Inghams Group Limited

A Look at Food and Beverage Conference:Inghams Group Limited (ASX: ING) is engaged into the production and sale of chicken, and turkey products throughout its vertically integrated categories such as primary, free range, value enhanced, further processed and ingredient. Recently, the company published its presentation on Food and Beverage conference in which it highlighted the operational and financial performance.The rising feed costs have continued to be offset by initiatives or price increases.  The capital investment in capacity and efficiency had continued as the company had planned such as the completion of SA feed mill and NZ Breeder facilities. However, it had planned further investment in WA with a new Feed mill and a Hatchery which is to be operationalized in FY21. With respect to financial performance for the first half of 2019, it had reported total poultry volume growth of 1.5% while there was an increase of 3.6% to $109.6Mn in underlying EBITDA. The underlying NPAT fell by 5.3% to $55.4m because of the higher effective tax rate. On the other hand, the company recently announced that one of its substantial holders, AustralianSuper Pty Ltd has reduced its stake in the company from an earlier 12.65% to 9.60%. 


1HFY19 Financial Highlights (Source: Company Reports)

What to Expect From ING: Inghams Group Limited had stated that demand for poultry products is growing at historical levels while the Project Accelerate is on track.It was mentioned that the wheat cost has dropped recently but the next couple of monthswill give a better view for the next fiscal year. Adding to that, the New Zealand business of the company has started to improve, and it is expecting that it will get back to the historical run rate in FY20.

Stock Recommendation:A contract for the purchase of land has been inked, subject to due diligence and the design of the mill has commenced. The return on equity of the company stood at 37.8% in 1HFY19 when compared to the industry median of 9.8%. This represents that the company is providing better returns to shareholders in comparison to the broader industry. At CMP of $4.330, the stock is trading slightly towards its 52-week high price of $4.860 with PE multiple of 11.94x. As per ASIC report dated 5th June 2019, 16.71% has been reported as short positions as a percentage of total product in issue. Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of A$4.330 per share (up 1.405% on 12^th June 2019).
 

Nufarm Limited

Glyphosate Update:Nufarm Limited (ASX: NUF) is an Australasian marketer and manufacturer of chemicals. As on 3rd June 2019, the company, with the help of release, provided an update on Glyphosate wherein it adhered great caution and care as it foresees the risk of glyphosate litigation. Further, Bayer (Monsanto) had disclosed that there are in excess of 13,000 pending claims against it in relation to glyphosate. The company is satisfied that glyphosate is safe to use in accordance with label directions which includes the appropriate safety directives which have been outlined in each product label.  The Glyphosate-based herbicides are the most widely used crop protection products in the world, which had played an important role in environmentally sustainable farming practices for over 40 years.

A Quick Look at Macquarie Australia Conference:The product lifecycle management program had significantly reduced the number of stocks keeping units. The company is adopting strict criteria for ongoing inclusion in the portfolio. Thebenefits which have been delivered include an improved focus on returns and reduction of more than $20m in inventory levels.


Regional SKU Profile (Source: Company Reports)

Future Aspects:  The company is working in order to resolve its short-term issues and it has a strong record of profitable growth. It is focused on reducing leverage in FY20 and beyond. For 2HFY19, it stated that the reduction of working capital is on track for year-end target. It would consider partial plant shutdown rather than slowing manufacturing for the coming months considering thedry conditions in Australia.

Stock Recommendation:   The supply disruptions are continuing in Europe. The company’s stock price is trading towards its 52-week lower levels. As per ASIC report dated 5^th June 2019, 13.36% has been reported as short positions asa percentage of total product in issue. Hence, consideringthe above stated facts and outlook, we give a “Hold “rating on the stock at the current market price of A$3.800 per share (up 1.064% on 12^th June 2019).
 

Syrah Resources Limited

Managing Director’s AGM presentation: Syrah Resources Limited (ASX: SYR) published its AGM presentation wherein it stated that the company’s weighted Average price has been influenced by the product mix of flake sizes, carbon grade, and delivery location.Adding to that, the first-year pricing had also influenced by qualification shipments, mixed size and grade specifications. However, the pricing is bespoke and bilaterally agreed and there is no centrally accepted clearing price.


Product Price Range (Source: Company Reports)

Expectations from Q2FY19:  SYR is expecting production in the range of 45kt – 50kt for Q2FY19 vs 48kt in Q1FY19 because of later than planned results from the production improvement plan. The Q2FY19 graphite recovery and product split have been anticipated to be broadly similar to Q1 2019, which was 69% and 86% fines to 14% coarse flake, respectively. The cash position forecast remains unchanged at ~US$43 Mn for the Q2FY19.

Stock Recommendation:The company continues to focus on optimizing production and sales volume and cost against price. On the stock’s performance front, it had witnessed the fall of -5.38% and -34.06% in the time span of one-month and six months, respectively. As per ASIC report dated 5^th June 2019, 15.62% has been reported as short positions as apercentage of total product in issue. Hence, considering the aforesaid facts and decent outlook, we give a “Speculative Buy” rating on the stock at the current market price of A$1.090 per share (up 3.318% on 12^th June 2019).

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