Nufarm Limited

NUF Details

Downgraded FY18 Earning Guidance: While the last three years have showcased a rock-solid performance with revenue growth of 19% and underlying earnings growth of 50%, Nufarm Limited (ASX: NUF) has now revised FY18 guidance and expects to achieve its underlying earnings before interest and tax (EBIT) growth of around 5% above FY17’s underlying EBIT of $302.3 Mn. This is slightly down on the previous guidance for a rise in EBIT of 5% to 10%. The group downgraded its earnings estimates due to ongoing challenging climate conditions across the key regions of Australia, New Zealand, Europe and North America. However, the group seems to have a bright outlook for long-term, with its European acquisitions and its omega-3 project promising substantial upside from current levels. According to the management, the challenging climatic conditions have impacted the group’s sales in major regions during the key pre?plant period, but the underlying business remains strong and is better positioned to withstand adverse seasonal conditions due to the transformation program the company has undertaken over the past three years. As a result of this, the expectation is for the average net working capital to sales to remain well controlled in the range of 37% to 38%. Based on ongoing headwinds across the regions, we expect that the majority of Nufarm’s sales could decline in the second half of the year. That’s why, we continue to maintain our “Expensive” recommendation on the stock at the current market price of $ 9.330.


Average Net Working Capital / Sales Ratio (Source: Company Reports)
 

Godfreys Group Limited

GFY Details

Arcade Finance’s takeover offer: The independent Directors of the appliance retailer, Godfreys Group Limited (ASX: GFY) have recommended that shareholders accept Arcade Finance’s takeover offer in the absence of a superior proposal and this entails acceptance of the shares for $0.32 cash per Godfreys’ share. The Independent Expert has concluded that the Arcade Offer is fair and reasonable for Godfreys Shareholders and is not associated with Arcade. Current retail environment and trading conditions also remain challenging which is expected to make it difficult for Godfreys to meet its obligations under its existing financing arrangements. Given its current trading performance, Godfreys may not be able to satisfy the Facility Agreement's covenant requirements as at 28 December 2018, being the next testing date after 29 June 2018. Godfreys' failure to do so would constitute an event of default under the Facility Agreement. In such circumstances, pursuant to the terms of the Facility Agreement, the Lender is entitled to cancel all commitments under the Facility Agreement, require immediate repayment of outstanding amounts (including interest and costs) under the Facility Agreement, and enforce its rights under the applicable security arrangements. It also worth noting that Arcade has increased its interests to 32.9% from 31.6% in the group.
Meanwhile, the group commented on its not so good trading update for the two weeks since the update provided on 23 April 2018. Particularly, like for like sales have reduced 27% compared to the same time last year, and this marks for a poor start to April. Year to date like for like sales are currently down by 7.8% compared to last year. The decline is largely attributable to changes made to the television advertising campaigns in April and May, which were designed to reduce the Company’s reliance on the current discount and sale-based approach by focusing more on product features and benefits. The profitability of the business is highly sensitive to changes in sales revenue and these lower sales are expected to have a material impact on Godfreys April and May result, and the EBITDA expectation for the balance of the FY18 year. Godfreys now expects underlying EBITDA for FY18, before restructuring and one-off costs, to be approximately $3.5 million.

With challenging conditions at hand, we maintain a “Hold” at the current price of $ 0.305, while the stock has been down about 45.5% in last six months (as at May 14, 2018).

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