Stocks’ Details

Nufarm Limited

A Quick Look on Placement of Preference Securities:Nufarm Limited (ASX: NUF) is an Australasian marketer and manufacturer of chemicals with a market capitalisation of ~A$1.89 Bn as on 9^th September 2019.  The company recently announced that Schroder Investment Management Australia Limited ceased to be a substantial holder of the company since 15^th August 2019. As per the release dated 1^st August 2019, the company announced that it has undertaken the placement of $97.5 Mn of preference securities to existing shareholder and strategic business partner, Sumitomo Chemical Company Limited via its wholly-owned subsidiary Nufarm Investment Pty Ltd. NUF further added that the transaction strengthens its balance sheet because of the issue of an equity instrument and builds on the longstanding relationship between Sumitomo and Nufarm.

The key terms of the security primarily include (1) securities might be exchanged for Nufarm shares at Sumitomo’s election any time after 24 months at an exchange price of A$5.85 per Nufarm share. (2) a quarterly distribution at a fixed rate of 6% is payable to Sumitomo for the first 12 months and 10% thereafter. If Nufarm Investment Pty Ltd does not pay distribution on the Preference Securities (PS), Nufarm might not declare the dividend payment in respect of any of the ordinary shares or step-up securities until all the undeclared distributions are declared and paid on PS.

The company will be releasing its full-year results on 30^th September 2019. The following picture provides an overview of half-yearly performance:


Financial Summary (Source: Company Reports)

What to Expect:  The company stated that it anticipates net working capital to be around $1.6 Bn for the year-end 2019. This presents no issue in relation to the ongoing availability of its banking facilities. It anticipates net debt to underlying EBITDA ratio to be around 3 times after receipt of the placement funds from Sumitomo. It expects significant items (before tax)amounting to around $50 Mn that would be excluded from underlying EBITDA in the 2019 financial year.

Stock Recommendation:NUF added that its Seed Technologies business has continued to witness robust demand and it expects this to continue into FY20, with additional upside if weather conditions in Australia revert to more normal patterns. As per ASIC report dated 3^rd September 2019, the stock of Nufarm has been shorted ~16.14% of total product in issue.

The current ratio of the company stood at 1.80x in 1H FY19 as compared to 1.61x in 1H FY18, which represents that the company is in a decent position to address its short-term obligations. On the stock’s performance front, it produced a decent return of 35.97% in the last three months as at 06 September 2019. Currently, the stock is trading slightly below from its 52-week low-high average range of $3.605 - $7.212. Hence, considering the above-stated facts and current trading levels, we give a “Hold” rating on the stock at the current market price of A$5.020 per share (up 0.601% on 9^th September 2019).
 

Bellamy's Australia Limited

A Look at FY19 Performance:Bellamy's Australia Limited (ASX: BAL) is a producer and distributor of a branded food product. It has a market capitalisation of ~A$994.24 Mn as on 9^th September 2019. The company recently announced that JPMorgan Chase & Co. and its affiliates made a change to their substantial holdings in the company and the current voting power stood at 7.76% against the previous voting power of 6.71%. In FY19 results release, the company stated that the business has doubled investment in both marketing and China capability in order to better activate the brand and engage consumers. The following picture provides an idea of the company’s key financial numbers:


Profit & Loss (Source: Company Reports)

Future Prospects:The business anticipates a return to sustained growth in FY20.This confidence is being strengthened by the accelerated growth in the company’s food business and the planned roll-out of breakthrough new products, which includes an organic ultra-premium formula series, an organic goat formula series, and a China offline organic food range.

Stock Recommendation:The net margin of the company stood at 8.1% in FY19 which is higher than the industry median of 5.5%. This implies that BAL has effectively converted its top-line into the bottom line better than the industry. As per ASIC report dated 3^rd September 2019, the stock of Bellamy has been shorted around 13.49% of total product in issue. As per ASX, the stock of BAL is trading below from its 52-week low-high average of $6.710-11.960. Therefore, in light of the above-stated facts, we give a “Speculative Buy” recommendation on the stock at the current market price of A$8.660 per share (down 1.254% on 9^th September 2019).
 

IOOF Holdings Limited

Growth in UNPAT:IOOF Holdings Limited (ASX: IFL) is primarily into financial services such as financial advice, platform management and administration as well as investment management. The company recently updated the market that it has made a change to its substantial holdings in People Infrastructure Limited and the current voting power stood at 7.616% as compared to the previous voting power of 8.932%. This was made on 3^rd September 2019. The company has focused on the imperatives of stabilising the business, with a view to delivering better outcomes for its clients and shareholders in FY19, which has been a most challenging year for the company and for the industry as well.  The company further stated that its earnings have been robust in a low-growth environment, with underlying net profit after tax (UNPAT) amounting to $198 Mn, reflecting a rise of 3.4% as compared to the previous year.


Financial Summary (Source: Company Reports)

Future Aspects:For FY20, the company anticipates that Governance investment might cost an additional $10 Mn. The company expects significant market opportunity in being advice-led. It was also mentioned that there is increasing need and demand for quality financial advice; particularly in the context of increasing per capita wealth, an ageing population and Australia having one of the world’s leading retirement income systems.

Stock Recommendation:The company reported asset to equity ratio of 2.25x in FY19 as compared to the industry median of 4.17x. As per ASIC report dated 3^rd September 2019, the stock of IOOF Holdings Limited has been shorted ~9.85% of total product in issue. On the stock performance front, it produced returns of 9.67% and 11.61% in the time span of one month and three months, respectively. Currently, the stock is trading close to a 52-week low level of $4.195 with higher PE multiple of 69.57x. Thus, considering the above-stated facts and current trading levels, we give a “Hold” rating on the stock at the current market price of A$5.750 per share (up 1.411% on 9^th September 2019).
 
 
Comparative Price Chart (Source: Thomson Reuters)

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