The war in Ukraine has generated a significant increase in the "risk premium" understood, in this case, as geopolitical risk. In the event that the conflict ends, what can we expect?
The geopolitical “risk premium” appears to be quite low, but there are some stocks that could potentially benefit from the end of war. As it turns out, its amount is inversely proportional to the distance from the center of the conflict.
The market "risk premium" associated with the war in Ukraine appears to be modest, estimated at 2-3% P/E, however there are sectors that can benefit from the end of the armed conflict. The sectors that have suffered the most from the war in Ukraine are the agri-food sector, as Ukraine and Russia are responsible for more than 20% of global corn exports (with Ukraine having the largest share).
Companies that can benefit from the end of the conflict
- Kernel (KER.PL): Ukraine and Russia account for 50% and 25% of global sunflower oil exports, respectively. Kernel, which is the largest sunflower oil producer in Ukraine exports oil and grains worldwide and is involved in the storage of grains and seeds, could benefit the most from a possible end to the war.
- Agroton (AGT.PL): Russia and Ukraine accounted for 10% and 3% of global wheat production, respectively, over the past five years. They are also the number one and fifth exporter of grain, with 20% and 10% of global exports, respectively. Agroton is the first producer in Ukraine, harvests about 48,000 hectares of sunflowers and is the fourth largest producer of wheat, with about 50,000 hectares.
- KSG Agro (KSG.PL): As more than half of Ukraine’s agricultural production is exported, export supply chain logistics play a vital role. Before the Russian aggression, more than 90% of Ukrainian agricultural exports passed through the ports of the Azov and Black Seas. KSG Agro is one of the largest vertically integrated agricultural companies in the Dnipropetrovsk region, operating in almost all segments of the agricultural sector, including the production, storage, processing and sale of agricultural products.
- Astarta (AST.PL): Ukraine is the world’s largest producer of sunflower seeds, followed by Russia. Together, they account for over 50% of global production in marketing campaigns from 2016/17 to 2020/21. The key crops for Astarta are sugar beets, soybeans, corn, wheat, sunflower and canola. The two seed lines provide high-yield wheat and soybean seeds to farms.
- Volkswagen (VOW1.DE) and Mercedes (MBG.DE): Production of some major German automakers has been disrupted by a shortage of semiconductors and wire harnesses manufactured in Ukraine. New orders for German industry fell by 4.7% according to data published by Destatis. The main factor was the 6.7% drop in export orders from German manufacturers. Orders from outside the eurozone fell even more, down 13.7%. In the six-week period from April 1 to May 16, sales of cars, motorcycles and related accessories dropped by 14.5%, according to a report by e-commerce association BEVH.
- EPAM Systems (EPAM.US): A digital engineering and consulting platform that prior to the invasion generated about 4% of its revenue from Russia and Ukraine.
- PVH (PVH.US): one of the largest clothing companies in the world, owner of the famous brands Calvin Klein, Tommy Hilfiger and Heritage. Before the war, PVH generated approximately 3.6% of its revenue from Russia and Ukraine.