Nufarm Limited

Difficult Trading Conditions Resulted in Lower Earnings: Nufarm Limited (ASX: NUF) is involved in the manufacturing and sale of crop protection products with operations in Australasia, Africa, the Americas and Europe regions. The company recently provided an update, wherein it announced that it has identified additional sales rebate claims from customers that relate to FY19 (year ended 31 July 2019). The company has clarified that the investigation is not expected to result in a restatement of FY19 results but will result in an adjustment to FY20 half-year earnings. NUF has noted that till now, the trading conditions have been difficult for FY20, which has resulted in lower earnings in all regions for Q1FY20 as compared to the previous corresponding period (pcp). Due to the high channel inventories and substantially lower demand in North America, the Q1FY20 EBITDA for the region is down by $20 million below the corresponding period.

Key Highlights of FY19 Results of Nufarm Finance (NZ) Limited: The company recently released the Annual report for Nufarm finance (NZ) Limited, a wholly-owned subsidiary of Nufarm Limited. In the Annual report 2019, Nufarm Finance Ltd reported a slight decline in its profit from $10.60 million in FY18 to $10.32 million in FY19. Over the year, the cash and cash equivalent of Nufarm finance (NZ) Limited has also declined from $447,967 in 2018 to $418,919 in FY19. 

FY19 Results Highlights: In FY19, despite facing drought in large parts of Australia, flooding in major cropping regions in the United States and supply conditions which impacted product availability and increased costs in Europe, the Group’s EBITDA grew in all regions except Australia, with earnings in Latin America steady on the prior year. For FY19, the company reported net profit after tax of $38 million, up 345.8% as compared to the previous financial year. Further, the company earned EBITDA of $420 million in FY19 with earnings majorly driven by the contribution from the acquired European portfolios and strong performances in North America, Seed Technologies and Asia.


FY19 Results Summary (Source: Company Reports)

Stock Recommendation: As reported on 25 November 2019, Nufarm Limited expects its first-half EBITDA to be significantly lower than the prior year, due to the challenging trading conditions. NUF is currently trading at a price to earnings multiple of 59.340x as compared to the Chemical industry average of 3.3x, suggesting that the stock may be overvalued at current levels.  Taking into consideration the trading conditions in first half of FY20, weak business environment and valuation, we suggest investors to avoid the stock NUF at current levels, which ended the day at $5.080, down 17.532% as on 25 November 2019 on weak H1FY20 outlook.
 

CSR Limited

UBS Group AG Increases interest in CSR: CSR Limited (ASX: CSR) is involved in providing building products for construction of homes and commercial buildings in Australia and New Zealand. The company recently notified that UBS Group AG and its related bodies corporate has increased its voting power in the company from 5.08% to 6.15%. UBS Group now holds 30,205,643 Person’s votes in the company.

H1 FY20 Results Highlights: For the half-year ended 30 September 2019, the company reported a statutory net profit after tax of $68.8 million from continuing operations, down 19% from $26.8 million in the prior corresponding period (pcp). However, Net profit after tax after adjusting discontinued operations was up 157% to of $68.8 million, from $26.8 million on pcp.  During the half-year, Building Products EBIT was down by 18% on pcp, due to a slump in residential construction activities. During the period, CSR’s largest businesses of Gyprock and Bradford delivered steady volumes and earning, while earnings from Hebel and AFS were lower due to the significant exposure to the high-density market, which was down 38% during the period. For the half-year period, the company reported Interim dividend of 10.0 cents per share and a special dividend of 4.0 cents per share (both franked at 50%).


HY20 Results Summary (Source: Company Reports)
 
Outlook: In the company’s Building Products segment, the results in H2FY20 are expected to be lower than the first half due to the seasonality in volumes, while the demands for the products will continue to be supported by housing activity, driven by population growth, high employment and low interest rates. For FY2020, CSR expects its net profit after tax (before significant items) to be in between $107 million - $133 million. The company expects its full-year dividend for FY2020 to be in in-line with CSR’s stated dividend policy to payout 60-80% of full-year NPAT.

Stock Recommendation: CSR has a price to earnings multiple of 19.540x, significantly higher than the industry average of 6.4x, demonstrating the overvalued position of the stock. Further, CSR has EV/EBITDA of 8.1%, higher than the industry average of 5.1%. In the last one year, the stock has risen by 62.54% and is currently trading near to its 52-week high of $4.750. Considering the current trading levels, decent price movement in the past and expensive valuation at the current juncture, we have a watch view on the stock at the current market price of $4.690 as on 25 November 2019.

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