising new technology. Coupled with weak crush margins in recent months, management has elected to keep the crush portion of the plant at low rates, with 1Q11 utilization reportedly hovering around 10.0%, far below initial guidance and expectations. As of mid-March, management indicated that a temporary filter solution had been implemented to rectify the foaming issue with ‘positive initial indications’.

Phase II Completion Expected ‘Mid-Year’—BXI’s roadmap to commercial validation is often described in three distinct phases (see Exhibit 18). With Phase I already complete—marked by the confirmation of GRAS certification in Nov-2009—we are now observing the company’s Phase II progress. Despite recent hiccups, management believes the conclusion of Phase II is still achievable by ‘mid-year’, or soon thereafter, which culminates in both the crush and protein lines operating at 50.0% utilization.

RJ: Given recent technical challenges, we believe it is prudent to adopt conservative timing assumptions. We therefore assume that full-scale commercial production does not occur until 4Q11.

Minot Plans Prepared, Ready to Go—BXI recently indicated that its plans for a second plant in Minot, North Dakota are largely ready to go, with only a final cost study still to be completed. Management also stressed, however, that they would not press ahead with its funding efforts for Minot until Saskatoon has reached full-scale commercial production. Construction for Minot expected to begin in 2Q11 and take ~16 months.

RJ: We are cautious about Minot’s timing given recent hiccups at Saskatoon. We therefore assume that construction begins in late 3Q11, with commercial production starting in 1Q13. Given the uncertainty still present, we note that Saskatoon and Minot are the only two plants we model at this time, as we prefer to wait for better visibility for plants #3 to #5.



Exhibit 18: BXI Plant Development Timeline

2008 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Saskatoon Development Phases & Key Milestones

Saskatoon

Minot

Phase I Phase II Phase III

Planning / Construction

Phase I: ► Construction & operation of canola crush plant. ► Products: oil and meal.

Key Milestones:(1) May '08: Saskatoon Groundbreaking(2) Mar. '09: Started Production at Saskatoon(3) Nov. '09: GRAS Certification Confirmed

Phase II: ► Protein extraction equipment installed. ► Commission up to 50% of capacity (20k tpy). ► Products: oil, meal and Isolexx protein.

Key Milestones:(4) Aug. '10: First full-scale Isolate made (Batch)(5) Nov. '10: Commenced continuous production.(6) Feb. '11: ISO (HACCP/GMP) Cert. received.(7) Ramp up isolate production(8) 2H11: 1st Isolexx shipment for human markets(9) Commercial Validation established.

Phase III: ► More protein equipment installed ► Bring other 50% protein capacity online ► Products: oil, meal Isolexx & Vitalexx.

Key Milestones:(10) 1Q12: First Shipment of Vitalexx(11) 2Q11: Minot Groundbreaking (late 'spring')

(1)

(2)

(3)

(4) (6)

(5)

(8) (10)

(11)

(7) (9)


Protein Prices; Start Low, Migrate Higher—Protein price assumptions are another critical valuation driver. Management has stressed in recent quarters that initial protein sales will likely benchmark well vs. other plant-related proteins such as soy, thereby capturing a price point of ~$5,500/mt. Longer-term, as market acceptance of improves, and BXI demonstrates its ability as a reliable supplier, management expects prices to migrate higher toward select animal-based proteins such as whey and casein which sell for $9,000-$12,000/mt.

RJ: We assume that ISOLEXX initially captures ~$5,500/mt, followed by incremental $250-$500 annual step-ups. Long-term, we remain more conservative than guidance, assuming that ISOLEXX reaches premium plant-based protein prices (~$7,500/mt) by 2016. For VITALEXX, we assume similar initial pricing, but apply a 10.0% premium in 2013 and beyond to account for the incremental premium market opportunities (i.e. pediatric nutrition).

Feedstock Costs & Crush Margin—Canola industry crush margins have been relatively depressed in recent quarters due to the sharp rise in canola seed prices relative to canola oil and meal. Despite modest improvements in recent months, we have elected to keep crush margins at ~$55/mt through 2012, before stepping it up to a long-term $60/mt average.



Exhibit 19: Key Modeling Assumptions

Baseline Plant Assumptions Comments

► Production Ratioso Oil/ Meal/ Isolexx/ Vitalexx/ Sugar ► 40.0% / 35% / 8.0% / 10.0% / 7.0%

► Protein Isolate Pricing ($/mt)o Isolexx (initial) $5,500 ► Increase in $250-$500 step functions as adoption improves; reach $7500/mt by 2016o Vitalexx (initial) $5,500 ► Similar to ISO, but apply 10.0% premium in 2013+ to reflect premium market opps.

► Crush Marginso Canola Oil ($/mt) $1,200 ► Recent increases less than seed; crush margins squeezed; moderate down; LT= $1,000o Canola Meal ($/mt) $250 ► Smallest gains over past year; contributing to crush squeeze; Moderate down; LT= $225/mto Canola Seed ($/mt) $575 ► Seed prices have risen sharply in recent quarters; moderate down; LT= $475/mt

► Plant Operating Costs ($/mt)o Saskatoon $300 ► Includes all non-feedstock costs (i.e. labour, utilities, etc.)o N. Dakota & Future $275 ► Assume modest economies of scale achieved with larger plants

Source: Canola Council of Canada, Raymond James Ltd.

Exhibit 20: BXI Financial Forecast

FINANCIAL SUMMARY 2010 2011E 2012E 2013E 2014E 2015E

Revenue ($000s) 3,330 10,818 56,895 180,271 196,516 200,305 EBITDA ($000s) (13,518) (13,879) 11,657 56,990 73,135 85,203 EPS (f.d.) (0.09) (0.07) 0.02 0.20 0.24 0.28

Revenue by ProductCanola Oil 2,320 5,090 16,781 48,245 48,245 41,952 Canola Meal 1,010 1,997 2,494 7,481 7,481 6,733 Isolexx Protein - 1,705 16,720 52,440 59,280 63,840 Vitalexx Protein - - 20,900 72,105 81,510 87,780

Total Revenue 3,330 8,792 56,895 180,271 196,516 200,305

-

50,000

100,000

150,000

200,000

250,000

2010 2011E 2012E 2013E 2014E 2015E

Rev

en

ue

by

Pro

du

ct (

$000

s)

Isolexx ProteinVitalexx ProteinCanola MealCanola Oil

(20,000)

-

20,000

40,000

60,000

80,000

100,000

2010 2011E 2012E 2013E 2014E 2015E

EB

ITD

A (

$00

0s)




Capital Structure

Balance Sheet Risk Rising (Despite Saskatoon Burn Slowing)—BXI’s balance sheet risk is rising despite a slowing burn rate associated with its Saskatoon facility upgrades. Specifically, the company ended 2010 with $16.6 mln in cash and $14.1 mln in net working capital. According to management, the balance of Phase II capital spending is now less than $3.5 mln, which should enable the company to reach up to 50.0% utilization by mid-year, including an associated increase in ISOLEXX production. That being said, we expect an additional $10.0 – 15.0 mln is still required in 2011 to complete Phase III—a necessary step in order to initiate first VITALEXX production by 1Q12.

North Dakota Funding Still Outstanding—Further capital will also be required to fund the development and construction of its second plant in Minot, North Dakota. Management currently estimates the total cost of this plant at $85.0 mln, up vs. the $60.0 - $65.0 mln originally anticipated (see Exhibit 21). With a 50/50 debt-to-equity financing split proposed, we calculate BXI will require an additional $42.5 mln in equity to fund this project. That being said, because the firm’s Saskatoon plant remains largely unencumbered, management hopes to leverage its equity in this asset to secure ~$20.0 mln in additional funds for North Dakota. We expect the balance of funding, roughly $22.5 mln, will need to be raised via equity issuance. In terms of debt funding, the company is actively negotiating a $24.0 mln debt facility with local state banks and continues to evaluate several options (i.e. project financing) for the balance required.

Timing Uncertain, but Equity Raise Likely During 2Q11—Given the timing and capital requirements outlined above, we expect BXI will be looking to raise ~$35.0 mln in equity capital during late 2Q11. While the company has the ability to dial-down near-term capital spending plans and prolong its current resources, timing remains of the essence, in our view. Management was clear in recent commentary that it will advance North Dakota only after the company has proven up Saskatoon. At present, this is expected to occur during late 2Q. However, should this demonstration extend well into 3Q, we believe that BXI’s current flexibility will be substantially reduced.

Exhibit 21: BXI Plant Pipeline and Associated Financing Requirements

Plant Capacity CostLocation (MTs) ($mlns) Debt Equity

Saskatoon 40,000 60,000 7,250 52,750 North Dakota 80,000 85,000 42,500 42,500 Plant #3 120,000 117,500 82,250 35,250 Plant #4 160,000 150,000 150,000 - Plant #5 240,000 205,000 205,000 -

640,000 617,500 487,000 130,500 * Estimated Figures

Financing





We are initiating coverage on BXI with an Outperform rating and $2.50 target price. Based upon the stock’s Apr-20-11 close, our target price represents a 43.7% total return. Given the company’s early stage of development, we employ a DCF analysis to derive our target price (see Exhibit 22).

Saskatoon & Minot NAV Pegged @ $3.27—As illustrated below, our DCF analysis for BXI’s Saskatoon and Minot plants yields a $3.27 NAV, with roughly ~70.0% or $2.25 of this value attributed to the latter facility. As noted in the prior discussion(s), key assumptions in this valuation approach are that: (i) BXI successfully demonstrates commercial viability at Saskatoon; and (ii) BioExx successfully raises $35.0 mln in equity capital to fund the development of Minot and the balance of capital spending (i.e. Phase III) at Saskatoon.

Commercialization Risk Still Present; Watching Milestones—Notwithstanding BXI’s tremendous opportunities, we cannot ignore the fact that the company is still attempting to commercialize its technology. In this context, we believe the balance of 2011 will be a critical period, one wherein the company must clearly demonstrate the commercial viability of its protein extraction process. To do so will be a game-changing event for the company, in our view. Failure to do so, on the other hand, would be severely detrimental to the company’s outlook and share price. To accommodate this near-term risk, we have risk-adjusted our NAV with a 25.0% discount. As the company hits key production milestones over the next few months, we will to take appropriate action and reduce this rate.

Large Option Value: Paying Little for North Dakota; Zero for Future Expansion—Presuming BXI's commercialization efforts are successful, we calculate that the market is currently attributing very little value to Minot (~1/3 of its NAV), and effectively zero for the company’s future plant expansions. We forecast that each plant could potentially add $3.00-$5.00/share to our consolidated NAV. But again, we prefer to see definitive evidence of commercialization and better clarity on potential timing before we start incorporating these plants into our forecasts.



Exhibit 22: BioExx Discounted Cash Flow Analysis

2011E 2012E 2013E 2014E 2015E 2016ERevenue: 10,818 56,895 180,271 196,516 200,305 211,135 EBIT: (15,529) 8,157 56,990 73,135 85,203 95,933 Less: Cash Taxes: - - 4,698 10,290 12,130 13,771 NOPLAT: (15,529) 8,157 52,292 62,845 73,073 82,162 Plus: Depreciation: 1,650 3,500 7,750 7,750 7,750 7,750 Less: Net Working Capital: 4,297 5,408 6,476 3,849 (1,243) 56 Less: CapEx (total): 61,500 48,000 7,250 7,250 7,250 7,250 Free Cash Flow : (79,676) (41,751) 46,316 59,496 74,816 82,606 Terminal Cash Flow: - - - - - 1,255,850 Total Cash Flow: (79,676) (41,751) 46,316 59,496 74,816 1,338,456

Equity AssumptionsBeta (B) 1.25 NPV of FCFF: 780,559 Risk Free Rate (Rf) 3.5% Net Debt (FY11E): 67,930 Market Risk Premium (Rm) 6.5% Equity Value: 712,628 Cost of Equity: Rf + B(Rm) 11.6% Shares o/s (FY11E, f.d.): 218.0

Debt AssumptionsWeighted Cost of Debt (Rd): 6.25%Tax Rate (t): 30.0% DCF OUTPUT & VALUATIONCost of Debt: Rd(1-t): 4.4% DCF Valuation ($/share): $3.27Debt /Total Cap*: 25.0%WACC: 9.78% 9.3% Risk-Adustment: 25%Terminal Growth Rate: 3.0% Risk-Adjusted Value/Share: $2.47

* Estimated 5 year avg. Debt/Capital

Sensitivity Analysis$3.27 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%8.0% $4.09 $4.48 $4.95 $5.52 $6.24 $7.16 $8.388.5% $3.66 $3.98 $4.36 $4.82 $5.38 $6.08 $6.989.0% $3.29 $3.56 $3.88 $4.25 $4.70 $5.25 $5.939.5% $2.97 $3.20 $3.47 $3.78 $4.14 $4.58 $5.11

10.0% $2.70 $2.89 $3.12 $3.38 $3.68 $4.03 $4.4610.5% $2.46 $2.62 $2.82 $3.04 $3.29 $3.58 $3.9311.0% $2.24 $2.39 $2.55 $2.74 $2.95 $3.20 $3.4911.5% $2.05 $2.18 $2.32 $2.48 $2.67 $2.88 $3.1212.0% $1.88 $1.99 $2.12 $2.26 $2.42 $2.60 $2.80

Terminal Growth Rate

WA

CC





BXI Income Statement, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

Revenues 4,171 3,330 10,818 56,895 Cost of Goods Sold 5,494 4,145 12,347 32,813 Gross Margin (1,323) (815) (1,529) 24,082

Other Plant Expenses 913 1,628 1,800 1,900 Plant (Loss) Profit (2,236) (2,442) (3,329) 22,182

Administrative & General Expenses Office and General 2,171 3,416 3,600 3,750 Stock-based Compensation 1,273 4,383 3,800 4,000 Research and Development 998 1,808 2,000 2,000 Sales and Marketing 404 352 650 775 Plant Commissioning & Start-up 359 1,118 500 - SR&ED Tax Credit - - - - Subtotal G&A 5,205 11,076 10,550 10,525 EBITDA (7,442) (13,518) (13,879) 11,657

Amortization of Plant & Equipment 347 796 1,200 2,000 Amortization of Equipment 223 299 450 1,500 Amortization of Intangible Assets 34 53 - - Total Depreciation & Amortization 604 1,148 1,650 3,500

Earnings b/f Interest & Taxes (EBIT) (8,046) (14,666) (15,529) 8,157

Interest Income 76 142 100 100 Interest Expense on LT Debt 197 469 500 4,888 Loss on Derivative Instruments - (62) - - Earnings b/f Taxes (EBT) (8,167) (15,055) (15,929) 3,369

Income Taxes Current - - - - Future - - - - Subtotal Taxes - - - -

Earnings after Tax (8,167) (15,055) (15,929) 3,369 Non-controlling interest (5) - - - Net Income (Loss) (8,172) (15,055) (15,929) 3,369

Earnings Per Share Basic (0.06) (0.09) (0.08) 0.02 Fully Diluted (0.06) (0.09) (0.07) 0.02

Wgt Avg Shares Outstanding Basic 129,277 174,044 203,022 206,772 Fully Diluted 129,277 174,044 214,250 218,000

Source: BioExx Specialty Protein Ltd., Raymond James Ltd.



BXI Balance Sheet, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

Current AssetsCash 14,101 16,629 35,537 5,987 Restricted Cash - 79 79 79 Accounts Receivables 591 309 2,245 4,676 GST recoverable 672 408 408 408 Amounts receivable 50 - - - Investment tax credit receivable 943 2,328 2,328 2,328 SR&ED credits receivable 77 298 298 298 Loans Receivable - - - - Prepaid Expenses 74 96 409 4,552 Inventory 199 164 2,491 5,843 Total Current Assets 16,707 20,312 43,796 24,172

Non-Current AssetsLong-term prepaid expenses 46 55 55 55 Equipment Deposits 4,214 855 1,355 1,355 Intangible Assets 584 757 757 757 Property Plant and Equipment 20,261 63,156 98,506 155,006 Restricted Cash 1,000 1,000 1,000 1,000 Total Non-current Asset 26,105 65,823 101,673 158,173 Total Assets 42,812 86,135 145,469 182,345

Current LiabilitiesAccounts Payable and Accrued Liabilities 5,471 5,335 5,613 10,132 Due to shareholder - - - - Current Portion of Long-Term Debt 377 749 322 322 Current portion of Leased Inducement 21 27 34 42 Derivative Instruments - 53 - - Total Current Liabilities 5,869 6,164 5,969 10,496

Long-term LiabilitiesLong-Term Debt 3,675 6,517 49,595 74,595 Leasehold Inducement 27 - - - Total Long Term Liablilities 3,702 6,517 49,595 74,595 Total Liabilities 9,571 12,681 55,564 85,091

Non-controlling interest - - - -

Shareholders' EquityCapital Stock 46,724 98,385 130,785 134,785 Shares to be issued - - - - Warrants 471 - - - Contributed Surplus 3,030 7,109 7,109 7,109 Retained Earnings (Deficit) (16,984) (32,039) (47,989) (44,640) Total Shareholders Equity 33,241 73,454 89,905 97,254

Total Liabilities & Shareholders Equity 42,812 86,135 145,469 182,345




BXI Cash Flow Statement, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

Operating Activities Net Loss for the year (8,172) (15,055) (15,929) 3,369

Changes not involving cash: - - - - Non-controlling Interest 5 - - - Stock-based Compensation 1,273 4,383 3,800 4,000 Leasehold Inducement (15) (21) (20) (20) Accretion of Deferred Financing Charges 6 7 7 8 Accrued Interest on Long-Term Debt - 171 151 - Write-off of PP&E 2 - - - Unrealized Loss on Derivative Instruments - - - - Interest Expense Paid in Shares - - - - Rent - - - - Amortization of PP&E and Intangible Assets 604 1,148 1,650 3,500

Subtotal (6,297) (9,367) (10,341) 10,857 Changes in non-cash working capital balances (200) 2,056 (4,297) (5,408)

Cash Flow from Operating Activities (6,496) (7,311) (14,638) 5,450

Financing ActivitiesIncrease in Leasehold Inducement - - - - Net Proceeds of Long-term Debt 3,639 4,030 42,500 25,000 Repayments of Long-term Debt (147) (200) - - Redemption of Non-controlling Interest (100) - - - Exercise of Options and Warrants 8,675 2,544 400 - Pivate Placements, Net of Issue Costs 18,817 51,874 30,000 - Cash received on RTO - - - - Cash received prior to completion of RTO - - - - Share Issuance Costs (11) (3,532) (1,800) - Dividends Paid of Preference Shares (7) - - - Redemption of Preferred Shares - - - - Cash Flow from Financing Activities 30,866 54,715 71,100 25,000

Investing ActivitiesIncrease in Equipment Deposits (1,949) (1,361) (500) - Increase in Long-term Prepaid Expenses (35) (9) - - Decrease to Advances Receivable - - - - Increase to Intangible Assets (170) (266) - - Increase in Restricted Cash (900) (79) - - Proceeds on Disposal of Equipment 1 - - - SR&ED Credit Applied as Reduction in Equipment - - - - Additions of Property, Plant and Equipment (11,549) (43,214) (37,000) (60,000)

Cash Flow from Investing Activities (14,603) (44,929) (37,500) (60,000)

Increase in Cash 9,899 2,475 18,962 (29,550) Cash, Beginning of Year 4,202 14,101 16,576 35,537 Cash, End of Year 14,101 16,576 35,537 5,987






(mln) (mln) (mln) (mln) (%) (x) (%)

Food Ingredients CompaniesBurcon Nutrascience Corp. BU.CA CAD 31-Mar 9.50 30 283 (13) 270 n.m n.m 15.3 n.m. n.m. 11.1 (4.8) n.m. --CSM nv CSM.AE EUR 31-Dec 25.35 66 1,669 631 2,300 14.5 12.6 10.4 8.0 7.6 6.7 27.4 1.5 3.6%Danisco A/S DCO.KO DKK 30-Apr 663.00 48 31,578 3,626 35,204 24.9 21.9 20.1 14.4 11.5 10.8 10.3 2.5 1.3%Kerry Group plc KRZ.DB EUR 31-Dec 27.29 175 4,783 1,155 5,937 14.0 12.8 11.6 9.6 9.4 8.8 19.4 2.9 1.1%Tate & Lyle plc TATE.Ln GBP 31-Mar 5.99 458 2,741 561 3,302 16.1 13.4 12.5 8.0 7.9 7.6 17.0 3.3 3.8%

17.4 15.2 14.0 10.0 9.1 9.0

BioExx Specialty Proteins Ltd. BXI.CA CAD 31-Dec 1.74 174 303 (10) 292 n.m n.m n.m. n.m. n.m. n.m. (3.5) 4.8 --

Notes:1.) All figures are in CAD unless otherwise noted.2.) All estimates are from Thomson except BXI are Raymond James estimates.3.) P/E Values > 30.0x and EV/EBITDA multiples > 30.0x have been discarded (n.m.)

Price /Book

Div. Yield

Ent. Value P/E EV/EBITDA Net

Debt / Cap

Market Price

Shares O/S

Market Cap

Net Debt




Risks

Funding future growth–BioExx’s aggressive growth strategy requires access to substantial funding. In the event of a lack in available funding, the company could not progress with its expansion plans.

Production, scaling up–To date, the company has only run a medium size processing facility on a limited basis. There is no assurance that BioExx will be successful at constructing and operating, on a continuous basis, up to five large-scale processing facilities. The inability to demonstrate successful full commercial-scale operations could have a material impact of the business.

History of losses–BioExx has been in existence for a short time and has a history of losses. While the losses are expected as the company is building out the business, there is a risk that BioExx will never achieve or maintain profitability. The limited history makes it difficult to asses whether the company will be successful and profitable.

Price risk–The company is exposed to commodity price risk with respect to raw materials (canola) but also the volatility in protein prices for its final products. The price exposure is typically tracked by the crush margin. As crush margins increase, the company’s margins increase and vice-versa. In order to mitigate exposure, BioExx attempts to lock in seed, oil and meal prices within the same future price window to avoid pricing mismatches. There is no guarantee, however, that it is able to do so at any given time or on a consistent basis.

Intellectual Property–BioExx patents its extraction processes in the US, Canada and Europe, in addition to other markets where it may be necessary. There is no guarantee, however, that the applications for patents will be approved given that regulations vary across countries. There is a potential that its technology gets replicated and BioExx loses to competition.

Product Quality–Several canola facilities in Canada have reported cases of salmonella over the past year. BioExx has not had any issues, largely due to its cooling process which hinders germination. The company has also received HACCP/ISO/GMP certification. This does still remain a key risk.

Product Acceptance–BioExx is developing new products and it is crucial to successfully educate customers. If BioExx is unable to introduce new and innovative products, it could significantly damage its business.

Regulation–The end markets for BioExx products such as pharmaceuticals, nutraceuticals and food processing, are highly regulated. Regulatory changes may have significant impact on the company’s ability to market its products. In addition, laws and regulations differ across countries, thus BioExx could potentially be exposed to multiple regulatory sources.

Competition–The markets for vegetable oil, meal and protein are highly competitive. If a competitor develops or acquires superior technology or products, BioExx’s business could be materially affected.



Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ Entity Archer Daniels Midland Co. ADM NYSE NC Molson Coors Brewing Company TAP NC Procter & Gamble Co. PG NYSE NC Tenneco Inc. TEN NYSE NC Viterra Inc. VT TSX C$ 11.34 NC Wireless Matrix Corp. WRX.T TSX NC Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.



GLG Life Tech Corporation April 27, 2011

GLG-TSX | GLGL-NASDAQ Company Report - Initiation of CoverageSteve Hansen CMA, CFA | 604.659.8208 | [email protected]



GLG: Initiating Coverage: Trimming Waistlines and Adding to Portfolios

Event We are initiating coverage on GLG Life Tech Corporation (‘GLG’) with a Strong Buy rating and $12.50 target price, representing a 38.1% total return based upon the stock’s closing price on April 20, 2011. Action We recommend that investors buy shares of GLG in order to capitalize on what we view as positive long-term fundamentals for zero-calorie, naturally-derived, sweeteners and the company’s tremendous associated growth prospects. Analysis GLG is one of the world’s leading, low-cost producers of high-purity stevia extract, a zero-calorie, naturally-derived sweetener made from the stevia plant. With vertically-integrated operations strategically positioned throughout ten Chinese provinces, GLG boasts industry-leading R&D, growing operations, processing capacity, and product formulation expertise. Backed by a pioneering and well respected management team, the company has already secured key heavyweight customers such as Cargill, and signed up an impressive group of global distribution partners. Earlier this year, the company made its initial foray into the Chinese beverage market, launching a line up of ANOC-branded (All Natural Zero Calorie) teas sweetened with GLG’s proprietary stevia blend. We believe the long-term fundamental outlook for zero-calorie, naturally-derived sweeteners such as stevia is compelling. As obesity and health-related risks continue to escalate (i.e. diabetes, heart disease), consumers are increasingly adopting strong views toward health and wellness. Governments have also swung into action, promoting more informative labeling standards. Finally, the soaring cost of sugar—which recently surpassed 30-yr highs—has made alternative sweeteners far more attractive from a price point perspective. GLG is very well positioned to benefit from these trends, in our view, a point reflected in our robust revenue and earnings growth forecasts. Valuation Our $12.50 target price is based upon a sum-of-parts valuation wherein we apply a 7.8x EV/EBITDA multiple against the company’s 2012 stevia-extract business, and a 10.0x multiple against the company’s ANOC division. On a consolidated basis, our target price implies an 8.4x multiple, which represents a modest discount to GLG’s sweetener and global beverage peers (see Valuation and Recommendation section for more details).


2010A C$(0.05) C$(0.01) C$0.07 C$(0.12) C$(0.11) C$59 C$16

2011E (0.07) (0.02) 0.17 0.20 0.28 169 33

2012E NA NA NA NA 0.79 308 60


Rating & Target Strong Buy 1Target Price (6-12 mos): C$12.50Current Price ( Apr-20-11 ) C$9.05Total Return to Target 38%52-Week Range C$12.27 - C$6.85Market Data Market Capitalization (mln) C$322Current Net Debt (mln) C$28Enterprise Value (mil.) C$350Shares Outstanding (mln, f.d.) 35.6Average Daily Volume (000s) 38Dividend/Yield C$0.00/0.0% Key Financial Metrics 2010A 2011E 2012E

P/E NA 32.3x 11.5x


EBITDA Margin (%) 27.5% 19.4% 19.6% BVPS (mrq, tangible) C$5.09Net Debt/Equity (mrq) 0.2xNet Debt/Trailing EBITDA (mrq) 1.7x Company Description GLG Life Tech Corporation is a TSX-listed vertically integrated leading producer of stevia extract, a zero calorie, 100% natural sweetener derived from a stevia plant.

Canada Research | Page 100 of 183 GLG Life Tech Corporation


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GLG Life Tech Corporation Canada Research | Page 101 of 183


Investment Overview

Positive Macro Fundamentals—The long-term fundamental outlook for zero-calorie, naturally-derived, sweeteners is compelling, in our view. In developed markets, as obesity and health-related risks continue to escalate (e.g. diabetes, heart disease), consumers are increasingly adopting strong views toward health and wellness, paying closer attention to their food labels and calorie intake. Governments have also swung into action, with new labeling standards surfacing in developed markets and, in select cases, punitive ‘fat-tax’ regulations are being contemplated to discourage unhealthy consumption patterns. More recently, these same themes have also surfaced in emerging markets, where disposable incomes are rising, processed food and beverage consumption is surging, and health-related issues are escalating. Finally, the soaring cost of sugar—which recently surpassed 30-yr highs—has made alternative sweeteners far more attractive from a price-point perspective.

Stevia is a Potential Game-Changer; Poised to Take Global Share—Stevia is a zero-calorie, naturally-derived sweetener that offers consumers a viable alternative to traditional high-calorie sweeteners (e.g. sugar, corn syrup) and chemically-derived alternative sweeteners (e.g. sucralose, aspartame). These positive attributes, coupled with rapidly evolving consumer preferences, swift uptake by global food and beverage manufacturers and falling regulatory barriers, suggest stevia is poised to rapidly take market share in the $60.0 bln global sweetener market. Recent estimates by food and drink consultancy Zenith International support this view, suggesting the global market for stevia extract is likely to reach US$825 mln by 2014 versus only US$285 mln in 2010.

Global Leader; Unrivalled, Low-Cost Infrastructure—GLG is one of the world’s leading, low-cost producers of high quality stevia extract. With vertically integrated operations strategically positioned to take advantage of favourable growing conditions throughout 10 Chinese provinces, GLG boasts industry-leading R&D, processing capacity, and new product development initiatives that afford the company an unrivalled low-cost position and distinct competitive advantages.

Chinese Market Key; Enormous Growth Potential—China represents GLG’s largest, fastest growing market, enabling enormous growth opportunities on a standalone basis, in our view. More specifically, we believe that rising disposable incomes, a burgeoning middle class, and increasing processed food and beverage demand will continue to drive robust growth in domestic sweetener demand. At the same time, sugar shortages have sent prices to multi-decade highs forcing government to release supplies from state reserves, and obesity rates—now the world’s second highest—are surging. Collectively, we believe these factors translate into strong demand growth opportunities for stevia extract sales.

Premiere Partnership with Cargill; Additional Partners for ROW Distribution—Historically, the bulk of GLG’s stevia extract sales have been to Cargill, an international provider of food and agricultural products and services. Cargill uses GLG’s stevia extract within its branded sweetener TRUVIA, which is then sold to major North American beverage companies including Coca-Cola. We view this as a significant ‘stamp of approval’ for GLG’s business. Beyond Cargill, GLG is continuing to focus on additional growth within the rest-of-the world markets. To this end, the company has struck several multi-year, international distribution agreements with a distinguished list of regional partners including Sugar Australia, Azucarero Mexico, Katra Group and ChemPoint to distribute its stevia extracts to Australia, New Zealand, Mexico, India, US, Europe and the Middle East. We expect these key partnerships, many solidified over the past year, to provide strong sources of revenue and earnings growth in the future.



Next Leg of Growth; ANOC JV to Tap Burgeoning Consumer Beverage Market—GLG recently launched a joint venture aimed at introducing zero-calorie, stevia-based beverages to the rapidly growing Chinese consumer market. Operating under the name Dr. Zhang’s All Natural and Zero Calorie Beverage and Foods Company (ANOC), GLG has teamed with CAHFC, a leading developer of stevia-based consumer products, to leverage its existing stevia expertise and move quickly to market. With an experienced management team already in place, six initial products nationally-approved, and distribution channels secured, ANOC launched its products on March 31, 2011 and within only three weeks shipped 6 million bottles. Given the market opportunity this venture is tackling, GLG management has established an aggressive 3-year growth strategy, targeting more than half a billion in sales by 2013.

Blendsure: Branding the Variable-Sweet Opportunity—GLG’s new ‘Blendsure’ product is a potential game-changing formulation aimed at segmenting a traditionally polarized sweetener market. In the past, consumers have typically been offered two extreme alternatives: full-calorie and zero-calorie (i.e. Coke vs. Diet Coke). However, in response to government pressures and consumer demand, many of these same global companies are now looking to develop product formulations that offer consumers a full spectrum of options. Vitamin Water, Vitamin Water 10 & Vitamin Water Zero are good product examples that illustrate this market segmentation. Table top sugar is also going in this direction, with ANOC producing half-calorie (blended) and zero-calorie versions of their tabletop brand.

Attractive Valuation—With the stock trading at just 11.3x and 6.3x our 2011 and 2012 EV/EBITDA estimates, we believe little, if any, of the growth from the aforementioned ANOC joint venture is priced into GLG’s stock price. Furthermore, our current estimates lie at the bottom end of management guidance for 2011, use reasonable estimates for 2012, and fail to account for the even stronger growth we expect in 2013 (and beyond), arguably providing a great deal of conservatism at this point.

Initiating with Strong Buy Rating; $12.50 Target Price—Our $12.50 target price is based upon a sum-of-parts valuation wherein we apply a 7.8x EV/EBITDA multiple against the company’s 2012 stevia-extract business (within the company's historical trading range), and a 10.0x multiple against the company’s ANOC division to reflect what we view as the division's growth prospects. On a consolidated basis, our target price implies an 8.4x multiple, which represents a modest discount to GLG’s sweetener and global beverage peers, reflective of the company’s size and relatively early stage of development.



Company Overview

GLG is a leading global producer of high grade stevia extract, a zero-calorie, 100% natural sweetener derived from the stevia plant. GLG is headquartered in Vancouver, British Columbia, and operates vertically integrated assets in China through its various subsidiaries. The company is dual-listed on the TSX and NASDAQ under the symbols “GLG” and “GLGL” respectively. About Stevia

Stevia is a shrub indigenous to the rain forests of Paraguay and Brazil that has been used as a natural sweetener for hundreds of years. The plant is now grown in Brazil, Paraguay, Uruguay, and parts of Central America, as well as Thailand, China and the United States. China currently accounts for ~80.0% of global commercial production. The leaf of the stevia plant contains sweet-tasting compounds known as glycosides, including Stevioside (‘STV’) and Rebaudioside A (‘RA’), that can reach sweetness levels 200x that of sugar, but with zero calories, zero carbohydrates, and a zero glycemic index (ideal for diabetics). RA, the sweeter of these two compounds, is often extracted and purified into a higher grade for use in the food and beverage industry. On December 17, 2008, the FDA granted Generally Recognized as Safe (GRAS) status to RA at purity levels of 95% (known as RA 95) or higher for use in food and beverages (see Exhibit 1). European Union approval is expected this year. Exhibit 1: Stevia Summary

Year Historical Timeline

Pre-1970s ► Stevia plant, indigenous to South and Central Amarica has been used as a sweetener for thousands of years

1970s ► Stevia is introduced in Japan and quickly gained acceptance, capturing ~40% of the Japanese sweetener market

1980s ► Gained strong commercial acceptance in China and Korea

1990s ► Introduced in the US but quickly banned by FDA following a "trade complaint" from an anonymous firm

1995 ► Reinstated in the US to a nutritional supplement only, limiting its use

Jun. 2008 ► JECFA WHO issued a letter of no objection

Oct. 2008 ► Approved as a food ingredient in New Zealand and Australia

Dec. 2008 ► FDA GRAS approved in the United States following comprehensive independent studies promoted by Cargill & Merisant

Sep. 2009 ► Approved in France for limited 2-year period ahead of expected EU approval

2H - 2011 ► Expected approval in the EU by the European Food Safety Authority

Stevia is Currently Approved in: U.S., China, Japan, France, Australia, New Zealand, Mexico, Paraguay, Switzerland

Stevia Plant: Glycoside Content

■ Stevioside = 5-10%

○ 250-300x sweetness of sugar

■ Rebaudioside A = 2-4%

○ Least bitter, 350-450x sweetness

■ Rebaudioside C = 1-2%

■ Dulcoside A = 0.5-1%

Source: GLG Life Tech Corp., International Stevia Council, Raymond James Ltd.



Business Mix & Customer Base

GLG specializes in processing and extracting a variety of stevia grades at differing purity levels for commercial use. The company is vertically integrated, with R&D, processing and refining facilities in China, and sales and marketing capabilities based in North America. GLG has successfully partnered with several large agri-business enterprises for the sale and distribution of its product, including Cargill, Sugar Australia, Azucarero Mexico, Agrisystem Private Limited (under Katra Group), FXY and ChemPoint.com for sale into Australia, China, New Zealand, Mexico, India, US, Europe and the Middle East.

Cargill—Historically, the bulk of GLG’s stevia sales have been to Cargill, an international provider of food and agricultural products and services. Cargill’s branded sweetener TRUVIA, which incorporates GLG’s stevia extract, is sold to major North American beverage companies including Coca-Cola (used in Odwalla and Vitamin Water products). In 2009, Cargill sales accounted for 90% of GLG revenues, facilitated through a 10-year supply agreement (see Exhibit 2). More recently, GLG sales into China and ROW markets have reduced this customer concentration to less than 50%, a trend we expect to continue given GLG’s strong growth profile in emerging markets.

ANOC—On December 22, 2010, GLG launched a joint-venture (80% stake) with China Agriculture and Health Foods Company Limited (“CAHFC”). CAHFC is a parent company of food and beverage producer Fengyang Xiaogangcun Υongkang Foods High Tech Co. Ltd. (“FXY”), with whom GLG had established a partnership earlier in the year. Named ANOC (Dr. Zhang’s All Natural and Zero Calorie) the new joint-venture is expected to be a significant driver of GLG’s revenue growth. ANOC builds on GLG’s leading position in the stevia market and CAHFC’s experience in formulating and testing stevia-based consumer products and its focus is on developing and distributing natural and zero-calorie food and beverages in China. Refer to the section ANOC Primer included in this report for more details.

Exhibit 2: Details of GLG-Cargill Agreement

GLG-Cargill : Strategic Alliance and Supply Agreement Details

► 10 year agreement

► GLG to supply at least 80% of Cargill's global stevia extract requirements for 5-years commencing October 1, 2008

► GLG to be Cargill's exclusive Chinese supplier of stevia and agent for any extract sourcing opportunities in the country

► GLG supplies stevia extract at 80% Rebaudioside purity (RA 80) --> Cargill refines to 97% purity for its TRUVIA product

► 12-month minimum quantity take-or-pay agreement is negotiated between GLG and Cargill on a rolling basis

► Cargill may assist GLG in the financing of annual stevia leaf purchases

► GLG will present Cargill with new product opportunities on a right of first refusal basis

► Cargill has the ability to terminate the agreement in certain circumstances including if GLG CEO Luke Zhang departs the firm

► Cargill may terminate the agreement early with three year's notice




Operating Facilities

GLG’s process of cultivating, refining, formulating and manufacturing stevia extract is carried out through five wholly-owned Chinese subsidiaries that include four processing plants, 12 growing regions, and four R&D centers. GLG’s combined processing capacity ending 2010 was 41,000 tpy of stevia leaf, capable of generating 3,000 tpy of RA 80 or 1,500 tpy of RA 97 extract (see Exhibit 3). Collectively, these subsidiaries provide GLG with each key component of the stevia supply chain resulting in full vertical integration (see Exhibit 4). Exhibit 3: GLG Processing Facilities and Growing Regions

Qingdao - Shangong Province► Runde & Runhao facilit ies► 5,000 MT raw leaf -> 500 MT RA60► 3,000 MT RA80 (BlendSure) or 1,500 MT RA97

Dongtai - Jiangsu Province► 18,000 MT raw leaf -> 1,800 MT RA60

Mingguang - Anhui Province► 18,000 MT raw leaf -> 1,800 MT RA60


Exhibit 4: GLG’s Stevia Extraction Process and Capacity

Extracted with water

Stevia plant

leaves are dried and crushed

Resin is washed

with food grade

ethanol and dried

Primary stevia is

extracted

Primary Processing

Primary extract is dissolved in water-ethanol solvent

Filtered, crystalized centriged

Rinsed and

vacuum dried

RA 80RA 90

Packaging and

Shipping

Secondary Processing

Processing Capacity:41,000 tpy leaf

Intermediate Powder:

4,000 tpy RA 60

High-Grade Production:

3,000 tpy RA 801,500 tpy RA 97




Processing

GLG has aggressively invested in new leaf and RA80 processing capacity in recent years to accommodate rapid growth. Specifically, we highlight the firm’s ~8.0x increase in leaf processing capacity between 2008 and 2010 (see Exhibit 5), requiring a capital investment of ~C$90 mln.

Stevia Leaf Supply—GLG currently sources 100% of its stevia leaf from Chinese-based plantations, seeking to take advantage of the country’s low-cost labor, favourable government support, and strong end-market dynamics. GLG has signed 10-year agreements with the Dongtai and Mingguang county governments, as well as a 20-year agreement with Juancheng County to secure its stevia leaf supply within these major growing areas. These agreements provide GLG with the right of first refusal to purchase all stevia grown in these areas, as well as being the only firm permitted to process stevia. GLG has developed proprietary strains of stevia seed that boast RA content (+60%) significantly exceeding the Chinese national average (~25%). GLG works with the Chinese government to supply its proprietary stevia seed and seedlings to farmers. Using stevia leaves with higher RA levels allows the company to yield more stevia extract for the same amount of raw materials (leaves). In 2010 GLG sourced 100% of its leaf requirements from its proprietary seeds. The new generation of seeds with higher RA content is making its way to the growers and GLG expects to realize these cost benefits in F2011 and F2012. In September 2009, as part of its regional diversification strategy, GLG signed a Letter of Intent (LOI) with the Government of Paraguay to enter negotiations in that country for the growth and production of stevia. Based upon recent discussions with management, however, we believe this initiative is currently on hold, given the capacity built out opportunities in China.

Exhibit 5: GLG’s Increase in Stevia Production Capacity

Stevia Leaf

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 Current

Pro

du

ctio

n C

apac

ity

(tp

y)

RA 97

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 Current

Pro

duct

ion

Cap

acit

y (t

py)

RA 80

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 Current

Pro

du

ctio

n C

apac

ity

(tp

y)

RA 60

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 Current

Pro

duct

ion

Cap

acit

y (t

py)




Corporate History

GLG Life Tech was formed in 2005 and is based in Vancouver, British Columbia. The company acquired its first stevia processing facility in 2006 through the purchase of Quingdao Runde Biotechnology Co Ltd. Strong relationships with the Chinese government at the provincial and federal level have helped it garner incentives to build and operate processing plants in stevia growing regions. With the acquisition of AHTD in 2007, the company expanded into research and development of proprietary seeds designed to result in plants with high RA content. More recently, in December 2010 GLG announced the aforementioned Chinese food and beverage joint venture ANOC (see Exhibit 6).

Exhibit 6: GLG Corporate Timeline

Number Date Detail(1) Jun. '05 ► Established as GLG Tech Limited and listed on CNSX under the symbol "GLGT"(2) Dec. '06 ► Acquired Quingdao Runde Biotechnology, a stevia manufacturing business(3) Dec. '07 ► Completed C$34.5 mln private placement; subsequently listed on the TSX under the ticker symbol "GLG"(4) Dec. '07 ► Acquired AHTD, a seed based R&D operation with proprietary seedlings and experience in producing stevia with high RA content(5) Apr. '08 ► Signed a 20-year agreement with Juancheng County government to grow stevia leaf and operate processing facility(6) May. '08 ► Signed a 10-year supply agreement with Cargill(7) Dec. '09 ► Completed US$27.5 mln private placement and listed on the Nasdaq under "GLGL"(8) Apr. '10 ► Signed a supply and distribution agreement with Essentia(9) Jul. '10 ► Singed a 3-year agreement with ChemPoint.com(10) Jul. '10 ► Signed an agreement with Sugar Australia and Grupo Azucarero Mexico(11) Sep. '10 ► Signed a 5-year supply agreement with FXY(12) Oct. '10 ► Signed a 5-year supply and distribution agreement with Agrisystem Private Ltd. (subsidiary of the Katra Group)(13) Dec. '10 ► Established ANOC JV to manufacture stevia based food and beverages in China(14) Feb. '11 ► Completed C$58.2 mln equity offering(15) Mar. '11 ► Signed a supply agreement with International Flavours and Fragrances

2005 2006 2007 2008 2009 2010 2011

(1) (2)

(3)

(4) (5)(6)

(7)

(8) (9) (10)

(11) (12) (13)

(14) (15)




Management Team

Dr. Luke Zhang, Chairman & CEO—Dr. Zhang has been Chairman of GLG since the company’s formation in 2005 and CEO since 2008. He has successfully built and managed a number of firms in the health, food, medical equipment and software development industries. Dr. Zhang holds a Ph.D. in Pharmacology from Vanderbilt University in the United States, a Masters of Science in Pharmaceutical Chemistry from Shanghai First Medical University in China and a Bachelor of Medicine from Shandong Medical University in China.

Brian Meadows, CFO—Mr. Meadows joined GLG in 2007 as CFO. He holds both the Chartered Financial Analyst (CFA) designation as well as the Certified Management Accountant (CMA) designation. He obtained his Bachelors of Business Administration from Wilfrid Laurier University in 1987 and an International MBA from the University of Glasgow in 1995. We believe his expertise in finance and operations has helped GLG experience consistent growth and profitability. Prior to GLG, his experience includes 20 years in the telecommunications industry in both North America and Europe, including positions with TELUS and EnerTel.

Sam Newberg, VP Sales Americas—Mr. Newberg has over 20 years experience in food and beverage processing and sweetener functionality and food chemistry. His background includes senior sales and marketing roles with Akzo Nobel, JPM and Nutrasweet. Mr. Newberg holds a Master of Science in Chemistry from Roosevelt University in Chicago.

Dr. Steve Bodicoat, VP Sales EMEA—Dr. Bodicoat has over 25 years of specialty chemicals and food ingredient experience within major global entities including Unilever, ICI Quest International, and CP Kelco (J.M. Huber Corporation). His roles have included senior Sales and Marketing positions within EMEA regions. Steven holds a B.Sc. in Chemistry and a Ph.D. in Organic Chemistry from the University of Nottingham. In his direct sales role at CP Kelco, Steven led a sales force responsible for $150 mln in revenues across the EMEA region. He was the key account manager for Unilever.

Qian Wang, President, ANOC—Ms. Wang serves as President of ANOC operations and is responsible for general management, government relationship and public relations. Prior to being appointed as ANOC’s President, Qian Wang held VP government relations and operations management titles at GLG Life Tech China’s operations. She has over 20 years of experience in government relations and business management including working for the Ministry of Transportation as a Chief Economist and General Manager. Ms. Wang holds degrees from Shandong University of Technology and Shenzhen University.

Mr. Chen Tzyh Chen, VP of R&D and Formulation, ANOC—Mr. Chen comes to ANOC after over 30 years of consumer beverage and food formulation experiences including senior positions with President Enterprises Corporation.

Mr. Cheng Yin-Chieh, VP of Marketing, ANOC—Mr. Cheng brings over 26 years of marketing experience in the consumer food and beverage industry in China, Hong Kong and Taiwan. Prior to joining GLG Mr. Cheng held senior positions with Master Kong Beverage Corporation, President Enterprises Corporation and Brain Advertising.




GLG Life Tech was initially listed on the CNQ in 2005 and started trading on the TSX under the symbol GLG in 2007 following a $34.5 mln private placement. The company was dual-listed on the NASDAQ exchange in November 2009 under ticker GLGL. As of April 13, 2011 there were 32,661,212 shares outstanding of which ~12.6% are owned by insiders (see Exhibit 7). Dr. Luke Zhang is the largest single shareholder (7.4%). Two of the largest shareholders, Skyland International Investment Management and Pacific Marketing Consultants Ltd. (combined holdings of 19.3%) are headquartered in China.

Exhibit 7: Shareholder Summary (as of Apr-13-11)

Shares Held / Controlled

% O.S.

Management. Directors and Other InsidersZhang, Luke 2,406,014 7.37%Palmieri, Brian 1,160,395 3.55%Zhang, Jinduo 243,526 0.75%Leung, Sophea 228,359 0.70%Meadows, Brian 53,768 0.16%Beasley, David 15,598 0.05%Yingchun, Lui 15,433 0.05%Fangzhen, He 6,848 0.02%

Total Management & Insiders 4,129,941 12.64%

Corporations / InstitutionsSkyland International Inv. Mgmt 3,248,555 9.95%Pacific Marketing Consultants Ltd. 3,058,569 9.36%Columbia Wagner Asset Management 2,346,000 7.18%HZ Health Management Company Limited 2,303,238 7.05%IG Investment Management 1,641,100 5.02%



Shareholder Summary

Institutions 45.3%

Insiders 12.6%

Other 42.1%




Industry Analysis

Global demand for sweeteners is expected to enjoy healthy growth throughout our forecast horizon, largely on account of robust demand growth in emerging markets. At the same time, we believe that rising health-related concerns and the soaring cost of sugar—which recently surpassed 30-yr highs—are likely to favour market share gains for alternative sweeteners such as stevia. 1. Global Sweetener Market: Large and Growing, Alternatives Gathering Momentum

The global sweetener market is valued at an estimated US$55.0-$60.0 bln and growing at a CAGR of ~2.0-3.0%. Roughly two-thirds of this market is comprised of industrial applications in food and beverage manufacturing, with the remainder going into retail-orientated products largely for table top use.

The global sweetener market is currently bifurcated into two major product segments, including nutritive, full-calorie sweeteners (e.g. cane sugar and corn-based syrups), and non-nutritive, zero-calorie sweeteners (e.g. aspartame, sucralose). Nutritive sweeteners, which currently account for ~80.0% of all sweeteners globally (see Exhibit 8), are largely a mature market and tend to grow in-line with global population growth at ~2.0% per year. The non-nutritive or ‘alternative’ segment, on the other hand, is fast developing both in terms of market value and product offerings. Market research firm Mintel Group estimates, for example, that the non-nutritive segment grew at a 4.0% CAGR between 2002 and 2006 (see Exhibit 9) and expects CAGR of ~5.1% between 2008 and 2015. The most notable alternative sweeteners at present include: aspartame (e.g. Equal, NutraSweet), saccharin (e.g. Sweet’N Low), and sucralose (e.g. Splenda), with Splenda enjoying the dominant market position of ~60.0%. However, as consumer preferences have increasingly shifted away from such chemically-derived products, naturally-derived sweeteners have started to emerge. We believe that stevia’s value proposition as an all-natural, zero-calorie sweetener positions it well to capitalize on this emerging trend, which should facilitate market share gains over time. Exhibit 8: Global Sweetener Market Exhibit 9: Global Artificial Sweetener Market

0

10

20

30

40

50

60

70

01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10f

US

$ B

illi

on

s

Natural Sweeteners Artificial Sweeteners

0

1

2

3

4

5

6

7

8

9

2005 2007 2009f 2011f 2013f 2015f

US

$ B

illi

on

s

CAGR = ~5.1%

Source: Global Industry Analysts, Mintel Group, GLG Life Tech Corp., Raymond James Ltd.



2. Emerging Markets: Sweetener Consumption on the Rise

Emerging markets represent an attractive source of sweetener growth. Benefiting from strong relative economic growth, disposable incomes are rising and processed food and beverage consumption is surging.

According to the Food and Agricultural Policy Research Institute’s 2010 Outlook, Asia is expected to dominate the sugar market by 2019/20 with China, Japan, Indonesia, Malaysia and South Korea accounting for 19% of the world sugar trade.

Amongst these, we believe the fundamentals within China are particularly attractive. There, the food and beverage industry has enjoyed robust growth over the past decade, reaching sales of US$7.3 billion in 2009 compared to just US$97.4 million in 2000, representing 25% CAGR. As disposable incomes continue to rise, the industry is forecasted to continue expanding at CAGR of 20% moving forward. Commensurate with this, Chinese per capita sugar consumption has surged from 6.8 kg in 2000 to 11.6 kg in 2010 and is expected to reach 12.3kg by 2015 (see Exhibit 10). This is still well below per-capita consumption in the developing world, with the US, for example, at 30.6 kg in 2010 (see Exhibit 11). GLG’s joint venture ANOC was established to exploit these favourable macro dynamics in China and benefit from first-mover advantage within the naturally-sweetened beverage market.

India is the leading global sugar consumer on an absolute basis at ~23 mln tpy. Although per-capita consumption is growing, it also lags far behind the developed world at only 20.5 kg in 2010. When these factors are combined with a rapidly growing population and domestic production shortfalls, we believe the Indian market presents another compelling source of long-term growth for natural sweetener alternatives such as GLG’s stevia. Exhibit 10: China per Capita Sugar Consumption Exhibit 11: Forecasted Per Capita Sugar Consumption

0

2

4

6

8

10

12

14

1999 2001 2003 2005 2007 2009 2011 2013 2015

Per

Cap

ita

Co

nsu

mp

tio

n (

kg)

1999-2009: CAGR = 6%

China India US EU0

10

20

30

40

Per

Cap

ita

Co

nsu

mp

tio

n (

2011

E,

kg)

China & India forecasted to lag behind the US and EU in per capita consumption

Source: FAPRI, Raymond James Ltd.



3. Regulatory Barriers Dropping Around the Globe; More to Fall

Stevia’s market acceptance has grown rapidly as global regulatory barriers have fallen. As noted previously, critical to this regulatory evolution was a joint committee between the FAO and World Health Organization that gave stevia “a clean bill of health” in June 2008. The FDA’s GRAS approval in December 2008 also helped stoke further momentum, with several more nations falling in-line soon thereafter. As a result, stevia is now permitted for use as a food additive in 24 countries and as a dietary supplement in another four (see Exhibit 12).

Further approvals are expected moving forward. Most notably, the European Union is expected to grant approval in 2H11, following the temporary approval by member-country France in 2009. Codex Alimentarius, a joint FAO/WHO commission created to develop food standards and guidelines, recently removed obstacles for stevia approval in India, Thailand and the Philippines according to GLG competitor PureCircle (PURE-LN). The Katra Group, GLG’s strategic partner in India has filed a petition for stevia approval. GLG expects India will approve its product by the end of 2011. We expect more stevia-sweetened products to hit the shelves as these regulatory barriers fall, particularly in the European Union and India.

Exhibit 12: Stevia Regulatory Acceptance by Country and Region

North America - Food Additive► U.S.A.► MexicoNorth America - Diatery Supplement► Canada

Europe - Food Additive► France► Russia►Switzerland

Latin America - Food Additive► Argentina ► Paraguay► Chile ► Peru► Colombia ► Uruguay► Ecuador ► VenezuelaLatin America - Diatery Supplement► Brazil

Asia Pacific - Food Additive► Australia ► Japan ► South Korea► Brunei ► Malaysia ► Taiwan► China ► New Zealand► Hong Kong ►SingaporeAsia Pacific - Diatery Supplement►Indonesia ►Thailand ►Vietnam

Source: PureCircle Ltd, Raymond James Ltd.



4. Traditional Sweeteners Under Fire; Paving the Way for Stevia Uptake

The global sweetener industry is also battling several stiff headwinds that, we believe, pave the road for stevia to accumulate greater market share over time. Key headwinds include:

Cost of Sugar and Corn Skyrocketing—Agflation has been a theme in recent months, punctuated by sudden surges in sugar and corn prices that make alternative sweeteners, such as stevia, far more attractive from a price-point perspective (see Exhibit 13). Tight sugar supplies have combined with weather setbacks in Australia and Brazil (two largest sugar exporters) to drive sugar prices higher. Traditionally, high sugar prices encourage a drift towards high fructose corn syrup (HFCS) purely on relative cost bases. Recently, however, corn prices have also been a record-breaking spree, with corn becoming a more valuable commodity than wheat in April 2011 for the first time in 15 years. Much of the demand for corn has been driven by the biofuel and animal feed industries, leaving limited room for HFCS. As traditional sweeteners continue to face headwinds, there is a significant opportunity for alternative sweeteners such as stevia to accumulate greater market share, in our view.

Obesity & Diabetes Spreading—Escalating health-related risks associated with excessive sweetener consumption has prompted many consumer groups and government organizations to fight back. In the US, for example, the Center for Disease Control and Prevention estimates that 26.7% of the total population, or 72.5 mln people, are now obese. Global obesity trends (see Exhibit 14) have quickly translated into a higher prevalence of other diseases such as diabetes, including in emerging markets. In India, ~20.0% of the population, or ~240 mln people, is now afflicted with diabetes. Growing obesity in China has resulted in 92 mln being afflicted, with growth of the disease amongst adult males higher than in the US, UK, and Australia.

Collectively, we believe these industry headwinds present significant opportunities for zero-calorie, natural sweeteners such as stevia. These trends have also given rise to recent popularity in other natural, non-sugar sweetener alternatives including agave nectar, brown rice syrup, date sugar, and fruit juice concentrates.

Exhibit 13: Sugar and HFCS Prices Exhibit 14: Global Obesity Rates

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US

$/l

b

Sugar

High Fructose Corn Syrup

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

U.S. Canada Brazil Ger UK S.Arabia

India China Japan Aus

Ob

esit

y R

ate

in A

du

lts

(%)

Source: GLG Life Tech Corp., Bloomberg, International Obesity Taskforce, Raymond James Ltd.



Stevia’s market-share within the sweetener space has been growing rapidly. Market research firm Nielsen Group reports that in only two years, GLG-customer Cargill (TRUVIA brand) has overtaken Equal (aspartame) to take third place in the US non-sugar sweetener market, behind Splenda (sucralose) and Sweet’N’Low (saccharin).

As regulatory barriers fall and market acceptance improves, stevia sales growth is expected to accelerate. In a recent study, industry consultants Zenith International pegged 2010 global stevia extract sales at US$285 mln, representing a 27.0% y/y increase over 2009. This figure is expected to increase 3x to US$825 mln by 2014, representing 11,000 MT annually of high-purity stevia extract. Major sales regions in 2010 were Asia (driven by Japan), North America, and Latin America, making up 36.0%, 30.0%, and 24.0% of the global market respectively. We expect Europe to become a much larger piece of the global pie once regulatory approval has been secured.

The size of the stevia extract market is dwarfed by that of stevia-sweetened food and beverage products, which has been has been growing by leaps and bounds since FDA GRAS approval in 2008 (see Exhibit 15). Global manufacturers including Kraft, Dean Foods, and Unilever have joined early pioneers Coca-Cola and PepsiCo with hundreds of product launches each year that now include cereals, yogurt, energy drinks, and salad dressings. A recent Nielsen Group report indicates the market for stevia-sweetened food and beverage products in the US alone totaled $3.2 bln in 2010, representing a 126.5% y/y increase (see Exhibit 16).

We foresee the roll-out of new stevia-sweetened food and beverage products continuing to accelerate as regulatory barriers fall around the world and consumers demand healthier alternatives to sugar, both in developed and developing markets such as China. These are positive fundamentals for GLG’s consumer product focused ANOC joint venture, as well as boding well for attractive demand growth for its stevia extract. Exhibit 15: US Stevia Applications by Product Category Exhibit 16: US Sales of Stevia Based Products

0

20

40

60

80

100

120

140

160

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

# o

f P

rod

uct

s

Cereal

Dessert Mix

Energy Drink

Yogurt

Snack

Sports Drink

Salad Dressing

RTD Tea

Pow dered Soft Drink

Carbonated Soft Drink

Bread

Fruit Drink

Soymilk

Juice

Sugar Substitute

Flavored Water

0

200

400

600

800

1,000

1,200

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

US

$ M

illi

on

s

Retail sales of stevia-based products in 2010 up 126.5% y/y

Source: PureCircle Ltd., Raymond James Ltd.



5. Increasingly Competitive Environment

Stevia’s rapid commercial success and attractive future opportunities have naturally attracted a wide range of new industry participants across the global value chain. In the upstream market, a handful of prominent growers and high-grade extract producers have evolved, each attempting to develop their own regional position of strength. Further downstream, in product formulation and consumer packaged goods, there has been a broader proliferation of competition, with recent data by Innova Market Insights indicating that more than 400 stevia-based products were launched in 2009, equivalent to the previous three years combined. At present, we view the upstream industry participants as GLG’s closest competitors; however, we acknowledge that this peer group will continue to evolve as GLG makes further inroads in the downstream consumer beverage and food sector through its ANOC joint venture.

PureCircle—Pure Circle Ltd. (PURE-LON) is a Malaysian-based, vertically-integrated provider of stevia extract to the global food and beverage industry. With F2011 management-forecasted sales of ~$55 mln, the company has established a global footprint with in-house R&D facilities, globally diversified growing operations (China, Kenya, Paraguay, Thailand), and 2,000 tonnes of high-purity extract processing capacity. PureCircle relies on its strong industry partnerships to sell stevia extract to ingredient manufacturers as well as food and beverage producers including PepsiCola, Coca-Cola, Cargill, and Merisant-subsidiary Whole Earth Sweeteners. The company also recently partnered with Europe’s second-largest sugar producer, Nordzucker AG, in a joint venture named ‘NP Sweet A/S’, to market a portfolio of stevia/sugar blend to the food and beverage sector in Northern Europe. Pure Circle is GLG’s closest competitor, in our view.

Morita Kagaku and Corn Products International—In 1971, Japanese company Morita Kagaku Kogyo took advantage of that country’s regulatory moves to become the world’s first to commercialize stevia. Today, the company grows stevia globally based on its own proprietary seed formulation, selling domestically in Japan as well as into foreign markets through joint ventures and partnerships. In 2008, Morita Kagaku licensed its stevia strain, manufacturing technology, and production system to Corn Products International (CPO-NYSE) under a long term strategic agreement. This also resulted in the establishment of the “Enliten” brand for marketing stevia produced by CPO under this agreement from leaf grown in selected Latin American and Asian countries. CPO, a global corn refiner and supplier of ingredients and industrial products derived from corn and starch processing, is using this strategic partnership as part of its goal to diversify into fast-growing, new market opportunities.

Emerging Rivals—A range of new market entrants have recently begun to appear in the stevia industry from the health and nutraceutical industries. One notable new entrant, for example, is Sweet Green Fields, a partnership between So Good soymilk producer Sanitarium, long-storied Hawaiian sugar producer Gay & Robinson, and a horticultural research firm also based out of Hawaii. Sweet Green Fields has established a 1,000 MT processing facility in China to extract product from its proprietary leaf grown in the US. Other emerging market players include stevia growers/producers such as Wisdom Natural Brands (SweetLeaf) and SunWin USA, as well as branded resellers such as Wild Flavors Inc.



Company Strategy

Two of the core pillars beneath GLG’s corporate strategy include: (1) cost reduction through vertical integration, and (2) product and market development for stevia extract. Below we review each of these two strategic components.

Vertical Integration; Controlling the Supply Chain—Fundamental to GLG’s strategy is control of the entire value chain (see Exhibit 17). This approach, albeit aggressive, is expected to help GLG better manage (i.e. reduce) costs, extract operating efficiencies, maintain the company’s proprietary advantage, and ultimately, enhance margins. Key components of this strategy include: (i) developing proprietary, high-yield stevia seeds; (ii) developing enhanced agriculture practices; (iii) developing state-of-the-art processing and refining assets, and (iv) forging strong government relationships. GLG’s integration has more recently extended even further downstream with the aforementioned launch of its ANOC joint venture aimed at developing stevia-based beverages for the Chinese marketplace (see our ANOC Primer section).

Cost Reduction via Proprietary, High Yield Seeds—Because stevia leaves represent GLG’s single largest input cost (accounting for ~65-70% of COGS), the company is intensely focused on developing proprietary seed strains that boast enhanced glycoside content and higher net refining yield (see Exhibit 18). These enhancements include lowering the cost of its proprietary stevia seeds, increasing the crop yield (i.e. number of stevia plants per acre), and most importantly, increasing the RA content level within its proprietary stevia leaf beyond the current ~62% level. Significant strides are being made with GLG’s next generation H2 and H3 stevia seeds (see Exhibit 19).

Exhibit 17: GLG Value Chain

Agricultural High Tech Developments Ltd. (Marshall Islands)

Holding of Proprietary Stevia Seed Patents

Anhui Bengbu HN Stevia(China)

Research & Development; Seed

Chuzhou Runhai Stevia(China)

Crops & Harvesting inMingguang region

(18,000 t)

Dongtai Runyang Stevia(China)

Crops & Harvesting in

Dongtai region(18,000 t)

Qingdao Runde Biotech(China)

Processing of stevia leafinto various extract grades

Qingdao Runhao Stevia(China)

Processing of stevia intoRA 97 (1,000 t)

Sales to Customers

GROWING & HARVESTINGSEEDS DISTRIBUTION Source: GLG Life Tech Corp., Raymond James Ltd.



Enhancing Agriculture Practices—GLG places significant effort into developing agricultural best practices specifically designed to work with its proprietary seeds and seedlings. Farmers are then organized, recruited, and trained on these techniques with the assistance of local government agencies. This arrangement is mutually beneficial: farmers are able to earn 2-3x more when compared to growing traditional crops like wheat or corn while GLG is able to standardize and ensure crop quality. As well, once farmers are trained and using techniques specific to GLG’s seeds, a process that takes 2-3 years in its entirety, the switching costs become substantial, helping prevent new entrants or farmers switching to different crops. Finally, GLG is constantly improving its agricultural practices. One substantial improvement expected to begin in 2011 is the ability to supply farmers directly with seeds rather than seedlings, eliminating the cost associated with maintaining over 400 greenhouses.

Forge Strong Government Relationships—GLG has developed close ties with key government entities and officials at different levels. To date, these relationships have borne several positive developments, including securing of exclusive agreements in three of China’s largest stevia growing regions, highly subsidized land costs, and preferential terms on short-term loans and lines of credit. We believe that GLG’s continued investment in these regions will result in continued preferential treatment and incentives, which could prove especially valuable in preventing new entrants as well as facilitating future expansion.

Exhibit 18: RA Content in Stevia Leaf Exhibit 19: Next Generation GLG Stevia

H2 Proprietary Strain

■ 10% Higher Reb A content than 1st Gen.■ 22% more stevia leaf per acre.■ Improved processing efficiencies.

Status: expected to be utilized at all GLG growing regions for 2011 crop season.

H3 Proprietary Strain

■ 26% Higher Reb A content than 1st Gen.■ 46% more stevia leaf per acre.■ Est ~40% overall leaf cost improvement.■ Even further processing efficiencies.

Status: On track for use in 2012/130.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

GLG Canada Paraguay China

Ste

via

Lea

f R

A C

on

ten

t (%

)




Product & Market Development—As discussed herein, we believe the global market opportunities for stevia are enormous. Despite GLG’s industry leading position, the company remains a relatively young enterprise with limited resources. GLG has developed its product and market development strategy to take this fact into account.

China Focus: Largest, Most Attractive Opportunities—Following a strategic review in 2010, GLG management concluded that its largest, most attractive opportunities were based in China, a view which coincides with our macro outlook (see our Apr-27-11 Industry Report Clash of the Titans: Food vs. Feed vs. Fuel). Stevia is very well suited to the Chinese market, in our view, given that: (1) the country is facing large sugar shortages; (2) the government is reluctant to allow expansion of corn processing into sweetener alternatives as it combats human and livestock food inflation; (3) stevia addresses China’s concerns over arable land as the crop requires 1/12th the land needed to grow sugar, and (4) the burgeoning middle class population is becoming more focused on healthy living in order to combat obesity and diabetes, both growing domestic concerns. According to recent USDA commentary, Chinese sugar consumption is expected to reach 15.1 mln tonnes in 2011 versus 14.8 mln tonnes the year previous, driven by 13-15% y/y growth in the domestic food and beverage industry fueled by a burgeoning middle class. Chinese sugar imports of 1 mln tonnes in 2010 are expected, by various commodity analysts, to reach 2-3 mln tonnes in 2011 as domestic consumption growth outpaces production.

Chinese Sugar Reserve Opportunity—China’s rising sugar deficit has created the opportunity for GLG to supply a 50/50 sugar-stevia blend into the China Sugar Reserve (CSR). This blended product provides 2x the sweetening potency of the equivalent volume of traditional sugar. Although timeline details are not yet firm, management expects to deliver 5,000 MT of high-grade stevia over 3-5 years, with initial deliveries of 500 MT expected for 2H11. The size of this multi-phase ramp would imply the need for a commensurate expansion of GLG’s production capabilities. The company estimates realizing $700-$800 mln in total revenues over the course of this entire opportunity.

ANOC JV Holds Massive Potential—GLG’s success in establishing an 80% position within the ANOC joint venture business with China Agriculture and Healthy Foods is an example of the opportunities available in the Chinese market. With nationwide distribution, national marketing campaigns, and plans for over 30 beverages and 300 food products, this JV could, in our view, represent a game-changing opportunity for GLG. See our ANOC Primer below for more details.

Premiere Partnership with Cargill; Additional Partners for ROW Distribution—Despite GLG’s focus on the Chinese market, the company is not ignoring rest-of-the-world (ROW) markets (see Exhibit 20). Historically, the bulk of GLG’s stevia sales have been to Cargill, an international provider of food and agricultural products and services. Cargill’s use of GLG stevia extract within its branded sweetener TRUVIA, which is then sold to major North American beverage companies including Coca-Cola, has served as a significant ‘stamp of approval’. In pursuing additional ROW markets, GLG has chosen to secure long term distribution arrangements with established strategic partners (often sugar or ingredient companies) to drive sales. This helps to significantly mitigate execution risk, in our view. It also allows GLG to leverage existing sales channels and relationships in each market rather than building these from scratch. Most recently, the firm announced distribution agreements for Mexico, Australia, India, the Middle East, and Europe. Management expects to continue establishing such relationships in other key regions, over time, including in Europe, the US, and Japan. Beyond providing product, GLG provides its regional partners with training, joint sales, and marketing support.



Blendsure: Branding the Variable-Sweet Opportunity—GLG’s new ‘Blendsure’ product is a potential game-changing formulation aimed at segmenting a traditionally polarized sweetener market. For context, consumers have traditionally been offered two extremes: full-calorie and zero-calorie (e.g. Coke vs. Diet Coke). However, in response to government and consumer pressures, many of these same global companies are now looking to develop a full spectrum of products. Vitamin Water, Vitamin Water 10 and Vitamin Water Zero are good branded examples that illustrate this market segmentation. Table top sugar is also going in this direction, with ANOC producing half-sweet (calorie), and zero-calorie versions of their tabletop brand. BlendSure delivers comparable taste profile to RA 97 at a 30% cost reduction in beverage and food formulations. It is apparent to us that GLG has significant competitive advantage in that no other competitor has a similar product in the market, or has applied for regulatory approval. BlendSure is awaiting FDA approval following self-affirmed GRAS certification.

Cashing in on By-Products—Besides focusing on RA extract, GLG has been working to commercialize other by products extracted from the primary glycosides contained in the stevia leaf. Most recently, the company signed an agreement with International Flavors and Fragrances (IFF) to further develop Reb C as a sweetness modulator. While not a sweetener itself, Reb C has been tested to provide other sweeteners with a 20-25% reduction in calories. Extraction of Reb C from the stevia leaf is a patent-pending process proprietary to GLG. Any success in developing Reb C as a sweetness modulator represents an opportunity for revenue generation, but more importantly, for margin expansion

Exhibit 20: GLG Worldwide Distribution Agreements

Latin AmericaDistribution Agreement w ith

Essentia Stevia, a leading stevia distributor in Latin America.

(Apr. 10)

Australia and New ZealandDistribution agreement w ith Sugar Australia, a leading sugar refiner in

Australia and New Zealand.(Jul. 10)

India and Middle EastMarket development agreement w ith Global

Agrisytem, India's leading agribusiness company focused on food sector.

(Oct. 10)

U.S. and Europe

Supply agreement w ith ChemPoint.com an e-distributor

of specialty and fine ingredients.(Oct. 10)

MexicoDistribution agreement w ith

Grupo Azucarero Mexico, the largest private sugar

producer in the country.(Jul. 10)

North America

Supply agreement w ith Cargill , a leading int'l agribusiness company.

(May 08)




ANOC Primer

On December 22, 2010, GLG announced an 80% stake in a new joint venture with China Agriculture and Healthy Foods Company Limited (CAHFC). Named Dr. Zhang’s All Natural and Zero Calorie (ANOC) Beverage and Foods Company, the JV is set up to tackle the sale and distribution of zero-calorie, stevia-based beverage and food products in China. This JV developed out of GLG’s 5-year stevia supply agreement signed in Sep-2010 with CAHFC subsidiary FXY.

ANOC Market Opportunity—The opportunity for zero-calorie sugar-free beverages in China appears immense, in our view. At a macro level, the broader Chinese food and beverage industry has experienced stellar growth over the past decade posting a 25% annual CAGR on the back of robust growth in consumer disposable income (see Exhibits 21 and 22). Moreover, according to market research firm Freedonia, Chinese consumers are in the midst of a notable shift in preference toward healthy and functional products as awareness grows over disturbing health-related issues such as obesity (now growing faster than in the US) and diabetes. According to China Health Statistics, there are 130 mln people suffering from high blood pressure, 350 mln over-weight individuals, and 70 mln people who are considered obese. Collectively, we believe these factors bode well for continued growth in zero-calorie, sugar-free beverages.

ANOC Management Structure—GLG controls ANOC through its 80.0% ownership and the appointment of the majority of board members. In addition, GLG CEO, Dr. Luke Zhang, serves as ANOC’s chairman and CEO. Chinese beverage industry expertise is being added through an impressive management team recruited from some of China’s leading beverage companies including Kang Shi Fu (+US$5 bln annual sales), Yili (+US$6 bln p.a.) and Hui Yan Juice (+US$400 mln p.a.).

Recent Milestones—Despite the JVs relative infancy, ANOC has already accomplished several noteworthy milestones over the past 3 months. Specifically, we highlight: (1) initiation of commercial beverage production through a CAHFC facility; (2) the appointment of six Chinese executives recruited from major competing food and beverage producers; (3) the launch of six initial beverage products (see Exhibit 23) following government approvals for national distribution; (4) selection of a bottling and servicing partner; (5) launch of its first national ad campaign, and (6) six mln units sold within three weeks of product launch.

Exhibit 21: China Income & Beverage Consumption Exhibit 22: Chinese Beverage Makers Revenues

0

5,000

10,000

15,000

20,000

25,000

30,000

1997 2002 2007 2012 2017

Ch

ina

Pe

r C

ap

ita

Dis

po

sa

ble

Inc

om

e (

RM

B)

0

20

40

60

80

100

120

140

Ch

ina

Pe

r C

ap

ita

Be

ve

rag

e P

rod

uc

tio

n (

Lit

res

)

Dramatic increase in Chinese buying power and beverage consumption

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2004 2005 2006 2007 2008 2009

An

nu

al B

ev

era

ge

Re

ve

nu

e (

$U

S M

lns

)

Wahaha Kang Shi Fu Wanglaoji

Rapid revenue growth seen by current domestic beverage producers

CAGR=36%

CAGR=28%

CAGR=66%

Source: GLG Life Tech Corp., Freedonia, Raymond James Ltd.



Product Strategy—ANOC’s product strategy aims to tap growing health-related concerns by introducing branded zero and low-calorie beverage products sweetened with stevia. The brand’s value proposition will offer consumers all-natural, low-calorie and zero-calorie, ‘healthy’ beverage alternatives that taste great. Management indicates that extensive market testing in China has resulted in an ~80% favourable response to the brand and its message. Prior to entering the joint venture, CAHFC spent over two years developing 30 beverage and 300 food products sweetened by stevia. ANOC’s initial product line includes both zero-calorie and low-calorie products. Low-calorie products use a stevia blend to deliver ~1/3 the calories of comparable sugar-sweetened products.

Marketing, Sales and Distribution—As with any consumer product within the food and beverage industry, marketing, sales, and distribution will play a key role in ensuring ANOC’s success. To this end, ANOC’s distribution strategy leans on the work CAHFC has carried out in developing national channels, including Wal-Mart, Metro AG, RT Mart, and Tesco, as well as regional ANOC-branded stores. On March 17, 2011, GLG launched ANOC’s first advertising campaign on China’s only national TV station, CCTV. The company was able to secure prime-time slots, with the highest rating among all of the daily programs on CCTV. The national advertising campaign was followed by opening of 13 regional offices responsible for marketing, national channel sales and distribution. Regional distribution in China accounts for ~70% of the sales volume in the beverage industry and is crucial to successful operations.

Seasonality—According to GLG, there has historically been two major buying seasons in the Chinese beverage market: January through March and July through September. For this reason, GLG expects to only take part in 2011’s second selling season. Furthermore, based on the launch timeline to date (see Exhibit 24), the company expects to deliver 20% of the annual revenue run rate in 1H11. Echoing this sentiment, we believe GLG will begin to hit a normalized sales run rate beginning in 2012.

Guidance & Expectations—GLG is aiming to grow the ANOC from standstill to $70-100 mln in revenues and $0-6 mln in EBITDA during F2011. This revenue guidance assumes launch of 12 beverage products, including the six ice-tea products recently launched in March. ANOC’s revenue in 2011 will be heavily weighted towards the second half of the year, with 1H11 amounting to only 20% of full forecasted revenue. Other assumptions include Chinese food and beverage market growth of 20% in 2011 and successful product launches nationwide. Although there are no planned capital expenditures in 2011, GLG will invest +$20 mln to support ANOC sales and marketing efforts.

Exhibit 23: Initial ANOC Product Launch and Related Marketing

Initial Product Launch

■ Iced Black Tea (Zero Calorie)■ Iced Black Tea (Low Calorie)■ Iced Green Tea (Zero Calorie)■ Iced Green Tea (Low Calorie)■ Iced Jasmine Tea (Zero Calorie)■ Iced Jasmine Tea (Low Calorie)

All beverages are Ready-to-Drink




Exhibit 24: GLG & ANOC Corporate Timeline

Date Detail

Dec. 14, 2010 ► Announced a JV for the sale and distribution of zero calorie food and beverage products in China

Dec. 22, 2010 ► Initiated commerical beverage production at partner CAHFC's Xioagang facility

Dec. 30, 2010 ► JV registered in Hong Kong as Dr. Zhang All Natural & Zero Calorie Beverage and Foods Group

Jan. 15, 2011 ► Appointed senior executives with extensive backrounds in food and beverage sector

Mar. 11, 2011 ► Six initial product offerings revealed: black, green, and jasmine ice tea varieties

Mar. 15, 2011 ► Announced Hon Chuan Group as a bottling partner

Mar. 17, 2011 ► Launched national advertising campaign

Apr. 20, 2011 ► Announced initial shipments of 6 mln bottles; expectation for 9 mln more through to end of April

May. 1, 2011 ► Expect beginning of second phase of ANOC marketing campaign

1H11 ► Limited 1Q11 sales; expectation for ~20% of FY forecasted revenue run rate

ANOC Timeline

A joint venture between GLG Life Tech (80% ownership) and CAHFC (20% ownership)





Revenue & Earnings Profile

GLG boasts an attractive revenue and earnings growth profile, in our view. We forecast that F2011 and F2012 revenues will advance 186.8% and 82.2% y/y respectively, to $169.0 mln and $308.0 mln, driven by rapid growth of the ANOC joint venture and stevia sales to fulfill the aforementioned China Sugar Reserve opportunity. In this context, we forecast the CSR opportunity accounting for ~24% of total revenues in F2011 and F012, or $38 mln and $75 mln respectively. We forecast the ANOC joint venture contributing $75 mln and $180 mln in revenues in F2011 and F2012 respectively.

Consistent with this growth profile, we expect GLG will deliver strong EBITDA and EPS growth. Specifically, we forecast 2011 and 2012 EBITDA of $32.8 mln and $60.4 mln, considerable increases over the $16.2 mln generated in 2010. Similarly, we expect 2011 and 2012 EPS to come in at $0.28 and $0.79, respectively.

Despite this impressive growth profile, we highlight that our 2011 estimates remain on the low-end of management guidance (see Exhibit 25). Our revenue and EBITDA estimates leave plenty of room for GLG to surprise to the upside. Exhibit 25: GLG Estimates and Guidance

CDN$ 000's2009 2010 1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E F2011 Lower F2011 Upper

ConsolidatedRevenue 41,885$ 58,927$ 10,261$ 30,739$ 69,500$ 58,500$ 169,000$ 308,000$ 160,000$ 200,000$ EBITDA 9,394$ 16,186$ 2,001$ 4,010$ 12,751$ 14,063$ 32,824$ 60,376$ 30,000$ 39,000$ EPS 0.04$ (0.11)$ (0.07)$ (0.02)$ 0.17$ 0.20$ 0.28$ 0.79$

Gross Margin (%) 28.9 29.8 21.4 28.3 27.8 30.1 28.3 30.8EBITDA Margin (%) 22.4 27.5 19.5 13.0 18.3 24.0 19.4 19.6

Stevia BusinessRevenue 41,885$ 58,927$ 10,261$ 15,739$ 32,000$ 36,000$ 94,000$ 128,000$ 90,000$ 100,000$ EBITDA 9,394$ 16,186$ 2,001$ 3,935$ 10,876$ 12,600$ 29,411$ 44,876$ 30,000$ 33,000$

ANOC BusinessRevenue -$ -$ -$ 15,000$ 37,500$ 22,500$ 75,000$ 180,000$ 70,000$ 100,000$ EBITDA -$ -$ -$ 75$ 1,875$ 1,463$ 3,413$ 15,500$ -$ 6,000$

GLG GuidanceRJ Estimates


Margins

Gross margins are expected to recover in 2Q11, following two quarters of pressure due to price incentives, G&A reclassification, and higher start-up costs at the firm’s Runhao facility. Management expects the new ANOC joint venture to garner gross margins in the “mid-30’s” over the long-term. Taken together, we expect consolidated 2011 and 2012 gross margins of 28.3% and 30.8% respectively. On a segmented basis, we forecast EBITDA margins for the stevia business to come in at 31.3% and 35.1% in 2011 and 2012 respectively. Due to the consumer-oriented nature of the business, we expect EBITDA margins at ANOC to be considerably lower, at 4.6% and 8.6% respectively in 2011 and 2012. This will, in our view, weigh consolidated EBITDA margin down to 19.4% and 19.6% in 2011 and 2012 respectively, from 27.5% in 2010 (see Exhibits 26 and 27).



Exhibit 26: Segmented GLG Revenue Exhibit 27: GLG Margin History & Forecast

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2009 2010 2011E 2012E

Se

gm

ente

d R

eve

nu

e (C

$ 0

00's

)

Stevia Revenue ANOC Revenue

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2009 2010 2011E 2012E

ET

BID

A (

C$

000

's)

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

Gro

ss

Mar

gin

(%

)

EBITDA Gross Margin (%)


Capital Structure

GLG is in a sound financial position, in our view, with a healthy balance sheet and sufficient liquidity bolstered by a recent equity offering. As of 4Q10, GLG held $78.5 mln in cash proforma of a recent equity financing, offset by debt totaling $106.2 mln. Of this debt, $99.6 mln was short-term loans with Chinese banks. This implies a healthy proforma net debt-to-equity ratio of 0.2x and current ratio of 1.5x (see Exhibit 28). We expect GLG’s net debt-to-EBITDA ratio (trailing 12 months) to improve moving forward as its growth opportunities begin to generate significant earnings. Specifically, we forecast this ratio improving from 5.1x in 2010 to 1.4x in 2011 and 0.9x in 2012. Interest coverage is expected to remain comfortable for GLG, thanks in part to its ability to lock-in favourable rates. We forecast EBITDA covering interest 7.25x and 13.13x based on our respective 2011 and 2012 estimates.

We forecast capital expenditures of ~$15 mln for GLG in 2012, a modest increase versus our ~$8.5 mln forecast for 2011 as the ground work is laid to facilitate capacity expansion in subsequent years. We anticipate the bulk of spending needed to double current production capacity, estimated by management to cost ~$70-100 mln, to be incurred in F2013 and beyond. This would ensure GLG is able to meet the anticipated requirements of its ANOC JV described herein, as well as growing demand for stevia product through initiatives such as CSR. To this end, we would expect GLG to use a combination of internally-generated cash flows, additional debt, and equity raised through the capital markets to fund this spending, all beyond our current forecast horizon.



Exhibit 28: GLG Capital Structure & Debt Composition

Capital StructureShares outstanding - basic (mlns) 32,661.2 Shares outstanding - fully diluted (mlns) 35,616.8 Short-term loans

Share price (as of 12-Apr-2011) 9.05 to

Market Capitalization (mlns) 322,331.6 to

to

Total Debt (mlns, mrq) 106,264.6 to

Cash & Short-Term Investments (mlns) 78,507.2 Total

Net Debt (mlns) 27,757.4 * Interest rates are weighted average

Enterprise Value (mlns) 350,089 Long-term loans

Net debt / equity (mrq) 0.2x

Net debt / EBITDA (ttm, mrq) 1.7x

Current ratio (mrq) 1.5x

Total

CDN$ millionsAll figures are proforma for GLG's recent equity issuance

$6,233

28-Oct-11

29-Jun-11

14-Sep-11

25-Aug-11

11-Jan-11

$1,492 Prime+4% 1-Dec-12

$3,945

Maturity Range

$696 Prime+4% 23-Dec-12

$99,594

$30,180 5.61% 27-Jul-11

$24,144 5.36%

Related party (CEO - Luke Zhang)1-Dec-12

Prime+3% 9-Jun-11

Prime+3% 1-Jun-12

Related party (CEO - Luke Zhang)23-Dec-12

Related party (a director)

Related party (CEO - Luke Zhang)

9-Jun-11

1-Jun-12

Bank of Communication

$99

$10,563 6.09% 28-Jun-11 CITIC Bank

Construction Bank of China

$34,707 5.52% 24-May-11 Agricultural Bank of China

Loan Amount

Interest Rate

Lender





We are initiating coverage on GLG with an Strong Buy rating and $12.50 target price. Based upon the stock’s recent closing price on April 20, our target represents a 38.1% total return to target. Below we discuss the rationale behind our target and rating.

Evolving Profile, Evolving Benchmarks—As discussed herein, we believe that GLG’s strategic foray into the downstream, zero-calorie Chinese beverage market is poised to reshape the firm’s revenue and earnings profile. From a valuation perspective, we argue this evolution will similarly alter the company’s competitive landscape and relevant valuation benchmarks. In other words, while Pure Circle arguably remains the company’s closest peer today—and only publicly-traded stevia producer—we believe that a number of well-established Chinese domestic and international beverage companies (see Appendix B) will become increasingly relevant over time—many which command richer multiples than GLG and its sweetener peers are historically accustomed to. While not an immediate effect, we would therefore expect GLG’s consolidated relative multiple to move higher over time reflecting the growing significance of ANOC as a proportion of the rest of GLG’s business.

SOP Methodology Captures Distinct Prospects—We employ a sum-of-parts (SOP) valuation methodology to derive our target as we believe it best captures the distinct growth prospects facing GLG’s evolving business units (see Exhibit 29). We apply a 7.8x EV/EBITDA multiple to our 2012 EBITDA estimate for the company’s core stevia extract business, while applying a 10.0x multiple for ANOC. Although we acknowledge GLG’s enormous, near-term growth prospects, both of these multiples are at a discount to the firm’s sweetener, ingredient, and Asia/global beverage peers. We believe this discount is warranted, for now, given GLG’s size and relatively early stage of development. On a consolidated basis, our $12.50 target price equates to an 8.4x 2012 multiple.

Paying Very Little for ANOC at Current Levels; Immense Option Value—Put another way, we believe that investors are currently attributing very little value to GLG’s new ANOC joint venture. Specifically, our analysis suggests that investors are currently paying only ~$1.00–1.25/share for what, we believe, will soon become the company’s key growth engine. While we recognize investor trepidation to ascribe too much value at such an early stage, we believe that this metric dramatically underestimates ANOC’s earnings potential. Furthermore, as previously highlighted, our current assumptions lie at the bottom end of management guidance for 2011, use reasonable estimates for 2012, and fail to account for the even stronger growth we expect in 2013 (and beyond), arguably providing a great deal of conservatism at this point.

Exhibit 29: GLG Sum-of-Parts (SOP) Valuation Exhibit 30: GLG Historical EV/EBITDA Multiples

2012E Target Implied Implied ValueEBITDA Multiples EVs per Share

Segment

Stevia 44,876 7.8 351,023 $8.19ANOC 15,500 10.0 155,000 $4.31Total 60,376 506,023 $12.50

Less Net Debt (FY12E): 56,023 Residual Equity Value: 450,000

Shares Outstanding (fd, 000's): 36,000 Implied Equity Value/Share: $12.50

GLG SOP Valuation

0

5

10

15

20

May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11

Fo

rwar

d E

V/E

BIT

DA

Mu

ltip

le (

NT

M) GLG EV/EBITDA GLG EV/EBITDA (Avg.)

Source: Thomson One, Capital IQ, Raymond James Ltd.




GLG Income Statement, 2009 – 2012E (C$, mlns)

2009 2010 2011E 2012E

Revenue 41,885 58,927 169,000 308,000 Cost of Sales 29,790 41,365 121,202 213,019 Gross Profit 12,095 17,562 47,798 94,981

General & Admin CostsSG&A 7,832 10,012 24,869 43,425 Stock-Based Compensation 2,479 3,308 3,900 6,000 Amortization and Depreciation (G&A) 1,409 1,417 2,000 3,020 Subtotal G&A 11,720 14,737 30,769 52,445

Income from Operations 375 2,825 17,030 42,536

Other Income (Expenses)Interest Expense (2,695) (4,501) (4,525) (4,600) Interest Income 101 170 450 150 Provision on Loans and Receivables (58) - - - Foreign Exchange Grain (Loss) 2,638 (860) - - Other Income/expense 11 - - - Other Subtotal (3) (5,191) (4,075) (4,450) EBT 371 (2,366) 12,955 38,086

Income Tax (Expense) Recovery 243 (587) (2,591) (7,617) Earnings After-Tax 615 (2,953) 10,364 30,469

Non-Controlling Interest 144 19 (306) (2,160) Net Income (Loss) 759 (2,934) 10,058 28,309

Net Income Per ShareBasic 0.04 (0.11) 0.31 0.86 Diluted 0.04 (0.11) 0.28 0.79 Diluted - Cont. Ops

Weighted average shares outstandingBasic 20,380 26,619 32,811 33,100 Diluted 21,454 26,619 35,767 36,000

Common Size (%)Gross Margin 28.9 29.8 28.3 30.8 SG&A 18.7 17.0 14.7 14.1 Stock-Based Compensation 5.9 5.6 2.3 1.9 Amortization and Depreciation 3.4 2.4 1.2 1.0 Income from Operations (EBIT) 0.9 4.8 10.1 13.8 Income Tax Rate (%) (65.5) (24.8) 20.0 20.0

EBITDA 9,394 16,186 32,824 60,376 EBITDA (%) 22.4 27.5 19.4 19.6




GLG Balance Sheet, 2009 – 2012E (C$, mlns)

F2009 F2010 F2011E F2012E

Current AssetsCash and Cash Equivalents 16,018 23,817 26,746 25,242 Accounts Receivables 5,718 31,561 80,357 105,721 Taxes Recoverable 5,130 6,554 6,554 6,554 Inventories 41,149 63,307 78,622 109,719 Prepaid Expenses 8,578 4,380 8,775 13,347 Interest Receivables - 2 2 2 Total Current Assets 76,594 129,621 201,056 260,584

Non Current AssetsProperty Pland and Equipment 108,312 104,099 100,399 101,399 Goodwill 7,860 7,736 7,736 7,736 Intangible Assets 36,715 35,644 35,644 35,644 Deferred Charges 95 81 81 81 Restricted Cash 10 - - - Total Non-Current Assts 152,992 147,561 143,861 144,861 Total Assets 229,586 277,182 344,918 405,445

Current LiabilitiesShort-term Loans 37,318 100,131 65,131 75,131 Accounts Payable and Accrued Liabilities 25,383 21,930 55,507 71,726 Interest Payable 269 385 385 385 Due to Related Party 7,243 99 99 99 Advances from Customers - 77 77 77

Total Current Liabilities 70,213 122,622 121,200 147,418

Non Current LiabilitiesNon-Current Bank Loans 13,797 - - - Loan Due to Related Party - 6,134 6,134 6,134 Future Income Taxes 733 643 643 643 Minority Interest 23 4 4 4 Total Non-Current Liablitities 14,553 6,781 6,781 6,781 Total Liabilities 84,766 129,403 127,980 154,199

Shareholders' EquityCommon Stock - Par Value 134,812 141,366 200,466 206,466 Additional Paid in Capital 14,910 14,960 14,960 14,960 Retained Earnings (Deficit) (11,289) (14,223) (4,166) 24,144 Accumulated Other Comprehensive Income 6,387 5,676 5,676 5,676

Total Shareholders Equity 144,819 147,779 216,937 251,246 Total Liabilities & Shareholders Equity 229,586 277,182 344,918 405,445




GLG Cash Flow Statement, 2009 – 2012E (C$, mlns)

F2009 F2010 F2011E F2012E

Operating ActivitiesNet Income 758 (2,934) 10,058 28,309 Plus Items Not Affecting Cash:

Stock-Based Compensation 2,479 3,308 3,900 6,000 Amortization of Property, Plant, and Equipment 6,385 10,034 12,200 14,000 Provision on Loans and Receivables 58 (18) - - Foreign Exchange Gain/ Loss (2,616) 202 - - Future Income Tax Expense (Recovery) (754) (102) - - Non-Controlling Interest (144) (19) - - Subtotal Non-Cash Items 6,167 10,471 26,158 48,309 Net Changes in Non-Cash Working Capital (23,428) (39,191) (34,929) (44,814)

Cash Flow from Operating Activities (17,261) (28,720) (8,771) 3,496

Investing ActivitiesPurchase of PP&E (34,872) (14,722) (8,500) (15,000) Decrease (Increase) in Short-Term Investments 326 - - - Decrease (Increase) in Restricted Cash 91 10 - -

Cash Flow from Investing Activities (34,455) (14,712) (8,500) (15,000)

Financing ActivitiesIssue of Short-term Loans 58,157 53,982 - 10,000 Repayment of Short-term Loans (13,929) (3,719) (35,000) - Issuance of Shares 33,241 - 58,200 - Issuance of Shares on Stock Option Excercisement 291 1,319 - - Share Issuance Costs (3,186) - (3,000) - (Repayment) of Advance from a Customer (22,053) - - - Increase in Advance from Customer - 74 - - Advance from Related Parties 7,726 2,635 - - Repayment of a Related Party Loan - (3,406) - -

Cash Flow from Financing Activities 60,248 50,883 20,200 10,000

Other Adjustments - FX Impact 123 348 - - Net Change in Cash Flow 8,656 7,799 2,929 (1,504) Cash, Beginning of Period 7,363 16,018 23,817 26,746 Ending Cash 16,018 23,817 26,746 25,242

Source: GLG, Life Tech Corp., Raymond James Ltd.





(mln) (mln) (mln) (mln) (%) (x) (%)

Global Sugar & Sweetener CompaniesAsia Bio-Chem Group Corp. ABC.CA CAD 31-Dec 1.15 87 100 50 150 8.1 4.6 3.1 8.0 4.7 3.2 33.3 1.6 --Corn Products International Inc. CPO.US USD 31-Dec 53.64 76 4,093 1,467 5,560 16.6 13.2 12.1 9.6 7.0 6.6 26.4 2.1 1.0%Global Sweeteners Holdings Ltd. 3889.HK HKD 31-Dec 1.94 1,149 2,230 518 2,748 24.6 13.0 10.5 11.8 10.0 7.7 18.8 1.2 --Imperial Sugar Co. IPSU.US USD 30-Sep 13.01 12 160 41 201 n.m. n.m. 7.4 0.9 14.7 4.1 20.5 0.7 0.6%Purecircle Ltd. PURE.GB GBP 30-Jun 1.06 154 163 77 240 n.m. n.m. 24.5 n.m. n.m. 13.9 32.0 1.0 --Rogers Sugar Inc. RSI.CA CAD 30-Sep 5.41 89 480 186 666 11.4 11.4 11.3 11.4 8.2 8.0 27.9 1.7 10.6%Xiwang Sugar Holdings Co. Ltd 2088.HK HKD 12/31 2.47 1,006 2,486 1,016 3,502 11.8 9.4 8.1 9.0 6.4 5.9 29.0 1.5 --

14.5 10.3 11.0 8.4 8.5 7.1

Food Ingredients CompaniesBioExx Specialty Proteins Ltd. BXI.CA CAD 31-Dec 1.74 174 303 (10) 292 n.m n.m n.m. n.m. n.m. n.m. (3.5) 4.8 --Burcon Nutrascience Corp. BU.CA CAD 31-Mar 9.50 30 283 (13) 270 n.m n.m 15.3 n.m. n.m. 11.1 (4.8) n.m. --CSM nv CSM.AE EUR 31-Dec 25.35 66 1,669 631 2,300 14.5 12.6 10.4 8.0 7.6 6.7 27.4 1.5 3.6%Danisco A/S DCO.KO DKK 30-Apr 663.00 48 31,578 3,626 35,204 24.9 21.9 20.1 14.4 11.5 10.8 10.3 2.5 1.3%Kerry Group plc KRZ.DB EUR 31-Dec 27.29 175 4,783 1,155 5,937 14.0 12.8 11.6 9.6 9.4 8.8 19.4 2.9 1.1%Tate & Lyle plc TATE.Ln GBP 31-Mar 5.99 458 2,741 561 3,302 16.1 13.4 12.5 8.0 7.9 7.6 17.0 3.3 3.8%

17.4 15.2 14.0 10.0 9.1 9.0

Niche Food & Beverage CompaniesCott Corporation COT.US USD 01-Jan 8.66 95 820 571 1,391 12.7 11.5 9.6 7.4 5.6 5.2 41.1 1.6 --Dr. Pepper Snapple Corp DPS.US USD 31-Dec 38.87 221 8,603 1,771 10,374 16.2 14.2 13.1 9.0 8.2 7.8 17.1 3.5 2.3%Hansen Natural Corp. HANS.US USD 31-Dec 63.81 88 5,640 (599) 5,041 28.0 23.3 20.1 14.0 12.1 10.6 (11.9) 6.9 --National Beverage Corp. FIZZ.US USD 01-May 13.68 46 632 (98) 535 19.3 15.9 14.7 8.3 7.2 6.7 (18.3) 4.3 --The Hain Celestial Group, Inc. HAIN.US USD 30-Jun 33.72 43 1,451 214 1,664 33.1 26.1 22.8 n.m. 13.5 12.2 12.8 1.8 --

21.8 18.2 16.1 9.7 9.3 8.5

Chinese F&B CompaniesBesunyen Holdings Company Limited 926.HK HKD 31-Dec 2.94 1,681 3,754 (1,170) 2,583 26.7 18.4 14.0 11.4 7.1 5.6 (45.3) 2.8 0.3%Bright Dairy & Food Company 600597.SH CNY 31-Dec 10.44 1,049 10,954 (342) 10,612 n.m. n.m. 29.0 6.5 5.2 4.2 (3.2) 4.7 1.1%China Huiyuan Juice Group Ltd. 1886.HK HKD 31-Dec 5.30 1,478 7,833 2,734 10,567 n.m. 28.5 19.7 n.m. n.m. 12.4 25.9 1.6 0.7%Inner Mongolia Yili Industrial Group 600887.SH CNY 31-Dec 35.35 800 28,295 (1,798) 26,498 n.m. 26.3 21.2 n.m. 12.9 10.4 (6.8) 8.2 --Tingyi (Cayman Islands) Holdings Corp 322.HK HKD 31-Dec 20.25 5,587 113,133 (248) 112,885 n.m. n.m. n.m. n.m. n.m. n.m. (0.2) n.m. 1.6%Uni-President China Holdings Ltd. 220.HK HKD 31-Dec 4.40 3,599 15,838 (2,262) 13,576 30.6 26.8 20.8 13.6 11.8 9.1 (16.7) 2.4 1.2%

28.6 25.0 20.9 10.5 9.3 8.4

Group Average 20.6 17.2 15.5 9.7 9.1 8.2

GLG Life Tech Corporation GLG.CA CAD 31-Dec 9.05 36 322 28 350 n.m. 32.3 11.5 n.m. 10.7 5.8 7.9 1.8 --

Notes:1.) All figures are in CAD unless otherwise noted.2.) All estimates are from Thomson except ABC, BXI, and GLG are Raymond James estimates.3.) P/E Values > 30.0x and EV/EBITDA multiples > 30.0x have been discarded (n.m.).4.) GLG numbers are pro-forma of recent financing.

Price /Book

Div. Yield

Ent. Value P/E EV/EBITDA

Net Debt / Cap

Market Price

Shares O/S Market Cap Net Debt




Risks

Supply of raw materials–GLG’s business depends on sourcing adequate supply of raw materials (i.e. stevia leaf) required to meet customer demand. In the event of a supply shortage, the company’s business could be materially impacted. GLG mitigates this risk by engaging in fixed-price supply contracts with growers in key stevia growing regions.

Intellectual Property–GLG uses proprietary technologies to extract high grade stevia extract. These technologies are patented only in China. Therefore, any competitor developing technology equal to or better than that of GLG would have a negative impact on GLG’s competitive position.

Product Liability–Negative public perception, product liability claims, ill effects, recalls could harm the sales and cause consumers to avoid the product all together.

Brand name recognition–The food and beverage industry is highly competitive and brand-conscious. Any inability to create a recognizable brand could hurt companies’ sales and competitiveness.

Customer Concentration–In the past, GLG has relied heavily on one customer: Cargill. The reliance on sales to Cargill has dropped from 90% in 2009 to 47% of revenues in 2010. GLG’s business operations could be severely impacted if Cargill were to terminate this relationship.

Competition–Competitors may enter the market globally, which may drive down the price of stevia extract. Some of these competitors may also have greater financial, technical and marketing resources and a better established customer base.

Regulation–While regulatory barriers have been dropping, there still is a number of large regions where stevia has not yet been approved for use. Global demand for stevia and related products may be constrained as stevia’s approval remains limited to a small number of countries. Additional regulations are imposed on food and beverage processing; any changes to these can materially impact the company’s operations.

Product Acceptance–To date, GLG’s revenues have been based solely on stevia and stevia related products. If the stevia market declines or fails to achieve greater acceptance, the company will not be able to grow its business and maintain profitability. Furthermore, the food and beverage industry is fast-paced, with consumer tastes and preferences changing rapidly. The inability to develop innovative products that meet consumer demand and changing preference could have a negative, material effect on GLG’s sales.

Third Party Distribution–GLG relies heavily on third party distribution for the sale and distribution of its products. In the event that distributors are distracted from selling the product or do not place sufficient effort into managing and selling stevia products, GLG’s sales could be adversely affected.

Foreign Exchange – GLG’s financial results are largely affected by the currency exchange rate between USD and RMB. The company generates USD denominated revenue and accrues expenses denominated in RMB, while at the same time it reports financial results in CAD. In China, currency conversion is regulated by the State Administration for Foreign Exchange (“SAFE”) and is subject to a number of rules and regulations. Changes in the government policy with respect to RMB conversion can materially affect GLG’s business. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Foreign Operations–Because a significant proportion of the company’s operations are conducted in China, operations are exposed to significant political, economic, and other risks associated with the PRC. These risks and uncertainties include, but are not limited to: high rates of inflation; labour unrest; renegotiation or nullification of existing



concessions, licenses, permits and contracts; changes in taxation policies; restrictions on foreign exchange; government corruption; changing political conditions; currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

Infrastructure–The company’s ability to carry on its operations in China in a profitable manner are highly dependent on continued provision of reliable infrastructure by local Chinese governments including public highways, railways, ports, shipping lines, power sources and water supply. Unusual or infrequent weather phenomena, malfunction, ineffective scheduling, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the company’s business and operations, financial condition and results of operations.

Dependence on key personnel–GLG’s business is built on relationships its key employees, primarily Dr. Luke Zhang, have established with the Chinese government and strategic customers. The loss of any key personnel and in particular Dr. Luke Zhang could have an adverse effect on the company’s business. For example, Cargill Inc. may terminate the strategic alliance and supply agreement in the event that Dr. Zhang ceases to be actively involved in GLG’s business.

Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ Entity Dean Foods DF NYSE NC Kraft Foods Inc. KFT NYSE NC Tesco Corporation TESO NASDAQ NC Unilever NV UN NYSE NC Wal-Mart Stores Inc. WMT NYSE US$ 53.37 1 RJ & Associates Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.



Viterra Inc. April 27, 2011

VT-TSX Company Report - Initiation of CoverageSteve Hansen CMA, CFA | 604.659.8208 | [email protected]



VT: Initiating Coverage: Canada`s Global Grain Giant; Feeding the World

Event We are initiating coverage on Viterra Inc. (‘VT’) with a Market Perform rating and $12.50 target price, representing a 13.5% total return based upon the stock’s closing price on April 20, 2011. Action Notwithstanding our positive view toward VT’s strong competitive position and macro fundamentals, we believe the stock is appropriately valued at this time. Analysis Viterra is a world-leading international grain handler and agri-business enterprise boasting unrivalled infrastructure throughout western Canada and South Australia, two of the world’s most prominent growing and export regions. Complimenting its dual-origin grain sourcing capabilities, the company operates a diversified platform of Agri-Products and Processing assets that enable it to capture margin at all stages of the value chain and bestow it with a formidable competitive position, in our view.

We believe the long-term outlook for global food and grain demand remains robust, particularly in emerging markets where population growth and rising disposable incomes are fuelling a shift in dietary patterns toward high-quality, nutritious food. Many of these same regions are expected to increasingly rely on imported products to satisfy demand due to inadequate domestic supply. The corollary, in our view, is that grain handlers with global sourcing capabilities will become increasingly vital to global food security over time.

VT has undergone a transformational change over the past 5 years, executing on a strategy aimed at bolstering its competitive position, reducing weather-related risk, and smoothing earnings volatility. We view this strategy positively. We also expect further complimentary moves to surface with time, suggesting VT boasts an attractive long-term growth profile. However, with only 13.5% upside to our initiating target price, we prefer to wait for a more opportune entry point before becoming more constructive with our rating.

Valuation Our $12.50 target price is based upon a 7.0x EV/EBITDA target multiple applied to our F2012E estimate. This multiple is near the middle of the company’s historical trading range between 6.0x and 8.5x (see Valuation & Recommendation section for more details).

EPS 1Q 2Q 3Q 4Q Full Revenues EBITDA Jan Apr Jul Oct Year (mln) (mln)

2010A C$0.03 C$0.05 C$0.25 C$0.14 C$0.47 C$8,256 C$518

2011E 0.27A 0.16 0.34 0.09 0.85 9,675 728

2012E NA NA NA NA 0.77 9,689 701

Source: Raymond James Ltd., Thomson One. EPS is shown as f.d., from continuing operations.

Rating & Target Market Perform 3Target Price (6-12 mos): C$12.50Current Price ( Apr-20-11 ) C$11.10Total Return to Target 14%52-Week Range C$12.28 - C$6.96Market Data Market Capitalization (mln) C$4,126Current Net Debt (mln) C$1,518Enterprise Value (mil.) C$5,644Shares Outstanding (mln, f.d.) 371.7Average Daily Volume (000s) 1,240Dividend/Yield C$0.10/0.9% Key Financial Metrics 2010A 2011E 2012E

P/E 23.7x 13.1x 14.4x


EBITDA Margin (%) 6.3% 7.5% 7.2%

Margin (C$/tonne shipped) NA NA NA

Grain Shipments (mln tonnes) NA NA NA BVPS (mrq, tangible) C$9.79Net Debt/Equity (mrq) 0.4xNet Debt/Trailing EBITDA (mrq) 2.4x Company Description Viterra Inc. is a leading vertically integrated Canadian grain handling and food ingredients company operating across western Canada and internationally.

Canada Research | Page 134 of 183 Viterra Inc.


Table of Contents









Risks .................................................................................................................................................... 169

Viterra Inc. Canada Research | Page 135 of 183


Investment Overview

Positive Long-Term Grain Fundamentals—As reviewed in our Apr-27-11 Industry Report Clash of the Titans: Food vs. Feed vs. Fuel, we believe the long-term outlook for global food and grain demand remains robust, particularly in emerging markets where population growth and rising disposable incomes are fuelling a seismic shift in dietary patterns toward high-quality, nutritious food. However, given that many of these same regions suffer from inadequate domestic grain supplies, we believe they will increasingly rely on imported products to satisfy demand. The corollary, in our view, is that international grain handlers with global sourcing capabilities will become increasingly vital to global food security over time.

Dominant Footprint in Key Export Markets; High Barriers to Entry—Viterra is one of the world’s leading international grain handlers and agri-business enterprises boasting unrivalled infrastructure throughout western Canada and South Australia, two of the planet's most prominent growing and export regions. In Canada, Viterra controls 1.9 mln tonnes of elevator storage capacity, or roughly 45.0% of the western Canada market, and 1.3 mln of storage capacity at six major port terminals, affording the firm unmatched export capabilities. In South Australia, Viterra controls approximately 95.0% of the state’s grain handling and storage infrastructure with 10.3 mln tonnes of storage capacity and eight export facilities. Collectively, we believe these long-lived, infrastructure-like assets provide a sound competitive position and erect steep barriers to entry.

Geographically Diversified, Dual-Origin Sourcing Capabilities—Viterra’s 2009 acquisition of Australian-based ABB Inc. was a transformational deal that bestowed the firm with dual-origin sourcing capabilities and helped diversify its weather-related exposure. As a dominant growing region for wheat, barley, and canola, it also came with a world class malting business and greater export access to Asian markets. We believe these attributes, coupled with the firm’s broader strategy to diversify its product offering, will continue to reduce Viterra’s risk profile and smooth earnings volatility over time.

Margin Capture at All Stages of Supply Chain—Viterra’s core Grain Handling unit is complimented by the company’s Agri-Products and Processing platforms that facilitate margin capture at all stages of the supply chain. In western Canada, Viterra operates the largest network of retail stores, totaling 261 locations, boasting a 34.0% market share in key crop inputs (seed, crop protection products and fertilizer) and ag-equipment. Downstream, the firm’s processing activities include the world’s largest industrial oat miller and N.A.’s third largest pasta producer.

Organic & Acquisitive Growth in Food Processing—Viterra has strategically identified food processing as a business unit primed for organic and acquisitive growth. Citing value-added margins, predictable demand growth, and attractive diversification benefits, this strategy aligns well with the company’s broader objective to reduce its global risk profile. The company also expects to leverage its up-stream market position in grain handling in order to extract additional margins. Viterra’s recent acquisitions of Dakota Growers and 21st Century Grain Processing exemplify this strategy. We expect more to come.

Strong Management Team—CEO Mayo Schmidt has accomplished a great deal in a relatively brief tenure, transforming Viterra from a regional, government-controlled co-operative (i.e. Saskatchewan Wheat Pool) into one of the world’s leading agri-business companies today. With a demonstrated ability to strategically identify high value targets and subsequently integrate such acquisitions, we believe Mr. Schmidt and his team are well suited to continue growing the business going forward.




Initiating with Market Perform Rating; $12.50 Target Price—Notwithstanding our positive view toward VT’s strong competitive position and positive macro fundamentals, we believe the stock is close to fairly valued at this time. With only 13.5% upside to our target price, we advise investors to patiently wait for a more opportune entry point.



Company Overview

Viterra Inc. (VT) is a Canadian-based grain handling and food ingredients company with vertically-integrated international operations throughout Canada, Australia, New Zealand, and the United States (see Exhibit 1). VT’s operations are segmented into three inter-related agri-business units: (i) Grain Handling and Marketing (‘Grain Handling’); (ii) Agri-Products; and (iii) Processing (see Exhibit 2). Based in Regina, Canada, the company has ~5,500 employees and is listed on the Toronto Stock Exchange (VT-TSX) in addition to its CDI’s trading in Australia (VTA-ASX). Exhibit 1: VT’s Global Footprint


Exhibit 2: VT’s Operating Divisions

Grain Handling & Marketing Agri-Products Processing

Company Services:

Processing of raw materials into livestock feed, ingredients and nutritional supplements

Segment Assets: W. CANADA W. CANADA NORTH AMERICAGrain Elevators: Food►66 High Throughput Elevators ►261 retail locations ►42% stake in Prairie Malt (malt)►17 Conventional Elevators ►34% stake in Canadian Fertilizers Ltd ► 2 pasta production facilities - 254,000 tpy►8 specialty plants ►22 branded lable crop protection products ► 2 wheat mills - 101,240 tpy capacity

►Markets and distributes proprietary seeds ►1 canola crushing plant - 340,000 tpy capacityPort Terminals: ►Oat milling - 540,000 tpy capacity►Vancouver (Cascadia, Pacific) ►Viterra Financial - ~$1.5 bln►Prince Rupert (54.2%) Feed►Thunder Bay (Terminals 7, A, B, C) ►100% ownership in Unifeed Hi-Pro Inc

AUSTRALIA AUSTRALIA AUSTRALIA and NEW ZEALANDFood - Australia

►108 Grain Storage & Handling Facilities ►12 sale depots ►8 malting facilities - 500,000 tpy►8 Bulk Grain Export Terminals ►5 warehouses

►Wool - 40/60 buyer/broker split Feed - New Zealand - 330,000 tpy ►Fertilizer - sells ~130,000 tpy ► 4 feed mills ►Seed - equity ownership in University of ► 2 maize processing plants Adelaide Barley Breeding Program ► 1 dairy blending plant

► 3 owned bulk storage facilities► 5 leased bulk storage facilities

SEGMENT

Premiere provider of grain products. Accumulates, stores, transports and markets

grains and oilseeds.

Sale of seed, crop protection products, fertilizer, wool equipment and financial products to farmers.

Production of semi-finished & finished food ingredients for downstream consumer food products companies and food processors




Business Mix

Grain Handling is VT’s largest business by a healthy margin, accounting for 64.6% of 2010 EBITDA, while Agri-Products and Processing made up the residual 20.5% and 14.8%, respectively (see Exhibit 3). Grain Handling’s proportion of EBITDA generation has grown considerably versus its 49.2% share in 2008, due primarily to VT’s recent acquisition of Australia-based ABB (see Exhibit 4). This acquisition also served to enhance geographic diversification, with Canada representing 33.3% of 2010 revenue, versus 58.2% only two years prior. Australia, by comparison, accounted for 13.1% of 2010 revenue, a considerable increase versus 3.3% in 2008. Exhibit 3: 2010 VT’s EBITDA by Segment Exhibit 4: Historical EBITDA by Segment

Grain Handling & Marketing

64.6%

Agri Products

20.5%

Processing(Food & Feed)14.8%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2008 2009 2010

$ E

BIT

DA

in t

ho

us

an

ds

Grain Handling Agri Products Processing

Source: Viterra Inc., Raymond James Ltd. 1. Grain Handling and Marketing

VT’s Grain Handling segment is in the business of sourcing, storing, transporting and marketing grains and oilseeds globally. With a diverse network of storage facilities (i.e. grain elevators), processing plants, and port terminals situated across North America and Australia’s prime growing regions, VT has rapidly evolved into one of the world’s leading grain handlers boasting unrivalled scale and export distribution capabilities.

Dominant Canadian Footprint—VT owns and operates a geographically diversified network of 83 grain elevators across Canada with 1.9 mln tonnes of capacity, equivalent to roughly a 45.0% of western Canada’s storage market. As a whole, approximately ~80.0% of the market is controlled by VT and two other major players, JRI and Cargill (see Exhibit 5). VT’s elevators are logistically advanced, with 92.0% of its capacity equipped to handle 50 and 100 railcar loadings. Given the high throughput and scale advantages these assets provide, the firm is able to capitalize on healthy financial incentives offered by the rail carriers (up to $8.00/tonne). VT also controls 1.5 mln tonnes of port terminal capacity at Vancouver, Prince Rupert, and Thunder Bay, offering unrivalled export access to global markets (see Exhibit 6). Collectively, these core infrastructure assets position VT as the country’s most formidable grain handler, facilitating trade and distribution to more than 50 countries. The company operates sales and trading offices in western Canada as well as Singapore, Geneva, Tokyo, Beijing, Kiev, Naples and Hamburg.



Leading Footprint in South Australia—VT boasts an unrivalled storage and distribution footprint in the state of South Australia (see Exhibit 7), the country’s third largest grain growing region that accounts for ~17.0% of total output (see Exhibit 8). South Australia is also a key grain exporting region, with ~63.0% of all grains produced in the state destined for export. Secured through the 2009 acquisition of ABB, VT controls ~10.3 mln tonnes of storage capacity consisting of 7.1 mln tonnes of inland grain storage capacity and 3.2 mln tonnes of terminal capacity at eight facilities, including three terminals capable of loading Panamax-sized vessels (52,000-75,000 deadweight tonnes).

Exhibit 5: Canadian Grain Handling Market Share Exhibit 6: VT’s Canadian Grain Infrastructure

Viterra31%

Co-op / Fuel Companies

20%

Grain Companies

19%

Independent30%

British Columbia ► 2 port terminals - 691,490 MT ► 2 elevators - 17,700 MT

Alberta - 516,440 MT ► 21 elevators ► 5 specialty plants

Sask. - 1,133,710 MT ►47 elevators ► 2 specialty plants

Manitoba - 259,930 MT ►12 elevators ► 1 specialty plants

Ontario - 593,680 MT ►3 port terminals


Exhibit 7: VT’s South Australian Infrastructure Exhibit 8: Australian Wheat Growing Regions

South Australia

South Australia ►108 storage and handling facilities - 7.1 mln tonnes ► 8 port terminals 3.2 mln tonnes

Source: Viterra Inc., ABARE, Raymond James Ltd.



2. Agri-Products

VT’s Agri-Products segment engages in the sale of seeds, crop protection products, fertilizers, and small scale equipment to farmers while also providing financing and agronomy services. Through 261 retail locations, VT controls an estimated 34.0% of the western Canadian agri-products market. The company also operates 12 retail stores in Australia and participates in the wool business.

Canada

Fertilizer Represents Core Backbone—Fertilizer is the principal component of VT’s Agri-Products business mix, accounting for 44.0% of 2010 segment sales. Roughly 34.0% of its fertilizer needs are sourced through a joint venture with CF Industries in Canadian Fertilizer Ltd., operator of a world-class urea and ammonia fertilizer plant. The balance of its fertilizer requirements are sourced on the open market.

Creating a Competitive Advantage through Branded Crop Protection Products—Through a network of retail locations, VT offers a variety of crop protection products (CPP) including: herbicides, insecticides, fungicides and seed treatments. The company’s focus has been on developing branded private label products, currently at 22, in an attempt to compete with an increasing number of generic products offered in this mature market.

Proprietary Seed Business—VT’s seed distribution business, the largest in Canada, focuses on both publicly available and proprietary variants. High-yield proprietary canola, flax, barley, and wheat seeds are developed in partnership with research centers at the University of Saskatchewan and University of Adelaide.

Financial Products: An Important Relationship Builder—Through VT’s Financial business, the company offers loan services to Agri-Product custumers and, to a much smaller extent, customers in the livestock and animal feed business. VT acts as an agent for a Canadian chartered bank, and in turn, extends credit to farms who use the funds to purchase agri-products from the company. During the 2010 fiscal year, approved credit for agri-product customers amounted to $1.4 bln and an additional $107 mln for livestock customers.

Australia

VT’s retail presence in the region is still relatively small compared to some of its Australian peers. Hence, programs such as a direct sales model are used in an attempt to differentiate.

Fertilizer & Crop Protection—VT’s fertilizer operations in Australia include importing, blending, wholesale, and retail distribution across South Australia, Victoria and New South Wales, with sales amounting to ~130,000 tpy. Approximately 80.0% of these sales are conducted through third-party agents.

Wool—VT’s wool business makes up a significant portion of the Ag-Products segment. Transactions in the wool industry are handled through auctions where VT acts as both a buyer and a seller (40/60 split).

Seeds—VT’s Australian seed portfolio consists of 18 varieties, primarily wheat and barley since these two grains account for 80.0% of all Australian grain production. An equity ownership in the University of Adelaide Barley Breeding Program allows VT first right of refusal over new varieties.



3. Processing

VT produces food ingredients for downstream consumer food products and food processors around the world, as well as feed and nutritional supplements for the animal feed industries in Canada, United States and New Zealand (see Exhibit 9). This segment, in our view, has the most attractive prospect for growth given the relative high margins, consistent demand profile, and fragmented nature of the industry. Food Processing

World’s Largest Industrial Oat Miller—VT’s position as the world’s largest industrial oat miller is underpinned by 540,000 tpy of processing capacity that results in 335,000 tpy of finished product. The company’s oat operations are strategically located in Canada’s oat growing regions of Saskatchewan, Alberta, and Manitoba (prairies provinces produce over 90.0% of Canada’s oats) and Nebraska. Viterra exports 90.0% of its oat production volume, primarily to the United States but also to Central and South America.

Third Largest Pasta Processor in N.A.—With last year’s acquisition of Dakota Growers, VT became a leading producer and marketer of pasta in the United States. The company has the capacity to grind 340,000 tpy of durum wheat and process 254,000 tpy of dry pasta.

Significant Canola Press Footprint—VT’s 1,000-tonne per day canola processing plant in Manitoba is one of the largest of its kind in the world. Product, consisting of meal and oil, is distributed primarily to Canadian and US markets.

Australia—In conjunction with the company’s recent ABB acquisition, VT became Australia’s largest malt processor with 500,000 tpy of capacity spread across eight plants (see Exhibit 10). With 80.0% of its production destined for export, VT consumes 600,000 tonnes, or 25.0%, of Australia’s malt barley crop on an annual basis. The company is constructing a malt processing and container packaging facility in Minto, New South Wales which will add 110,000 tpy of malting capacity and 147,000 tpy of grain handling.

Exhibit 9: VT’s North American Processing Facilities Exhibit 10: Australian Barley Growing Regions & VT’s facilities

Viterra’s malting facilities

Canola Processing Feed Producs Malt Oat & Specialty Grain Milling Pasta Processing

Source: ABARE, Viterra Inc., Raymond James Ltd.



Feed Products

VT’s processing business is also engaged in the manufacturing and distribution of feed products and related commodity ingredients. The company sells to a diverse range of dairy, beef, and poultry livestock producers through operations strategically located in North America and New Zealand.

North America— Manufacturing is carried out in 14 facilities throughout Canada and the US, with a combined operating capacity of nearly 2.5 mln tpy (see Exhibit 9 above). In the United States it operates through a wholly-owned subsidiary Unifeed Hi-Pro Inc (‘Hi-Pro’).

New Zealand—VT is the largest feed manufacturer in New Zealand, operating a network of maize processing, feed milling, dairy blending and storage facilities with capacity to produce 330,000 tpy of feed. With New Zealand a net feed importer, VT supplies additional product through its international network and provides ~46.0% of the country’s feed requirements.



Company History

Viterra was established in 1924 as the Saskatchewan Wheat Pool (‘SWP’) co-operative. The company first began trading publicly under the symbol ‘SWP’ following an IPO in 1996 on the Toronto Stock Exchange. In 2007, the Saskatchewan Wheat Pool acquired Agricore United and changed its name to Viterra Inc.

In September 2009, VT completed the acquisition of Australian ABB Grain Ltd. for an implied enterprise value of AUD$2.1 bln, significantly expanding its global reach and providing access to year-round supply (see Exhibit 11). Along with Canada and China, Australia is one of the top grain producing countries in the world. More recently, VT completed the acquisition of Dakota Growers Pasta Company (North America’s leading producer of dry pasta products) and 21st Century Grain Processing (US-based processor of oats, wheat and custom coated grains) in May and August of 2010, respectively. Exhibit 11: VT’s Historical Timeline as a Public Company

D

I

= Domestic

Renamed Viterra

2007 2008 2009 2010 2011

Acquired Agricore United

C$1.9 billion(Jun. 07)

Acquired ABB Grain

AUD$2.1 billion(Sept. 09)

Acquired Lakeside Fertilizer

N.A.(Sept. 09)

Acquired V-S Feed & Agri

SuppliesN.A.

(Apr. 08)

Acquired Dakota Gowers Pasta

CompanyUS$218.2 mln

(May. 10)

Acquired 21st Grain Processing

US$90.5 mln(Aug. 10)

1996

Listed on the TSX

(1996)

Acquired Associated

Proteins L.P. C$64 mln(Jun. 09)

2005

Added to S&P/TSX Index

(2005)

Raised $920 mlnthrough four subscription

receipt offerings(2007)

Raised $460.5 mln through common sharea and over-allotment options

(May 2008)

E = Equity

Raised $450 mln through subscription receipt offering to help fund ABB acquisition

(May 2009)

= International

Note: Transaction sizes are implied enterprise values (EV).

Source: Viterra Inc., Capital IQ, Raymond James Ltd.



Management Team

Viterra’s senior management team is comprised of executives with extensive agri-business backgrounds, most notably on the grain handling side.

Mayo Schmidt, President & CEO—Mayo Schmidt first joined the SWP in 2000 as CEO, adding the role of President in 2005. Mr. Schmidt continued in these roles following the organization’s 2007 transition into today’s VT. A winner of numerous leadership and executive awards, Mr. Schmidt’s pre-Viterra experience includes leading the reorganization of ConAgra’s Global Specialty Crops businesses, leading that company’s expansion into Canada, as well as holding a number of key management positions at General Mills. He is a member of the C.D. Howe Institute, a contributor to Harvard University’s Private and Public, Scientific, Academic and Consumer Food Policy Group (PAPSAC), and Vice Chair of The Conference Board of Canada, a leading public policy and economic research institute. Finally, Mr. Schmidt’s impressive portfolio includes serving as an Executive in Residence at Washburn’s School of Business, serving as a member of the Canadian Council of Chief Executives, and a Director at the Global Transportation Hub Authority.

Rex McLennan, CFO—Rex McLennan joined the VT executive team in February 2008 after completing a two year mandate as Executive Vice-President and CFO of the Vancouver 2010 Olympic Organizing Committee. Previously, Mr. McLennan contributed to the successful growth of Placer Dome Inc., a major global mining company where he held the position of Executive Vice-President and CFO from 1997 to 2005 following prior VP, Treasurer, and General Manager roles. Mr. McLennan’s roots are in the energy business, starting out with a 12 year career at Imperial Oil Limited, a major publicly traded affiliate of Exxon-Mobil Corporation. His education includes an MBA in Finance and Accounting from McGill University in Montreal and a Bachelor of Science Degree in Mathematics and Economics from the University of British Columbia. He is also a member of the Financial Executives Institute.

Fran Malecha, COO—Mr. Malecha first joined Viterra (as SWP) as Vice-President of Grain Merchandising and Transportation in 2000. He was appointed COO in 2007, charged with overseeing the company’s Grain, Agri-Products, International Grain, and South East Asia operations. With deep experience in the Ag business sector, Mr. Malecha serves as a Director for Canadian Fertilizers Ltd., as well as being a member of Crop Life Canada and an Executive Committee member of the Western Grain Elevators Association. Prior to joining VT, Mr. Malecha worked in the grain division of General Mills.

Rob Gordon, Senior VP and President South East Asia—Rob Gordon joined Viterra in January 2010 following a successful career at Dairy Farmers Ltd. Mr. Gordon led the Australian company’s transformation from a farmer owned co-operative to publicly traded corporation. Prior to that, he was a Managing Director for Goodman Fielder Consumer Foods Pty Ltd. His experience also includes multinational consumer goods company Unilever, where he held various positions across Europe and Australia. On the education side, Mr. Gordon holds a Bachelor of Science, Honours in engineering from the University of Portsmouth, UK.




Viterra shares have traded on the Toronto Stock Exchange (TSX) under the symbol “VT” since 2007. Prior to that, Saskatchewan Wheat Pool was a publicly traded company since 1996 under the symbol “SWP”. VT has been dual-listed on the Australian Stock Exchange (ASX) under the symbol “VTA” through a Depository Interest structure since September 2009. Its TSX-listed shares are substantially more liquid, with a three-month average daily trading volume of 1.15 mln shares versus 20,000 on the ASX.

There are approximately 371.7 mln shares outstanding (as of March 7, 2011) of which 0.46% are owned by insiders. VT’s shareholder base is split 34.2% / 65.3% amongst institutions and retail investors (see Exhibit 12). We note the Alberta Investment Management Corp. (AIMCO) is the second largest single shareholder with a 17.1% stake. The top five holders own 30.3% of VT’s outstanding shares.

VT currently pays a semi-annual dividend of C$0.10 equating to an annual yield of approximately 1.0%. This dividend was recently commenced on December 1, 2010 with the first payment on February 10, 2011 to holders of record on January 20, 2011. Exhibit 12: Shareholder Summary (as of March 7, 2011)

Shares Held / Controlled % O.S. Management. Directors and Other Insiders

Mayo Schmidt 414,455 0.11%Thomas Birks 150,000 0.04%M.F. (Max) Venning 139,679 0.04%Herbert C. Pinder Jr. 138,333 0.04%Timothy Hearn 80,000 0.02%

Top Management & Insiders 922,467 0.25%Total Management & Insiders 1,698,892 0.46%

Corporations / InstitutionsAlberta Investment Management Corp. 63,454,500 17.07%Third Avenue Management 15,959,451 4.29%Global Thematic Partners 12,212,591 3.29%CI Investments Inc 12,118,470 3.26%ProFund Advisors LLC 8,753,160 2.35%



Shareholder Summary

Other65.3%

Insiders0.5% Corporation/

Institutions34.2%

Source: Viterra Inc., Capital IQ, Thomson, Bloomberg, Raymond James Ltd.



Industry Analysis

As reviewed in our Apr-27-2011 Industry Report Clash of the Titans: Food vs. Feed vs. Fuel, we believe the long-term outlook for global food and grain demand remains robust, particularly in emerging markets where population growth and rising disposable incomes are fuelling a seismic shift in dietary patterns towards higher quality, nutritious food. However, given that many of these regions have inadequate available domestic grain supplies, we believe they will increasingly rely on imports to satisfy demand. The corollary, in our view, is that international grain handlers with global sourcing capabilities will become increasingly vital to food security over time. In order to help investors better understand the industries within which Viterra operates, below we outline several industry attributes and sector trends that help support our broader investment thesis.

1. Canadian Crop Mix: The Rise of Pulses, Oilseeds and Specialty Crops

Western Canadian grain production, while obviously subject to seasonal variations, has been generally mean reverting (i.e. stable) over the past eight years, averaging 46.6 mln tonnes per year (see Exhibit 13). At the same time, the relative mix of products has been shifting with a strong upward trend in the production of pulses, oilseeds and specialty crops as farmers look to maximize their profit per acre and total return on investment (see Exhibit 14). Canola’s share of major grains production, for example, soared from 14.0% in 2003/04 to an estimated 25.0% in the 2010/11 crop year. Specialty crops, as a whole, experienced CAGR of 3.4% in Canada between 1999 and 2009. In the average year, approximately 65.0% of the total crop output moves through the Canadian elevator system, generating revenue opportunities for Canada’s largest grain handlers. Viterra has evolved with these crop trends, recently equipping its elevator system to adapt with this change in mix and cater to those crops with strong export markets. Exhibit 13: Western Canadian 6 Major Grains Production Exhibit 14: Western Canadian Production by Crop

10

20

30

40

50

60

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

6 G

rain

s P

rod

uc

tio

n (

mln

to

nn

es

)

5

10

15

20

25

30

99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11f

Mill

ion

To

nn

es

All Wheat Coarse Grain Oilseeds Special Crops

Source: Stats Canada, Canadian Grain Commission, Raymond James Ltd.



2. Grain Handling Consolidation—A Handful of Large Incumbents

Consolidation has become a prominent theme in the Canadian and Australian grain handling sectors over the past decade. As a result, both regions are now dominated by a handful of large incumbents at the expense of many smaller regional players. VT has been an active participant in this consolidation, both domestically and abroad, evidenced by its 2006 acquisition of Agricore in Canada and its 2009 acquisition of ABB in Australia.

Canada: Concentrated Storage Infrastructure & Market Share—Canadian grain handling infrastructure and primary grain market positions have become very concentrated as a result of the aforementioned consolidation trend. According to industry data, the top three industry competitors now control ~60.0% of Canada’s storage capacity (see Exhibit 15). When measured by the total amount of grain receipts captured, the same top three players capture a ~81.0% market share (see Exhibit 16). Looking forward, we expect further consolidation as smaller industry players face rising capital costs.

Exhibit 15: Market Share by Number of Elevators Exhibit 16: Primary Market Share by Grain Receipts

Viterra30%

JRI17%

Cargill13%

Other40%

45%

23%

13%

19%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Viterra JRI Cargill Other

Mar

ket

Sh

are

(Gra

in, b

y re

ceip

ts)

Source: Canadian Grain Commission, Viterra Inc., Raymond James Ltd.

Australia: A Mirror of Canada’s Industry Concentration—Deregulation of the

Australian agricultural landscape has led to consolidation and increased concentration. Three grain companies, made up of Viterra, GrainCorp, and CBH Group, dominate the Australian market with GrainCorp in the east and CBH in the west. VT is the only player in Australia that operates in the grain handling and marketing, agri-products and processing segments, while GrainCorp and CBH focus only on handling and processing (see Exhibit 17).



Exhibit 17: Australian Competitive Landscape

Viterra dominates in South Australia ►95% of all storage and handling systems ►100% of grain port terminals

Grain Corp is prominent in eastern part of Australia ► Owns 100% of port terminals in NSW and Queensland ► Has majority stake in port terminals in Victoria

CBH is a leader in Western Australia ► Owns 100% of port terminals in the region

Storage & Handling Merchandising Agri-products Processing

Viterra

GrainCorp

CBH Group

AWB / Agrium

Elders

Cargill


3. Regulation: Canada vs. Australia

Regional mix is a potential profit driver for VT given the significant regulatory differences that exist between their dual-origination sources: Canada and Australia. Furthermore, margins within Canada vary based on the mix between regulated and higher-margin unregulated grains. In recent years, the company has increased unregulated grains to ~50.0% as a proportion of its total Canadian mix. Australian operations are typically higher margin, due to the deregulated nature of the market and VT’s ability to leverage its infrastructure.

Canada—The Canadian Wheat Board (CWB) has a monopoly over the domestic sale and export trade of western Canadian wheat for human consumption and barley for malting. Agents facilitating trade in these “Board Grains”, such as VT, receive fairly predictable margins based on a per-tonne fee paid by the CWB that strips out any commodity and currency risk. Furthermore, the CWB arranges for the flow of these grains into the elevator system, transacts the sale, and pays for all shipping costs, though only once the product has been unloaded at the port terminal or at a North American end-user facility. Board grains currently make up ~50.0% of VT’s total grain handling volume. Non-board grains, such as canola, oats, flax, and peas, make up the remaining balance. Profit potential on non-board grains is higher for VT given that it is able to generate margin at each point of the value chain, aided by its ability to maintain total control over logistics. Furthermore, VT’s network of high-capacity terminals allows it to transport +80.0% of volumes on 50-car and 100-car trains in order to maximize railway incentives.



Australia—The Australian market operated a single-desk system, much like Canada’s CWB, until deregulation in 2008. Today, licensed exporters complying with the Wheat Export Marketing Act are given the opportunity to compete for rights to market grains that flow into the storage and handling system. As a result, while the vast majority of South Australia’s crop enters VT’s storage system, it only markets ~33.0% of the product. However the company does market a significant amount of grain originated from other parts of Australia, making up ~74.0% of total merchandised volumes originated in 2010. The level of marketing it engages in is determined by the firm’s appetite to take on risk in the form of exposure to commodity pricing. VT assumes a pricing structure competitive with provinces throughout Australia to ensure any product it does not market is picked up by other firms.

Deregulation in Canada would, potentially, be a positive development for VT. Specifically, VT would have the potential to capture higher margins by controlling the entire supply chain. In our view, however, deregulation in Canada remains unlikely as all three opposition political parties have indicated support for the current single-desk system. As well, eight of the CWB’s ten farmer directors are supporters of the single-desk system, making change from within equally unlikely. Regardless, we note that the current system does bode well for increases in VT’s market share within Canada, given the firm’s unparalleled ability to handle long trains and the fact that allocation of non-tendered grains are weighted by the CWB to favour the largest handlers.

4. Australian Barley—Helping Satisfy Growing Beer Demand in Asia

VT has grown to become the largest maltster in Australia, with ~80.0% of its malted barley destined for export, in large part to Asia. According to CWB estimates, Australia accounts for 31.0% of 2010-11 world malt barley exports (see Exhibit 18). The malting business represents a growth driver for VT given that barley is Australia’s second largest crop (10-yr avg production of ~7.4 mln tonnes) and its close proximity to the burgeoning Asian market. Specifically, the Asian beer market is expected to grow at ~5.0% annually, reaching 38.0% of total global consumption by 2015, according to the Canadian Global Beer Trends Report. A significant portion of malted barley supply for this beer is estimated to come from Australia. This Asian demand is most significantly driven by China, which imports ~65.0% of its annual 3+ mln tonnes in malted barley needs. Finally, VT’s position in the state of South and West Australia is ideal, given that these are two largest producing regions of barley (see Exhibit 19) in the country. VT sources ~75.0% of its barley volume from South Australia and West Australia.

Exhibit 18: World Malt Barley Exporters Exhibit 19: Australian Barley Production

2

4

6

8

10

12

14

1999-00 2001-02 2003-04 2005-06 2007-08 2009-10

Au

stra

lian

Bar

ley

Pro

du

ctio

n (

Mill

ion

to

nn

es)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%S

.A +

W. A

us

tra

lia a

s %

of a

ll p

rod

uct

ion

Total SA + W. Australia as % of all AUSOther 4% Argentina

25%

Australia31%

Canada16%

EU24%

Source: CWB,Viterra Inc., Raymond James Ltd.



Company Strategy

VT has undergone a transformational change over the past decade, executing on its vision of becoming a leading global agri-business enterprise. Key components of this strategy include management’s desire to: (i) reduce weather (i.e. crop) related risk by diversifying its geographic origination; (ii) increase vertical integration and exposure to value-added food processing; (iii) leverage its existing assets, and (iv) increase its retail store footprint. All of these activities are designed to smooth earnings and de-risk VT’s business from factors such as weather and commodity prices.

Geographic Diversification—VT’s acquisition of Australia-based ABB Inc. in Sep- 2009 was a transformational deal that helped the firm balance its sourcing capabilities, mitigate weather-related risk, and reduce earnings volatility. While the Australian market carries its own unique crop related risks, the ABB transaction provided Viterra with a dominant footprint in a region responsible for generating ~16.0% of global wheat, barley, and canola exports. A complimentary harvesting schedule also extended the company’s ability to source grain throughout the year (see Exhibit 20). Finally, ABB also came with a world-leading malting business and greater access to Asian markets. We believe these attributes, coupled with the firm’s strategy to diversify its product offering, will continue to reduce the company’s risk profile and smooth out earnings.

Exhibit 20: Crop Life Cycle Schedule by Region

Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecCanada

Winter wheat

Spring wheat

Barley

Australia

Wheat Harvest

Barley Harvest

Harvest Planting

Harvest

Harvest

Planting

Planting

Planting

Planting Harvest

Harvest


Looking forward, the obvious geographic gap in Viterra’s origination capabilities is the Black Sea. Notwithstanding the obvious geopolitical risk prevalent in the region, we believe strong production fundamentals and close proximity to key buying regions such as the Africa and the Middle East present attractive long-term growth opportunities. Eastern European net exports are forecast to grow by over 30.0% over the next 10 years (versus only 3.0% in N.A.), providing a valuable source of origination and diversification for VT (see Exhibits 21 and 22). We would not, however, expect any short-term developments until export quotas and bans currently in place in the Ukraine and Russia are lifted, providing some degree of geopolitical certainty.



Exhibit 21: Russian Wheat Production/Use Exhibit 22: Ukranian Wheat Production/Use

10

20

30

40

50

60

70

80

2009-10 2011-12 2013-14 2015-16 2017-18 2019-20

Mil

lio

n T

on

nes

Domestic Supply Domestic Use Exports

5

10

15

20

25

30

2009-10 2011-12 2013-14 2015-16 2017-18 2019-20

Mil

lio

n T

on

nes

Domestic Supply Domestic Use Exports

Source: The Food and Agricultural Policy Research Institute (FAPRI), Raymond James Ltd. Growth in Value-added Food Processing—VT has strategically identified its

processing business for growth in an effort to extract higher, value-added margins and further diversify the company’s exposure in order to reduce commodity pricing and weather related risk. The company’s exposure to value-added food processing was increased substantially in 2010 through the acquisitions of both Dakota Growers and 21st Century Grain Processing within a 4-month period. Dakota Growers provided VT with its first exposure to dry pasta and in one fell swoop made it the third largest producer and marketer in North America. 21st Century, a US-based processor of oats, wheat and custom-coated grains, was added to VT’s existing oat business to help it become the world’s largest industrial oat miller. VT is able to use its expertise and market position in grains, the feedstock for food processing, to extract additional margins from these businesses and build competitive advantages. Value-added food processing businesses such as these are forecasted to continue experiencing strong growth, regardless of the economic environment, as they take advantage of sustainable consumer demand for economical and nutritious food products. In addition to the United States, we expect VT to continue growing its food processing exposure in China, where it recently took a 49.0% position within a canola crushing facility expected to be completed in the second half of F2011.

Leveraging Existing Assets—VT is working to grow earnings over its existing global assets by pushing through greater volumes of product and extracting incremental increases in returns. Operating costs can be improved by optimizing the use of transportation and logistics assets including port and grain terminals. This further bolsters VT’s impressive ability to capture margins at each stage of the value chain, from the point of origination at the farmer through to the end product destination (see Exhibit 23). Information is gathered at both ends of the supply chain and coordinated through the International Grain Group to maximize value by taking advantage of grain origination, movement opportunities, and throughput to end customers.



Exhibit 23: Example of the VT’s Supply Chain & Margin Creation

Domestic Logistics

DomesticGrains Group

InternationalGrains Group

InternationalLogistics

SUPPLY DEMAND

COMMODITY FLOW

Origination -- Logistics -- Export

+$23/t Margin

-$400/t Cost

Vessel Logistics -- Sales

-$60/t Cost +$10/t Margin

+$470/t Sale

Total Pipeline Margin = $33/t

INFORMATION FLOW

Source: Viterra Inc., Raymond James Ltd. Expand Retail Footprint—VT aims to increase its current ~34.0% western Canada

agri-products market share to 40.0% by expanding its 261 store network and increasing same-store sales. Location growth will be achieved through a mix of acquisitions and new-store builds. Same-store sales growth is to be achieved through expansion of value-added services offered to farmers as well as expansion of its higher-margin proprietary and exclusive product lines. Leveraging its buying power and achieving operational efficiencies should, in our view, help to boost profitability. Finally, we note that management has indicated the desire to expand into new agri-product markets, though details remain vague at this point.

Progress to Date—VT has made considerable strides towards diversifying and de-risking its business. Since 2008, the firm has grown the processing segment from 9.0% of its overall EBITDA to 21.0% today. Plans call for the agri-products and processing segments to respectively make up 30.0% and 35.0% of the overall business in the future (see Exhibit 24). Increasing origination capabilities in the Grain Handling segment, set to become only ~35.0% of the overall business, would also serve to reduce earnings volatility. Exhibit 24: VT’s Proportion of Overall EBITDA by Business Segment

Agri-products30%

Processing35%

Grain 35%

Grain 58%

Processing21%

Agri-products21%

TODAY FUTURE

Source: Viterra Inc., FAPRI, Raymond James Ltd.



Key Profit Drivers

The economics of Viterra’s diversified business model are predicated upon a wide range of key agribusiness factors. In order to help investors understand these key profit drivers, we provide a brief summary below by business segment.

1. Grain Handling and Marketing

Primary Volumes—VT’s Grain Handling segment employs a high-fixed cost infrastructure relying heavily on volume throughput to drive attractive economics. In other words, higher throughput drives down the cost per tonne of grain handled. Higher volumes also allow VT to extract greater logistics concessions from key railroad customers. Seeded acres, weather, yield, crop output, and in-storage carryover volumes are critical crop variables that tend to influence the volumes moving through Viterra’s primary grain handling infrastructure. We also highlight the company’s market share tends to be a function of price and service (i.e. efficiency).

Revenue Sensitivity 1.0% change in revenue has a $2.0-$4.0 mln EBITDA impact

Key Indicators Seeded Acres, Crop Output, Carryover Volumes, Market Share

Volume Sensitivity 5.0% change in volume has a $15.0-$18.0 mln EBITDA impact

Export (Terminal) Volumes—The quantity of volumes destined for export helps drive margins by increasing throughput at VT’s downstream port terminals and export-accredited inland terminals. In a perfect world, VT would like to control the commodity from the point of origination, through its port terminals, and all the way to the final destination. This control helps optimize asset utilization and maximize margins. Commodity prices, global demand, and crop quality (international buyers typically only accept high-quality product) are key determinants of export quantities.

Global Demand

Crop Quality (i.e. weather, pest/disease, etc.)

Key Indicators Commodity Prices

Regulated vs. Non-Regulated—Canadian margins are heavily dependent upon the mix of regulated vs. non-regulated grains. The Canadian Wheat Board (CWB) holds a monopoly over all domestic wheat and food grade barley sales (“regulated grains”). Under this system, the CWB is responsible for determining the quantity, timing and price for the grains handled. Non-regulated grains (canola, oats, peas, etc) offer VT better margin potential since it controls the entire process and is able to play the margin spread. In recent years the company has improved the portion of non-regulated grains it handles, with the current mix at 50/50. Australian operations are typically higher margin, largely because the deregulated market, scarce on farm storage and high percentage of exports allows VT to fully leverage its infrastructure.

Gross Margin Sensitivity 1.0% change in revenue has a $14.0-$18.0 mln EBITDA impact

Merchandising Opportunities; International Grain Group—VT’s International Grain Group consolidates and centralizes its grain and oilseed merchandising operations. Specifically, the group coordinates and handles origination of non-regulated VT product and placement with offshore customers. Leveraging VT’s unparalleled global market access and intelligence, supply-demand information, and strong customer relationships, the group is able to maximize margins through the supply chain between origination and destination. In addition, it is able to move quickly to



take advantage of arbitrage opportunities that arise globally and source from non-VT providers for sale into high-priced markets. Earnings produced by this group are driven by the proportion of non-regulated grains as a part of VT’s overall mix, as well as global crop supply/demand fundamentals.

Key Indicators VT % Non-Regulated Grains, Global S-D (price, crop size, quality)

2. Agri-Products

VT’s Agri-product segment sales are seasonal in nature and tend to follow the Canadian crop life cycle. As a general rule, ~60.0% of all Agri-product sales occur during the third quarter when farmers actively purchase their key crop inputs, seed, fertilizer, and crop protection products. Key factors affecting the volume of sales and their respective margins include:

Seeded Acres—The number of acres available for seeding largely dictates demand for key crop inputs. In western Canada, seeded acres of the six major grains have averaged ~53.0 mln over the last two decades. Predictability is fairly good as the variance during this same period has been minimal, with a low of ~47.0 mln acres and a high of ~55.6 mln acres.

Weather—Weather impacts the amount key crop inputs that are required on a per-acre basis. For example, higher soil moisture levels require the application of more fertilizer per acre. Conversely, if moisture is too excessive, larger swaths of land may remain unseeded as was the case in the 2010 Canadian planting season.

Crop Mix—Crop input requirements vary based on the type of crop. Therefore, crop mix across the seeded acreage provides variability in demand for crop inputs. Canola, for example, requires an average of ~$90-120 in crop inputs per seeded acre versus pulses at ~$60-70 (see Exhibit 25).

Commodity Prices—Higher commodity prices tend to incentivize farmers to maximize the number of acres they successfully seed in order to increase output as well as taking steps to boost crop quality. This is, in most cases, reflected in relatively higher levels of agri-products purchases as farmers invest more in crop protection and fertilizer. Ancillary commodity prices can also be important profit drivers for VT. For instance, natural gas prices correlate to fertilizer pricing and margins. VT also tends to act opportunistically, accumulating third party fertilizer when prices are low in order to sell through its extensive distribution channel during peak pricing.

Exhibit 25: Average Crop Input Cost in Canada ( $ per acre)

Barley

Pulses

Wheat

Canola

55-80

70-95

90-120

60-70




3. Processing

Macro factors such as population growth, food supply/demand dynamics, and nutritional trends are underlying drivers for the food and feed processing businesses. Please refer to our macro section for more details on some of these drivers.

Food—VT’s food businesses are driven by consumer demand for high nutrition whole grains (oat business), cooking oils low in saturated fat (canola business), and demand for beer particularly in Asia (malt business). The level of margin that is generated by VT is also driven by its access to high quality, low cost feedstock through its grain network. Crop cost and quality affect the yield and therefore the profitability of the business. This is particularly true in the oat business where over 1.5 tonnes of raw material are required to produce one tonne of consumable oat.

Feed—Volume is the single most important driver for feed, driven by human consumption of animal meat and dairy products. VT’s feed products are sold domestically and therefore domestic demand drivers within N.A., Australia, and New Zealand including herd sizes, livestock prices, and dairy prices are most important. In Canada, we note that growth in the dairy market and related feed are stabilized through quotas. In addition to volume, feed margins are also impacted by the proportion of higher value; higher nutrition feed products sold versus commoditized mixes.



Regional Outlooks

Below we provide the forward outlook for key metrics relating to both Canada and Australia’s grain handling industry, given VT’s prominence within both regions (see Exhibits 26 and 27).

Exhibit 26: Canadian Grain Outlook

Canada : Grain Handling

2010/2011

► Harvest Status: * 2010 harvest complete by end of November (LATE)

► Production: * 45.0 mln tonnes; below 10 yr average of 49.0 mln tonnes

► CGC Receipts: * F11 Receipts (from '10 Harvest) estimated @ 31.0 mln tonnes (vs. 32.0 typical)

► CWB Exports: * Export Targets set @ 17.4 mln tonnes; 1.0 mln tonnes lower than previous year.* Wheat exports target set @ 11.8 mln tonnes (17.6 mln previous year), barley exports targeted @ 1.5 mln tonnes (1.3 mln previous year)

► Crop Quality: * Crop quality suffered from late harvest (frost) & excessive moisture.* Only 29.0% of crop in top two grades, vs. 79% typical

2011/2012E

► Seeded Area: * Forecasted @ 23.0 mln hectares or 56.8 mln acres (6 major grains)

Grain Handling and Marketing Outlook

CGC Receipts

Six Major Grains Forecasted Production

CWB Exports of Wheat and Barley

Historical Seeded Area (Wheat, Barley, Canola)

5

10

15

20

25

30

35

40

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11F

Mill

iion

ton

nes

t

Seven year average receivals ~ 32.0 mln

2

4

6

8

10

12

2006-07 2007-08 2008-09 2009-10 2010-11 f 2011-12 f

See

ded

area

(m

illio

n h

a)

Wheat Canola Barley

Top 3 grains had lower seeded area in 2010 compared to its historical levels

10

20

30

40

50

60

70

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11f 2011-12f

Mill

ion

tonn

es

Wheat Barley Canola Oats Flax Peas

5

10

15

20

25

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11f

Mill

ion

ton

nes

Wheat Barley

Source: Stats Canada, CGS, CWB, Viterra Inc., Raymond James Ltd.



Exhibit 27: Australian Grain Outlook

Australia : Grain Handling

2010/2011

► Seeded Area: * 23.4 mln hectares

► Harvest Status: * 95% complete as of end of January 2011

► Production All Australia: * As of February 2011 ABARES forecast is 42.1 mln tonnes, a 19% YoY increase

► Production South Australia: * Estimated production @ 9.7 mln tonnes, above the 5 yr avg of 5.2 mln tonnes

► Receivals: * Estimated 8.5-9.0 mln tonnes

► Crop Quality: * Most wheat classified as ASW or lower due to rain/disease; majority of barley crop downgraded to feed

► Carry Out Stock: * Estimated @ 1.2 mln tonnes from the recent harvest (2010-11), will complement S.A. production volume.

2011/2012E

► Production All Australia: * ABARE estimate of ~8% y/y decline to 38.7 mln tonnes

► Production South Australia: * Estimated at 9.0 mln tonnes based on ABARES forecast of ~8% y/y decline in national crop production

Major Grain Growing Regions

Australian Wheat Production Forecast by State Australian Wheat Output and Exports Forecast

Australian Barley Production Forecast Forecasted Values of Australia's Farm Commodity Exports (Nominal)

2

4

6

8

10

12

Western Aus. NSW South Aus. Victoria Queensland Tasmania

Pro

du

ctio

n

by

Sta

te (

Mil

lion

to

nn

es)

2008-09 2009-10s 2010-11f 5 yr avg

South Australia is the 3rd largest wheat producing state

5

10

15

20

25

30

2008-09 2009-10 2010-11f 2011-12f 2012-13f 2013-14f 2014-15f 2015-16f

Wh

eat

Ou

tpu

t &

Exp

ort

s (M

illio

n t

on

nes

)

Production Export volume

10

20

30

40

2008-09 2009-10 2010-11f 2011-12f 2012-13f 2013-14f 2014-15f 2015-16f

Far

m E

xpo

rts

(AU

D$

bn

no

min

al)

2

4

6

8

10

12

14

2008-09 2009-10 2010-11f 2011-12f 2012-13f 2013-14f 2014-15f 2015-16f

Bar

ley

& C

ano

la P

rod

uc

tio

n (

Mil

lio

n t

on

ne

s) Barley Canola

Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Viterra Inc., Raymond James Ltd.




Revenue and Earnings Profile

Viterra boasts an attractive long-term growth profile, in our view, underpinned by a healthy combination of organic and acquisitive growth. In F2011, consolidated sales and EBITDA are expected to be particularly robust—arguably above normalized levels—on account of a blockbuster Australian grain harvest, robust fertilizer pricing, and strong contributions from the firm’s pasta and oats processing businesses. To wit, we forecast F2011 consolidated EBITDA of $727.7 mln and EBITDA margin of 7.5%, up by 40.6% and 1.3% respectively on a y/y basis. However, given our expectation for a return to more normalized Australian and Canadian crop levels in F2012, we forecast a modest y/y EBITDA decline of -3.7% to $700.7 mln, with VT’s Processing business helping provide some offset (see Exhibit 28 and 29).

Consistent with this view, we expect VT to deliver strong EPS growth in F2011 to $0.85 followed by a decline in F2012 to $0.77. We highlight that all of our forecasts exclude the possible contribution of future acquisitions. Exhibit 28: VT Segmented EBITDA Exhibit 29: VT Consolidated EBITDA & Margin

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2008 2009 2010 2011E 2012E

Se

gm

en

ted

EB

ITD

A (

C$

00

0's

)

ProcessingAgri-ProductsGrain Handling & Marketing

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2008 2009 2010 2011E 2012E

ET

BID

A (

C$

00

0's

)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

EB

ITD

A M

arg

in (

%)

EBITDA EBITDA Margin (%)


Below we provide a more detailed account of our expectations on a segmented basis. 3. Grain Handling and Marketing

We forecast F2011 Grain Handling EBITDA to advance 28.1% y/y to $494.5 mln. Throughout our forecast horizon, we anticipate the Grain Handling business to become a smaller piece of VT’s consolidated EBITDA, moving from 75.0% in 2010 to 66.0% in F2012 (see Exhibit 30).

Australia to Drive Strong 2011 Volumes; Offset Lackluster Canada—Western Canadian production of the 6-major grains during the 2010/2011 crop season was down an estimated 10.7% y/y to 45.0 mln tonnes, reflective of a brutally wet spring last year that forced 1.0 mln acres to go unseeded compared to the prior year. Commensurate with this decline, industry receipts are estimated to contract -8.4% y/y, reaching 31.0 mln tonnes. South Australian production, by contrast, is estimated at a record 9.8 mln tonnes during the 2010-11 crop year, up 38.0% yoy,



thanks to ideal growing conditions in the southern state. Between these two regions, we expect Viterra shipments to increase 2.8% y/y.

Margins Also Robust—We forecast F2011 global pipeline margins at $33.91 per tonne, up 3.4% yoy, and consistent with management’s current guidance of $33 - $36 per tonne. Strong volumes moving out of South Australia, robust Canadian exports, and healthy contributions from the recently formed International Grain Group are key factors that support this outlook. We highlight that this forecast may prove too conservative, given the +23.0% y/y margin lift recently experienced during 1Q11.

We forecast F2012 Grain Handling EBITDA at $456.4 mln, down -7.7% y/y.

2012 Volumes Seen Lower on Aussie Crop Normalization—Seeded acres in western Canada for the 2011/2012 crop season are currently estimated at 56.0 to 57.0 mln acres, down slightly vs. last year, and roughly 5.5% below the 60.0 mln acre 10-year average. That being said, expectations for an improvement in y/y crop quality should, in our view, more than offset this decline. Consistent with this, we forecast Canadian production at 48.0 mln tonnes, up 6.7% y/y. In South Australia, crop expectations remain high for the second consecutive year, although production is expected to fall. Consistent with this outlook, we forecast production of 8.5 mln tonnes, or a 13.3% y/y decline, which we note is conservative versus the current ABARES estimate of 9.0 mln tonnes. We note this will likely be supplemented by healthy carryover volumes in the range of 2.5 to 3.0 mln tonnes following the record harvest this year. Taken together, we expect total Viterra shipments to post a slight -0.1% y/y decline.

Healthy Margins—Global pipeline margins are expected to moderate to $34.5 per tonne in F2012 on account of lower volumes coupled with quality improvement and expectations for reduced volatility in the global grains environment. One risk to margins, in our view, could be the re-entry of grain-giants such as Russia back into the global supply chain from their current self-imposed export bans.

Exhibit 30: Grain Handling Outlook

CDN$ mlns 2010 2011E 2012E 2011E▲ 2012E▲

WESTERN CANADA COMMENTARY► Production (6 major grains, 000s) 50,398 45,000 48,000 -10.7% 6.7% о 45.0 mln & 48.0 mln estimates; both below 10-yr average of 49.0 mln.► Industry receipts 33,832 31,000 32,880 -8.4% 6.1% о 2011 receipts (from 2010 harvest) estimated @ 31.0 mln tonnes (vs. 32.0 typical).► Market share Canada (%) 45.2 45.3 45.5 0.3% 0.4% о Export targets set @ 17.4 mln tonnes, 1 mln lower than previous year.

SOUTH AUSTRALIA► Production 7,237 9,800 8,500 35.4% -13.3% о 2011 production of 9.8 mln tonnes is new record (previous @ 8.9 mln tonnes).► Shipments 6,246 8,820 7,735 41.2% -12.3% о Stong shipments for 2011, followed by some normalization in 2012.► Carryover volumes о Estimated 2.5-3.0 mln tonnes of carryover into 2011/2012 crop year.

VT TOTAL SHIPMENTSNorth America 15,834 13,886 14,960 -12.3% 7.7%Australia 6,246 8,820 7,735 41.2% -12.3%Total shipments 22,080 22,706 22,695 2.8% 0.0%

Margin per tonne shipped ($/tonne) $32.80 $33.91 $34.50 3.4% 1.7% о Strong 2011 margin/tonne in N.A. and Australia, followed by some normalization in 2012.




4. Agri-Products

We forecast Agri-Products EBITDA to advance to $215.6 mln followed by a decline to $203.3 mln respectively in F2011 and F2012, representing y/y growth of 40.2% and decline of -5.7% (see Exhibit 31).

Strong Fertilizer Demand & Pricing; Seed Demand Follows—North American farmer demand for fertilizer continues to be fuelled by lofty crop prices and the need to replenish soil nutrients following last year’s excessive moisture. Strong commensurate fertilizer prices coupled with persistently weak natural gas prices are expected to further stoke margins. We also highlight that strong canola prices are expected to bolster canola seeded acres in 2011, providing for strong fertilizer demand (canola requires high nutrient inputs) as well as commensurate strength in VT’s seed business. This is offset, in part, by expectations for a reduction in western Canadian seeded acreage in 2011 which, in our view, would reduce fertilizer and seeding volumes for F2012.

Wool—Strong wool prices, now at 30-year highs and driven by tight supply, are expected to continue moving forward reflecting growing international demand, particularly out of China and India. Specifically, ABARES estimates Australian wool pricing to grow at CAGR of 3.5% over the next five years. Despite expectations for a slip in wool production, ABARES still estimates healthy wool export growth. We expect revenues from VT’s wool business to continue growing through our forecast horizon.

Exhibit 31: Agri-Products Outlook CDN$ mlns 2010 2011E 2012E 2011E▲ 2012E▲

FERTILIZER DATA COMMENTARY► Fertilizer volume (tonnes) 1,750 1,958 1,860 11.9% -5.0% о Strong 2011 fertilizer demand: improved commodity prices & nutrient requirements.► Fertilizer price (per tonne) 452 481 475 6.4% -1.2% о Excess moisture drives increased prices & nutrient requirements.► Fertilizer margin ($ per tonne) 97 105 105 7.5% 0.3% о Normalization in fertilizer margins expected in 2012.

BUSINESS LINES ($)Fertilizer 791.1 941.4 883.5 19.0% -6.1% о 2011 production of 9.8 mln tonnes is new record (previous @ 8.9 mln tonnes)Crop protection 384.2 405.5 385.2 5.5% -5.0% о Stong shipments for 2011, followed by some normalization in 2012.Seed 207.4 218.3 207.4 5.2% -5.0% о Estimated 2.5-3.0 mln tonnes of carryover into 2011/2012 crop year.Wool 264.9 299.3 305.3 13.0% 2.0%Financial products 25.7 24.4 23.2 -5.0% -5.0%Equipment sales & other 123.2 124.1 117.9 0.7% -5.0%Total shipments 1,796.5 2,013.0 1,922.5 12.0% -4.5%


5. Processing (Food and Feed)

We forecast F2011 Processing EBITDA to advance to $147.6 mln and $176.0 mln respectively in F2011 and F2012, representing y/y growth of 41.5% and 19.3% (see Exhibit 32).

Strong Growth in Food Volumes—Food volumes are expected to show modest growth, supported by positive economic growth and strong global demand for whole grains. In North America, lingering economic challenges are expected to favour further consumer switching to private label cereals as well as pasta products, boding well for VT’s N.A. processing businesses. Though crush margins have been depressed due to industry overcapacity, recent improvements are expected to continue bolstered by demand for specialty, canola-based oils.

Near-term Malt Challenges; Positive Long-term Outlook—Challenges within the global malt business, primarily in association with slow N.A. and European beer sales, have created excess capacity, increased competition, and margin pressure. Management believes a recovery to pre-recession levels is a 2H11 or beyond event, followed by continued improvement in market fundamentals as capacity is used up driven by increased beer consumption in emerging markets.



Feed—The N.A. feed business is expected to remain challenged due to overcapacity, intense competition, and margin-compression for the short term. Long-term, gradual improvement in demand is expected to follow in step with improvements in milk prices, which has begun recently. Feed volumes in New Zealand are expected to grow due to improving milk prices driven by increased Southeast Asian demand for dried milk products. Margins are also expected to be bolstered by an ongoing shift from commodity feed products to higher-margin complex feed.

Exhibit 32: Processing Outlook

CDN$ mlns 2010 2011E 2012E 2011E▲ 2012E▲

FOOD VOLUME (TONNES) COMMENTARY► Malt 562 565 600 0.5% 6.2% о Market overcapacity result in tepid 2011 Y/Y vlm growth; 2012 driven by emerging markets.► Pasta 112 230 240 105.4% 4.3% о N.A. consumption of pasta expected to remain strong; economical & nutritious food.► Oats 257 415 415 61.5% 0.0% о Growth in oats driven by wholegrain demand.► Canola 229 190 210 -17.0% 10.5% о Improving crush margins expected to increase crushing volumes.

FEED VOLUME (TONNES)► N.A. 1,918 1,700 1,750 -11.4% 2.9% о Weakness in N.A. feed expected to continue, due to milk price weakness.► New Zealand 145 180 200 24.1% 11.1% о Growth driven by strong S.E. Asia milk prices and shift into complex feed products.

TOTAL PROCESSING VOLUMEFood (tonnes) 1,160 1,400 1,465 20.7% 4.6%Feed (tonnes) 2,063 1,880 1,950 -8.9% 3.7%Total processing volume 3,223 3,280 3,415 1.8% 4.1%


Exhibit 33: Consolidated VT Estimates

CDN$ mlns 2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11E 3Q11E 4Q11E 2011E 2012E

ConsolidatedRevenue $6,777.6 $6,631.7 $1,785.8 $2,048.1 $2,495.5 $1,926.9 $8,256.3 $2,470.5 $2,291.4 $2,895.9 $2,017.2 $9,675.0 $9,689.1EBITDA $532.6 $323.7 $89.8 $93.2 $196.6 $138.0 $517.6 $211.3 $144.9 $248.8 $122.8 $727.7 $700.7EPS $1.31 $0.45 $0.03 $0.05 $0.25 $0.14 $0.47 $0.27 $0.16 $0.34 $0.09 $0.85 $0.77

EBITDA Margin (%) 7.9 4.9 5.0 4.6 7.9 7.2 6.3 8.6 6.3 8.6 6.1 7.5 7.2

Grain Handling & MarketingRevenue $4,299.5 $4,176.8 $1,341.0 $1,424.2 $1,470.0 $1,421.0 $5,651.4 $1,942.6 $1,599.2 $1,801.7 $1,482.0 $6,825.5 $6,808.6EBITDA $299.3 $247.9 $109.7 $73.6 $100.9 $102.0 $386.1 $197.8 $90.8 $119.8 $86.2 $494.5 $456.4EBITDA Margin (%) 7.0 5.9 8.2 5.2 6.9 7.2 6.8 10.2 5.7 6.6 5.8 7.2 6.7

Agri-ProductsRevenue $1,686.3 $1,649.9 $215.3 $440.3 $818.9 $325.1 $1,799.5 $292.6 $484.6 $908.4 $327.4 $2,013.0 $1,922.5EBITDA $276.9 $132.3 -$11.9 $30.0 $105.8 $30.0 $153.8 $9.3 $52.6 $130.3 $23.4 $215.6 $203.3EBITDA Margin (%) 16.4 8.0 -5.5 6.8 12.9 9.2 8.5 3.2 10.9 14.3 7.1 10.7 10.6

Processing (Feed & Food)Revenue $0.0 $942.6 $311.5 $303.1 $330.8 $368.3 $1,313.8 $373.9 $332.6 $310.9 $314.2 $1,331.5 $1,458.0EBITDA $0.0 $36.5 $23.2 $22.7 $21.9 $54.0 $104.3 $40.4 $33.9 $31.2 $42.1 $147.6 $176.0EBITDA Margin (%) 3.9 7.4 7.5 6.6 14.7 7.9 10.8 10.2 10.0 13.4 11.1 12.1

Source: Vitarra Inc., Raymond James Ltd.

Capital Structure

VT is in a comfortable financial position, in our view, with a healthy balance sheet and sufficient liquidity. As of 1Q11, VT held $200.5 mln in cash, offset by $829.2 mln in short-term borrowings and $890.3 mln in long-term debt. This implies a consolidated debt-to-total capital ratio of 0.31x, comfortably within management’s target range of 0.30x-0.40x. In addition, VT’s rolling 12-month EBITDA ended the last quarter at 6.7x the level of cash interest paid, well above its 5.0x minimum threshold (see Exhibit 34).



Commensurate with our estimates, as VT’s recent acquisitions and expansion efforts generate significant earnings moving forward, we expect an improvement in the company’s debt ratios. Notably, we expect net debt-to-EBITDA (trailing 12 months) to improve from 1.73x at the end of 2010 to 0.77x by F2011. We forecast EBITDA covering interest to improve to 6.8x and 7.0x based on our respective F2011 and F2012 estimates, well above the company’s 5.0x minimum target.

Consistent with management’s guidance, VT’s future capital expenditures are projected to grow in order to support its growing processing capabilities and international grain handling infrastructure. Additional bunker capacity in Australia is one specific project noted. Specifically, we forecast capital expenditures of $136.8 mln and $140.0 mln in F2011 and F2012 respectively, up from $105.3 mln in 2010. We expect VT to fund its capital expenditure requirements through cash flow generated from its operations.

Exhibit 34: VT Capital Structure & Debt Composition

Capital StructureShares outstanding - basic (mlns) 371.6 Shares outstanding - fully diluted (mlns) 371.7 Share price (as of 15-Apr-2011) 11.12 Market Capitalization (mlns) 4,133.1

Total Debt (mlns, mrq) 1,718.4 Cash & Short-Term Investments (mlns, mrq) 200.5 Net Debt (mlns, proforma) 1,518.0

Enterprise Value (mlns) 5,651.1

Net debt / equity (mrq) 0.4x Net debt / EBITDA (ttm, mrq) 2.4x Debt / total capital (mrq) 0.3x EBITDA / Interest (ttm, mrq) 6.7x

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2009 2010 2011E 2012E

Net

deb

t / E

BIT

DA

(tt

m, x

)

Steady decline in Net debt / EBITDA (ttm) anticipated due to significant earnings generation.





We are initiating coverage on VT with a Market Perform rating and $12.50 target price. Based upon the stock’s recent closing price on April 20, our target represents a 13.5% total return to target, inclusive of the company’s 0.9% dividend yield. To derive our target price, we apply a 7.0x EV/EBITDA multiple to our F2012E EBITDA estimate, a metric we believe is justified based upon the following factors:

Consistent with Historical Trading Range—Excluding trough levels reached during the depths of the global recession, VT has historically traded between 6.0x and 8.5x forward EBITDA. The multiple has tended to oscillate in response to volatile crop expectations and prevailing market conditions (see Exhibit 35).

Consistent with Peers—We believe VT’s peer group of Ag processing and grain handling companies, including heavyweights such as Graincorp and Bunge, provide for relevant comparable analysis. We note that each of these comparables does have differences in products, end-markets, specific areas of value-added processing, and geographic areas to which it has crop (e.g. weather) related exposure. As Exhibit 36 below illustrates, VT currently trades relatively in-line versus its comparables due to a moderation in its F2012 earnings following expectations for a normalization of crop production in N.A. and Australia.

Future Acquisitions Not Reflected in Estimates—To date, VT has proven its ability to carry out and integrate both small and large acquisitions. Despite ongoing ABB-related integration efforts in the short-term, VT’s acquisitive nature is unlikely to change, in our view. Additional acquisitions are likely to be aimed at adding to its processing operations and further diversifying the geographic exposure of its grain handling operations. However, because it is very difficult to speculate on the timing, size, and specific target characteristics, we have refrained from building acquisitions into our model. This therefore suggests further review of our estimates as these events unfold.

Exhibit 35: Historical EV/EBITDA Trading Multiples (NTM) Exhibit 36: VT Historical P/E Trading Multiples (NTM)

0.0

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Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11

Fo

rwa

rd P

/E M

ult

iple

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)

VT P/E VT P/E (Avg.)

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Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11

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M)

VT EV/EBITDA VT EV/EBITDA (Avg.)





Initiating with Market Perform Rating; $12.50 Target Price—Notwithstanding our positive view toward VT’s strong competitive position and positive macro fundamentals, we believe the stock is close to fairly valued at this time. With only 13.5% upside to our target price, we advise investors to patiently wait for a more opportune entry point.




VT Income Statement, F2009 – F2012E (C$, mlns)

F2009 F2010 F2011E F2012E

Sales & Other Operating Revenue 6,631,666 8,256,280 9,675,000 9,689,107

Cost of Goods Sold 5,792,635 6,997,713 8,289,084 8,271,831 Gross Profit & Net Revenues from Services 839,031 1,258,567 1,385,916 1,417,276

Operating, General & Admin Expenses 515,333 740,984 658,192 716,612 EBITDA 323,698 517,583 727,725 700,664

Amortization 109,141 192,676 193,347 204,500 EBIT 214,557 324,907 534,377 496,164

Non-Operating ExpensesIntegration Expenses 10,191 5,449 511 - Net Fx Gain (Loss) on Acquisition (24,105) 159 (843) - Recovery on Pension Settlement - - - - Gain (Loss) on Disposal of Assets 10,314 (7,778) - - Financing Expenses 61,163 138,107 113,916 107,500

Earnings before Taxes 156,994 188,970 420,793 388,664

Provision for Corporate TaxesCurrent 14,144 27,722 55,913 40,421 Future 29,723 15,976 49,695 60,632 Net Taxes 43,867 43,698 105,608 101,053

Net Earnings (Loss) from Cont Ops. 113,127 145,272 315,186 287,612 Net Recovery from Discont Ops. - - - - Net Earnings 113,127 145,272 315,186 287,612

Earnings Per Unit / ShareBasic 0.45 0.39 0.85 0.77 Diluted 0.45 0.39 0.85 0.77 Diluted - Cont Ops. 0.45 0.47 0.85 0.77

0.48 - - - Shares Outstanding

Basic 251,426 371,597 371,598 373,455 Diluted 251,437 371,603 371,620 373,478

Common Size (%)Gross Margin (%) 12.7 15.2 14.3 14.6 Operating, General & Admin (%) 7.8 9.0 6.8 7.4 Amortization (%) 1.6 2.3 2.0 2.1 Interest (%) 0.9 1.7 1.2 1.1 Income Tax Rate (%) 27.9 25.0 25.1 26.0

EBITDA 323,698 517,583 727,725 700,664 EBITDA (%) 4.9 6.3 7.5 7.2




VT Balance Sheet, F2009 – F2012E (C$, mlns)

F2009 F2010 F2011E F2012E

AssetsCurrent Assets

Cash and Cash Equivalents 165,200 107,428 1,155,190 1,306,046Short-Term Investments 868,469 88,204 138,461 138,461 Accounts Receivable 1,004,674 995,656 997,494 1,460,002Inventories 960,896 1,211,887 1,251,649 1,359,753Prepaid Expenses & Deposits 89,768 107,638 116,100 135,648 Future Income Tax 44,142 30,067 8,702 8,702

Subtotal Current Assets 3,133,149 2,540,880 3,667,595 4,408,612

Investments 9,706 9,661 8,167 8,167 Property, Plant & Equipment 2,411,105 2,491,047 2,433,523 2,365,023Other Long-Term Assets 118,025 123,136 119,402 119,402 Intangible Assets 42,766 154,915 158,631 161,131 Goodwill 699,974 772,233 767,799 767,799 Future Income Tax 8,023 25,010 8,496 8,496

Subtotal Long-Term Assets 3,289,599 3,576,002 3,496,018 3,430,018Total Assets 6,422,748 6,116,882 7,163,613 7,838,630

LiabilitiesCurrent Liabilities

Bank Indebtedness 594 40,839 50,160 50,160 Short-Term Borrowings 291,128 61,677 776,928 776,958 Accounts Payable and Accrued Expenses 1,095,366 1,151,652 1,152,659 1,460,002Current Portion Long-Term Debt 18,151 2,295 2,092 2,092 Future Income Taxes 573 391 18,655 79,287 Subtotal Current Liabilities 1,405,812 1,256,854 2,000,494 2,368,499

Long-Term Debt 1,265,435 896,834 888,069 886,469 Other Long-Term Liabilities 72,471 51,351 57,697 62,697 Future Income Tax 170,111 201,580 199,187 199,187 Subtotal Long-Term Liabilities 1,508,017 1,149,765 1,144,953 1,148,353

Total Liabilities 2,913,829 2,406,619 3,145,447 3,516,852

Unitholders' EquityRetained Earnings 425,741 571,013 880,369 1,183,980Accumulated Other & Comp. Inc (Loss) 54,216 107,192 104,420 104,420 Share Capital 3,025,486 3,025,491 3,026,080 3,026,080Contributed Surplus 3,476 6,567 7,297 7,297

Total Unitholders' Equity 3,508,919 3,710,263 4,018,166 4,321,777Total Liabilities & Unitholders' Equity 6,422,748 6,116,882 7,163,613 7,838,630




VT Cash Flow Statement, F2009 – F2012E (C$, mlns)

F2009 F2010 F2011E F2012E

Operating ActivitiesNet Earnings for the Period 113,127 145,272 315,186 287,612

Items Not Affected by CashAmortization 109,141 192,676 193,347 204,500 Future Income Tax 29,723 15,976 49,695 60,632 Employee Future Benefits (22,875) (4,939) 5,526 5,000 Non-Cash Financing Expenses 6,033 18,069 9,361 12,000 Loss (Gain) on Disposal of Assets 10,314 (7,778) (843) - Acquisition Derivative - - 3,750 2,000 Net Fx Loss (Gain) on Acquisition (24,105) 159 - - Other items 2,065 1,814 2,331 2,000 Total Adjustments for Non-Cash Items 110,296 - - -

223,423 361,249 578,353 573,743

Changes in Net Working CapitalAccounts Receivable 136,654 6,916 529 (462,509) Inventories 142,810 (191,842) (41,193) (108,104) Accounts Payable & Accrued (69,666) (8,437) (10,688) 307,343 Prepaids 24,142 (15,742) (8,003) (19,548) Total Changes in NWC 233,940 (209,105) (59,354) (282,818)

Cash from Operating Activities (Cont Ops) 457,363 152,144 518,999 290,926 Cash from Discont Ops - - - - Cash from Operating Activities 457,363 152,144 518,999 290,926

Financing ActivitiesProceeds from Long-Term Debt 400,925 409,969 - - (Repayment of) Long-Term Debt (18,212) (826,472) (1,614) (1,600) Proceeds (Repayment of) ST Borrowings (23,737) (241,022) 714,855 30 (Repayment of) Other Long-Term Liabilities (819) (501) (72) - Issuance of Share Capital 450,007 3 589 - Share Issuance Costs (18,468) - - - Debt Financing Costs (11,738) (22,785) - - Financing Cash Flow 777,958 (680,808) 713,758 (1,570)

Investing ActivitiesPurchase of Property Plant & Equipment (75,283) (105,313) (136,757) (140,000) Proceeds on Sale of Property, Plant & Equipment 4,201 23,164 1,978 4,000 Business Acquisitions (814,030) (288,414) - - Business Divesture - 30,863 - - Net Fx Gain (Loss) on Acquisition 24,105 (159) - - Increase in Investments - 206 1,372 - Increase in Intangible Assets (9,479) (16,515) (10,121) (2,500) Investing Cash Flow (870,486) (356,168) (143,528) (138,500)

Net Increase (Decrease) in Cash Position 364,835 (884,832) 1,089,229 150,856 Cash Position, Beginning of Period 669,010 1,033,075 107,428 1,155,190Impact on Cash of Unrealized Effect of Fx of Foreign Ops (770) 6,550 (531) - Cash (Bank Indebtedness), End of Period 1,033,075 154,793 1,196,126 1,306,046

Free Cash Flow:Cash Flow from Ops 457,363 152,144 518,999 290,926 Less: CapEx (75,283) (105,313) (136,757) (140,000) Subtotal 532,646 257,457 655,756 430,926






(mln) (mln) (mln) (mln) (%) (x) (%)

Agri-Products/ProcessingAlliance Grain Traders Inc. AGT.CA CAD 31-Dec 23.25 20 458 93 551 23.3 8.2 6.6 n.m. 6.3 5.0 16.8 1.5 2.4%Archer Daniels Midland Company ADM.US USD 30-Jun 35.81 637 22,822 11,526 34,348 11.7 10.7 10.2 8.9 8.9 8.4 33.6 1.6 1.8%Bunge Limited BG.US USD 31-Dec 72.88 147 10,728 4,264 14,992 17.6 12.3 11.2 10.3 8.0 7.5 28.4 0.9 1.2%GrainCorp Ltd. GNC.AU AUD 30-Sep 7.98 198 1,583 240 1,823 20.1 11.8 11.6 8.6 6.3 6.3 13.2 1.2 3.1%Monsanto Co. MON.US USD 31-Aug 67.53 536 36,195 138 36,333 28.0 23.8 20.1 14.3 12.2 10.7 0.4 3.6 1.7%Syngenta AG SYNN.VX CHF 31-Dec 308.90 93 28,631 1,597 30,228 19.7 15.7 13.9 12.4 10.4 9.5 5.3 3.8 --The Andersons, Inc. ANDE.US USD 31-Dec 48.68 19 901 515 1,417 14.0 12.6 12.0 12.1 8.8 8.5 36.4 2.0 0.9%Group Average 19.2 13.6 12.2 11.1 8.7 8.0

Viterra VT.CA CAD 31-Oct 11.34 372 4,126 1,518 5,644 23.7 13.1 14.4 10.9 7.8 8.1 26.9 1.1 0.9%

Notes:1.) All figures are in CAD unless otherwise noted.2.) All estimates are from Thomson except AGT and VT are Raymond James estimates.3.) P/E Values > 30.0x and EV/EBITDA multiples > 30.0x have been discarded (n.m.)

Price /Book

Div. Yield

Ent. Value

P/E EV/EBITDA Net Debt /

Cap

Market Price

Shares O/S

Market Cap

Net Debt




Risks

Volume, Inventory & Weather risk–In a volume driven business such as Viterra’s Grain Handling and Marketing, weather represents the most considerable risk. Because fixed costs in this, VT’s largest business segment, represent 70-80% of all costs, volatility in volume and inventory turns can significantly impact margins. Weather can also impact Viterra’s other businesses such as fertilizer and crop protection sales.

Commodity Price Risk–In addition to volume, price is a key driver for the Grain Handling and Marketing segment. The CWB assumes the price risk for all board grains (~50% of Canadian volume), with the remaining non-board grains as well as all grains sourced in Australia exposed to price fluctuations. Viterra’s exposure begins at the time the grain is purchased through the time it is delivered to the end customer.

Food and Feed Safety Risk–A vast majority of Viterra’s businesses is in food products exposing the company to food safety risk, particularity with a recent push into food processing. In the event of significant outbreak of food-borne illness or increased consumer health awareness with certain products the company can be vulnerable.

Regulatory Risk–Industry regulations, particularly within Canada, can affect Viterra’s performance. While the Australian market is deregulated, CWB is the only selling authority for Canadian wheat and barley. The CWB handles ~ 50% of Viterra’s Canadian volume and as such, export size and scheduling can materially affect company’s grain handling volumes.

M&A Risk–Viterra’s growth-through-acquisition strategy exposes the company to M&A risk in the event that it does not succeed in achieving a certain level of synergies. Viterra’s business expansions expose the company to new geographic, regulatory, industry, operating and financial risks.

Foreign Exchange Risk– Substantial revenue is generated in US denominated currencies, while operating expenses are accrued in Canadian and Australian dollars. The exposure to different currency markets poses a risk which Viterra hedges by entering into currency future and forward contracts. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ Entity General Mills Inc. GIS NYSE NC Imperial Oil Limited IMO TSX NC Unilever NV UN NYSE NC Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered.



Important Investor Disclosures Raymond James is the global brand name for Raymond James & Associates (RJA) and its non-US affiliates worldwide. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, FL 33716, (727) 567-1000. Affiliates include the following entities, which are responsible for the distribution of research in their respective areas. In Canada, Raymond James Ltd., Suite 2200, 925 West Georgia Street, Vancouver, BC V6C 3L2, (604) 659-8200. In Latin America, Raymond James Latin America, Ruta 8, km 17, 500, 91600 Montevideo, Uruguay, 00598 2 518 2033. In Europe, Raymond James European Equities, 40, rue La Boetie, 75008, Paris, France, +33 1 45 61 64 90.

This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation nor does it take into account the particular investment objectives, financial situations, or needs of individual clients. Information in this report should not be construed as advice designed to meet the individual objectives of any particular investor. Investors should consider this report as only a single factor in making their investment decision. Consultation with your investment advisor is recommended. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. Persons within the Raymond James family of companies may have information that is not available to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute transactions in the securities listed in this publication that may not be consistent with the ratings appearing in this publication.

With respect to materials prepared by Raymond James Ltd. (“RJL”), all expressions of opinion reflect the judgment of the Research Department of RJL, or its affiliates, at this date and are subject to change. RJL may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this document.

All Raymond James Ltd. research reports are distributed electronically and are available to clients at the same time via the firm’s website (http://www.raymondjames.ca). Immediately upon being posted to the firm’s website, the research reports are then distributed electronically to clients via email upon request and to clients with access to Bloomberg (home page: RJLC), First Call Research Direct and Reuters. Selected research reports are also printed and mailed at the same time to clients upon request. Requests for Raymond James Ltd. research may be made by contacting the Raymond James Product Group during market hours at (604) 659-8000.

In the event that this is a compendium report (i.e., covers 6 or more subject companies), Raymond James Ltd. may choose to provide specific disclosures for the subject companies by reference. To access these disclosures, clients should refer to: http://www.raymondjames.ca (click on Equity Capital Markets / Equity Research / Research Disclosures) or call toll-free at 1-800-667-2899.

Analyst Information

Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst’s efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

Analyst Stock Holdings: Effective September 2002, Raymond James equity research analysts and associates or members of their households are forbidden from investing in securities of companies covered by them. Analysts and associates are permitted to hold long positions in the securities of companies they cover which were in place prior to September 2002 but are only permitted to sell those positions five days after the rating has been lowered to Underperform.



The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

Ratings and Definitions

Raymond James Ltd. (Canada) definitions

Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold.

Raymond James & Associates (U.S.) definitions

Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon.

Raymond James Latin American rating definitions

Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index.

Raymond James European Equities rating definitions

Strong Buy (1) Absolute return expected to be at least 10% over the next 12 months and perceived best performer in the sector universe. Buy (2) Absolute return expected to be at least 10% over the next 12 months. Fair Value (3) Stock currently trades around its fair price and should perform in the range of -10% to +10% over the next 12 months. Sell (4) Expected absolute drop in the share price of more than 10% in next 12 months.

Suitability Categories (SR)

For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk factors for investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to stocks rated Strong Buy or Outperform.

Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.

Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential for long-term price appreciation.

Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets.

High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal.

Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.



Rating Distributions

Coverage Universe Rating Distribution Investment Banking Distribution

RJL RJA RJL RJA

Strong Buy and Outperform (Buy) 70% 53% 59% 24%

Market Perform (Hold) 29% 41% 33% 10%

Underperform (Sell) 2% 6% 0% 9%

Raymond James Relationship Disclosures

Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.

Company Name Disclosure

Asia Bio-Chem Group Corp. Within the last 12 months, Asia Bio-Chem Group Corp. has paid for all or a material portion of the travel costs associated with a site visit by the Analyst and/or Associate.

Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Asia Bio-Chem Group Corp..

Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Asia Bio-Chem Group Corp..

Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Asia Bio-Chem Group Corp..

Rocky Mountain Dealerships Inc.

Raymond James Ltd. has managed or co-managed a public offering of securities within the last 12 months with respect to Rocky Mountain Dealerships Inc..

Raymond James Ltd. has provided investment banking services within the last 12 months with respect to Rocky Mountain Dealerships Inc..

Raymond James Ltd. has received compensation for investment banking services within the last 12 months with respect to Rocky Mountain Dealerships Inc..

Target Prices: The information below indicates target price and rating changes for the subject companies included in this research.

Price Rating Change Target Price ChangeCoverage Suspended Target Price and Rating Change Split Adjustment

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Asia Bio-Chem Group Corp. (ABC) 3 yr. Stock PerformanceAsia Bio-Chem Group Corp. (ABC) 3 yr. Stock Performance

Date: April 25 2011

MO2 $1.75MO2 $2.00

MO2 $2.25

Analyst Recommendations & 12 Month Price ObjectiveSB1: Strong Buy MO2: Outperform MP3: Market Perform MU4: Underperform NR : Not Rated R: Restricted

Upd

ate

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ng

Feb-08-11 1.39 2.25 2 Dec-15-10 1.60 2.00 2 Oct-12-10 1.43 1.75 2

Valuation Methodology: For Asia Bio-Chem Group Corp., our valuation methodology utilizes a EV/EBITDA multiple and CNY/CDN fx rate based on our EBITDA forecast, and takes into account growth potential, earnings quality, visibility, risk profile, expansion opportunities, and historical trading range. We also include a peer group multiple comparison.




$17.00

$19.00

$21.00

$23.00

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Alliance Grain Traders Inc. (AGT) 3 yr. Stock PerformanceAlliance Grain Traders Inc. (AGT) 3 yr. Stock Performance

Date: April 25 2011


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Valuation Methodology: For AGT, our valuation methodology utilizes an EV/EBITDA multiple based on our EBITDA forecast, and takes into account growth potential, earnings quality, visibility, risk profile, expansion opportunities, and historical trading range. We also include a peer group and recent transaction multiple comparison.


$0.00$0.20

$0.40$0.60

$0.80$1.00$1.20

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BioExx Specialty Proteins Ltd. (BXI) 3 yr. Stock PerformanceBioExx Specialty Proteins Ltd. (BXI) 3 yr. Stock Performance

Date: April 25 2011


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Valuation Methodology: For BXI, our valuation methodology utilizes discounted cash flow (DCF) with variables that take into account growth potential, earnings quality, visibility, risk profile, and expansion opportunities. We then apply a risk-adjustment to our NAV to account for the early stage of BXI and upcoming critical milestones. Our valuation is compared to an equivalent multiple on our forward EPS estimate.




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$)Cervus Equipment Corp. (CVL) 3 yr. Stock PerformanceCervus Equipment Corp. (CVL) 3 yr. Stock Performance

Date: April 25 2011

MO2 $15.00 MP3 $15.00MO2 $16.50

MO2 $14.00

MO2 $13.00MO2 $15.00

MP3 $12.25MO2 $16.50

MO2 $20.00SB1 $20.00


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Mar-29-11 16.00 20.00 1 Mar-10-11 16.06 20.00 2 Nov-12-10 13.20 16.50 2 Sep-24-10 11.30 12.25 3 Aug-11-10 10.45 15.00 2

Jul-05-10 10.50 13.00 2 May-13-10 11.65 14.00 2 Apr-14-10 13.50 16.50 2 Mar-17-10 14.16 15.00 3 Nov-19-09 12.35 15.00 2

Valuation Methodology: Our valuation methodology for Cervus uses a peer group P/E multiple comparison plus the present value of Cervus’ tax losses.


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GLG Life Tech Corporation (GLG) 3 yr. Stock PerformanceGLG Life Tech Corporation (GLG) 3 yr. Stock Performance

Date: April 25 2011


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Valuation Methodology: For GLG, our valuation methodology utilizes a EV/EBITDA multiple applied to our EBITDA forecast for each of the company’s core businesses, and takes into account growth potential, earnings quality, visibility, risk profile, expansion opportunities, and historical trading range. We also include a peer group multiple comparison.




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(C

$)Rocky Mountain Dealerships Inc. (RME) 3 yr. Stock PerformanceRocky Mountain Dealerships Inc. (RME) 3 yr. Stock Performance

Date: April 25 2011

MO2 $6.00 SB1 $9.50 SB1 $12.50MO2 $12.50

MO2 $13.00

MO2 $10.50MO2 $12.50

MP3 $10.00

MO2 $10.75MO2 $11.25

MO2 $14.00


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Mar-08-11 10.70 14.00 2 Dec-11-10 8.65 11.25 2 Nov-10-10 9.00 10.75 2 Sep-24-10 8.06 10.00 3 Aug-11-10 7.90 12.50 2

Jul-05-10 7.60 10.50 2 Mar-10-10 10.51 13.00 2 Jan-14-10 9.50 12.50 2

Nov-11-09 7.60 12.50 1 Aug-12-09 5.61 9.50 1 Apr-17-09 4.60 6.00 2

Valuation Methodology: We value Rocky Mountain on a comparative basis to peer group P/E multiples.


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Viterra Inc. (VT) 3 yr. Stock PerformanceViterra Inc. (VT) 3 yr. Stock Performance

Date: April 25 2011


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Valuation Methodology: For VT, our valuation methodology utilizes a EV/EBITDA multiple based on our EBITDA forecast, and takes into account growth potential, earnings quality, visibility, risk profile, expansion opportunities, and historical trading range. We also include a peer group multiple comparison.

Risk Factors

General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.



Risks - Cervus Equipment Corp. Commodity Prices - Cervus’ sales are highly dependent upon farmers and general contractor’s equipment needs. As such, commodity prices, which generate income for farmers and indirectly stimulate commercial and residential construction activity in the resource-based Western Canadian provinces, have a significant impact on Cervus’ sales. Key commodities affecting the company’s end markets’ demand include wheat, canola, and barely, and more broadly, oil and gas. Economic Dependence on Material Contracts - Cervus’ main source of revenue stems from the sale of agricultural and construction equipment and services pursuant to agreements to act as an authorized dealer. Presently, all dealership agreements are in good standing with suppliers. There is however, no guarantee that situations may not develop permitting current suppliers to terminate existing agreements.

Risks - Rocky Mountain Dealerships Inc. Supplier Agreements - Rocky Mountain’s business is reliant on agreements with several equipment manufacturers and distributors, the most significant being CNH Global. Changes to the terms of the agreements could negatively impact Rocky Mountain’s sales and ability to grow through acquisitions. Cyclicality and Seasonality - Rocky Mountain’s end markets-construction and agricultural-are highly cyclical and fluctuate with the level of the economic activity globally, across Canada, and in the Western Canadian provinces in particular. As such, Rocky Mountain’s sales are sensitive to GDP, government spending, commercial and residential construction activity, farm subsidies, net cash farm income and other related factors. Rocky Mountain’s business is also affected by seasonality. The company generally experiences lower sales volumes in the first quarter of the year due to winter weather which makes certain types of construction and agricultural work difficult or impossible to perform. Commodity Prices - Rocky Mountain’s sales are highly dependent upon farmers and general contractors’ equipment needs. As such, commodity prices which generate income for farmers and indirectly stimulate commercial and residential construction activity in the resource-based Western Canadian provinces, have a significant impact on Rocky Mountain’s sales. Key commodities affecting the company’s end-markets’ demand include wheat, canola, and barley, and more broadly, oil and gas. Foreign Exchange - Purchase of equipment from suppliers are made in US dollar. The company may have to increase prices to maintain new sales margins when the Canadian dollar weakens relative to the US dollar. If price increases are not accepted by the market, Rocky Mountain will either experience a sales decrease or be forced to absorb higher cost of good sold, which would adversely affect gross margins. Availability of Credit - Tightening credit conditions could adversely affect Rocky Mountain’s accessibility to credit. The company currently uses credit to finance it working capital requirements and to finance acquisitions. Inadequate access to credit could negatively impact daily operations and also hinder the company’s ability to grow via acquisitions. Interest Rates - Rocky Mountain finances its purchases of new and, to a lesser extent, used equipment inventory through floor plan borrowing arrangements, under which it is charged interest at floating rates. As a result, rising interest rates have the effect of increasing the Company’s costs, particularly in respect of interest on debt financing, including floor plan financing. To the extent the Company cannot pass on such increased costs to its customers, its net earnings or cash flow may decrease. In addition, its customers finance the majority of the equipment they purchase through the Company. A customer’s decision to purchase may be affected by interest rates available to the customer to finance the purchase.



Risks - Asia Bio-Chem Group Corp. Some of the specific risk factors that pertain to the projected 6-12 month stock price targets for Asia Bio-chem are as follows: By-product pricing risk - Although ABC may pass on any corn price increase through resetting its starch price to the market prevailing rate, the company is not hedged against price fluctuation of its by-products. Regulatory risk - Changes in government policies on corn imports and exports or other related government-initiated program may have a significant impact on the corn and corn starch prices, and thus affect the company’s profitability. Event risk - The yield of corn in China is largely dependent upon the weather during the growing season of corn. Any force majeure events, such as drought, flood and early freezes may significantly reduce the yield and induce the domestic corn price. Therefore, the company is exposed to the effects of severe weather conditions and other acts of nature. Currency risk - Since ABC’s operating currency is in RMB and has not been engaged in any currency hedging agreement, the company is exposed to risks from changes in the RMB/CAD exchange rate. A significant adjustment to the exchange rate may adversely impact the company’s results from operations. Credit risk - The company holds significant trade receivables from various debtors, with a material portion more than 60 days. The company’s profitability may be adversely impacted if any receivable account becomes nonperforming. Growth Dependent on External Financing - ABC has historically funded the majority of their growth initiatives through external financing. Should ABC’s ability to access external financing in an effective manner deteriorate (e.g. through a weakening in the credit markets, inability to access the equity markets, or a deterioration in the company’s credit rating), the execution risk of the company’s growth plans could rise. Should revenues deteriorate significantly, the firm’s profitability and ability to service current financing commitments could suffer. Dependence on Key Personnel - The company is highly dependent upon the market and industry knowledge, as well as relationships held by senior management personnel, most specifically Mr. Zhiping Wang, the Chairman and Chief Executive Officer. The loss of one or more of these key individual members could negatively impact the business.



Risks - GLG Life Tech Corporation Supply of raw materials–GLG’s business depends on sourcing adequate supply of raw materials (i.e. stevia leaf) required to meet customer demand. In the event of a supply shortage, the company’s business could be materially impacted. GLG mitigates this risk by engaging in fixed-price supply contracts with growers in key stevia growing regions. Intellectual Property–GLG uses proprietary technologies to extract high grade stevia extract. These technologies are patented only in China. Therefore, any competitor developing technology equal to or better than that of GLG would have a negative impact on GLG’s competitive position. Product Liability–Negative public perception, product liability claims, ill effects, recalls could harm the sales and cause consumers to avoid the product all together. Brand name recognition–The food and beverage industry is highly competitive and brand-conscious. Any inability to create a recognizable brand could hurt companies sales and competitiveness. Customer Concentration–In the past, GLG has relied heavily on one customer: Cargill. The reliance on sales to Cargill has dropped from 90% in 2009 to 47% of revenues in 2010. GLG’s business operations could be severely impacted if Cargill were to terminate this relationship. Competition–Competitors may enter the market globally, which may drive down the price of stevia extract. Some of these competitors may also have greater financial, technical and marketing resources and a better established customer base. Regulation–While regulatory barriers have been dropping, there still is a number of large regions where stevia has not yet been approved for use. Global demand for stevia and related products may be constrained as stevia’s approval remains limited to a small number of countries. Additional regulations are imposed on food and beverage processing; any changes to these can materially impact the company’s operations. Product Acceptance–To date, GLG’s revenues have been based solely on stevia and stevia related products. If the stevia market declines or fails to achieve greater acceptance, the company will not be able to grow its business and maintain profitability. Furthermore, the food and beverage industry is fast-paced, with consumer tastes and preferences changing rapidly. The inability to develop innovative products that meet consumer demand and changing preference could have a negative, material effect on GLG’s sales. Third Party Distribution–GLG relies heavily on third party distribution for the sale and distribution of its products. In the event that distributors are distracted from selling the product or do not place sufficient effort into managing and selling stevia products, GLG’s sales could be adversely affected.

Foreign Exchange – GLG’s financial results are largely affected by the currency exchange rate between USD and RMB. The company generates USD denominated revenue and accrues expenses denominated in RMB, while at the same time it reports financial results in CAD. In China, currency conversion is regulated by the State Administration for Foreign Exchange (“SAFE”) and is subject to a number of rules and regulations. Changes in the government policy with respect to RMB conversion can materially affect GLG’s business. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Foreign Operations—Because a significant proportion of the company’s operations are conducted in China, operations are exposed to significant political, economic, and other risks associated with the PRC. These risks and uncertainties include, but are not limited to: high rates of inflation; labour unrest; renegotiation or nullification of existing concessions, licenses, permits and contracts; changes in taxation policies; restrictions on foreign exchange; government corruption; changing political conditions; currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.



Infrastructure—The company’s ability to carry on its operations in China in a profitable manner are highly dependent on continued provision of reliable infrastructure by local Chinese governments including public highways, railways, ports, shipping lines, power sources and water supply. Unusual or infrequent weather phenomena, malfunction, ineffective scheduling, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the company’s business and operations, financial condition and results of operations.

Dependence on key personnel–GLG’s business is built on relationships its key employees, primarily Dr. Luke Zhang, have established with the Chinese government and strategic customers. The loss of any key personnel and in particular Dr. Luke Zhang could have an adverse effect on the company’s business. For example, Cargill Inc. may terminate the strategic alliance and supply agreement in the event that Dr. Zhang ceases to be actively involved in GLG’s business.

Risks - Viterra Inc. Volume, Inventory & Weather risk–In a volume driven business such as Viterra’s Grain Handling and Marketing, weather represents the most considerable risk. Because fixed costs in this, VT’s largest business segment, represent 70-80% of all costs, volatility in volume and inventory turns can significantly impact margins. Weather can also impact Viterra’s other businesses such as fertilizer and crop protection sales. Commodity Price Risk–In addition to volume, price is a key driver for the Grain Handling and Marketing segment. The CWB assumes the price risk for all board grains (~50% of Canadian volume), with the remaining non-board grains as well as all grains sourced in Australia exposed to price fluctuations. Viterra’s exposure begins at the time the grain is purchased through the time it is delivered to the end customer. Seasonality Risk–A vast majority of Viterra’s businesses is in food products exposing the company to food safety risk, particularity with a recent push into food processing. In the event of significant outbreak of food-borne illness or increased consumer health awareness with certain products the company can be vulnerable. Food and Feed Safety Risk–A vast majority of Viterra’s businesses is in food products exposing the company to food safety risk, particularity with a recent push into food processing. In the event of significant outbreak of food-borne illness or increased consumer health awareness with certain products the company can be vulnerable. Regulatory Risk–Industry regulations, particularly within Canada, can affect AGT’s performance. While The Australian market is deregulated, CWB is the only selling authority for Canadian wheat and barley. The CWB handles ~ 50% of Viterra’s Canadian volume and as such, export size and scheduling can materially affect company’s grain handling volumes. M&A Risk–Viterra’s growth-through-acquisition strategy exposes the company to M&A risk in the event that it does not succeed in achieving a certain level of synergies. Viterra’s business expansions expose the company to new geographic, regulatory, industry, operating and financial risks. Foreign Exchange Risk– Substantial revenue is generated in US denominated currencies, while operating expenses are accrued in Canadian and Australian dollars. The exposure to different currency markets poses a risk which Viterra hedges by entering into currency future and forward contracts. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Risks - Alliance Grain Traders Inc. Weather risk–Weather conditions significantly impact size and quality of the crop, and in turn, impact the volumes handled and processed by AGT. AGT’s dual origin strategy is meant to mitigate the weather risk. Transportation and Transloading–AGT is dependent on third parties and container availability for the transportation of its products. In Canada, a large portion of AGT’s products are transported by rail, with another significant portion by road. In Turkey, AGT’s products are transported exclusively by road. As the majority of AGT’s products are exported, AGT also relies on shipping companies and vessel space. All exported products also pass through third party transloading facilities to facilitate their final containerization for export. Strikes, work stoppages, labour disputes, failure or substandard



performance of equipment or other interruptions to the rail or road networks, haulage companies, transloading facilities or shipping companies used by AGT and limited container availability may have a material adverse effect on the business, financial condition and results of operations of AGT. Distribution and Supply Contracts–AGT typically does not enter into formal long-term agreements with clients, distributors, or suppliers. As a result, such parties may, without notice or penalty, terminate their relationship with AGT at any time. In addition, even if such parties should decide to continue their relationship with AGT, there can be no guarantee that the consideration or other terms of such contracts will continue on the same basis. If any of these clients chose to terminate or alter their relationship with AGT that could have a negative affect on the company’s business. Reliance on Key Personnel–AGT is dependent on the abilities, experience and efforts of its senior management. The business could be negatively impacted should any of these persons leave, in particular CEO Mr. Murad Al-Katib. Wholesale Price Volatility Risk–Industry Regulations, particularly in Canada, can affect AGT’s performance. While the Australian market is deregulated, CWB is the only selling authority for Canadian wheat and barley. The CWB handles ~50% of Viterra’s Canadian volume and, as such, export size and scheduling can materially affect the company’s grain handling volumes. M&A Risk–Viterra’s growth-through-acquisition strategy exposes the company to M&A risk in the event that it does not succeed in achieving a certain level of synergies. Specifically, these expansions expose the company to new geographic, regulatory, industry, operating and financial risks. Foreign Exchange Risk – A significant proportion of AGT’s revenues are generated in US dollars, while its costs are incurred in Canadian dollars and Turkish lira. As a result, AGT is exposed to currency exchange rate risks. A significant adjustment to the exchange rate may adversely impact the company’s results from operations.

Risks - BioExx Specialty Proteins Ltd. Funding future growth–BioExx’s aggressive growth strategy requires access to substantial funding. In the event of a lack in available funding, the company could not progress with its expansion plans. Production, scaling up–To date, the company has only run a medium size processing facility on a limited basis. There is no assurance that BioExx will be successful at constructing and operating, on a continuous basis, up to five large-scale processing facilities. The inability to demonstrate successful full commercial-scale operations could have a material impact of the business. History of losses–BioExx has been in existence for a short time and has a history of losses. While the losses are expected as the company is building out the business, there is a risk that BioExx will never achieve or maintain profitability. The limited history makes it difficult to asses whether the company will be successful and profitable. Price risk–The company is exposed to commodity price risk with respect to raw materials (canola) but also the volatility in protein prices for its final products. The price exposure is typically tracked by the crush margin. As crush margins increase, the company’s margins increase and vice-versa. In order to mitigate exposure, BioExx attempts to lock in seed, oil and meal prices within the same future price window to avoid pricing mismatches. There is no guarantee, however, that it is able to do so at any given time or on a consistent basis. Intellectual Property–BioExx patents its extraction processes in the U.S., Canada and Europe, in addition to other markets where it may be necessary. There is no guarantee, however, that the applications for patents will be approved given that regulations vary across countries. There is a potential that its technology gets replicated and BioExx loses to competition. Product Quality–Several canola facilities in Canada have reported cases of salmonella over the past year. BioExx has not had any issues, largely due to its cooling process which hinders germination. The company has also received HACCP/ISO/GMP certification. This does still remain a key risk.



Product Acceptance–BioExx is developing new products and it is crucial to successfully educate customers. To the extent that BioExx is unable to introduce new and innovative products could significantly damage its business. Regulation–The end markets for BioExx products such as pharmaceuticals, nutraceuticals and food processing, are highly regulated. Regulatory changes may have significant impact on the company’s ability to market its products. In addition, laws and regulations differ across countries, thus BioExx could potentially be exposed to multiple regulatory sources. Competition–The markets for vegetable oil, meal and protein are highly competitive. If a competitor develops or acquires superior technology or products, Bio-Exx’s business could be materially affected.

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Raymond James Agribusiness 2011

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