Nufarm Limited

NUF Details

Nufarm Limited (ASX: NUF) is engaged in the manufacturing and selling of crop protection products.

Robust Performance (H1FY21 Ended 31 March 2021)

• The company’s revenue increased by 20% to $1.65 billion for the 6 months ended 31^st March 2021 as compared to 6 months ended 31^st March 2020 (Proforma). Notably, improved seasonal conditions as well as commodity prices generated robust demand for Nufarm crop protection products as well as seed technologies.
• The gross profit margin improved to 29% (excluding corporate revenue) from 27% mainly assisted by higher margins in Europe and APAC.
• The company’s net profit after tax rose to $59 Mn from the loss relative to the statutory comparative period. This lifted the basic EPS to 14.5 cents.

Key Data (Source: Company Reports)

Outlook:

The group expects the net external interest costs, without taking into consideration the foreign exchange gains and losses, to remain between $55 million to $60 million in FY21 (assuming AUD/USD exchange rate of 76 cents). Further, it has guided of lower capital expenditure compared to its earlier guidance of $180 million owing to phasing in the timing of expenditure.

Key Risks

The company is exposed to the risks related to the industry consolidation, regulatory environment, climatic conditions, etc. Also, the timing of weather seasons in the geographies in which NUF operates is uncertain as well as varies from year to year.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The global performance improvement program is anticipated to achieve the run rate of ~$25 Mn in SG&A cost reduction projects by current financial year end.

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price which reflects a rise of low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average considering decent outlook as well as higher revenue from ordinary activities for 6 months ended 31^st March 2021 as compared to 6 months ended 31^st January 2020. 

Considering the aforementioned factors, we give a “Buy” recommendation on the stock price of A$4.430 per share (Time: 4:27 PM (GMT +10), Sydney, Australia) on 26^th October 2021. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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