Nufarm Limited

NUF Details

Nufarm Limited (ASX: NUF) is the crop protection manufacturing company, which is based in and focused on Australian Horticulture. The company deals in the business of developing as well as manufacturing crop protection solutions and seed technologies.

Robust Performance in FY21 (For the Year Ended 30 September 2021)

• NUF has delivered healthy growth in underlying earnings before interest, tax, depreciation & amortisation (uEBITDA), up 51% YoY to $370 million largely driven by strong demand for its crop protection and seeds products.
• Revenue increased by 10% to $3.2 billion over the previous corresponding period.
• Performance improvement program has provided $20 million in FY21 and $25 million since inception.
• The company has improved net working capital and cash generation, with $257 million in free cash flow on 30 September 2021.
• The company has declared an unfranked dividend of 4 cents per share.

Source: Company Reports, Analysis by Kalkine Group

Q1FY22 Trading Update

The company recorded 36% growth in revenues in Q1FY22 compared to Q1FY21 driven by favourable weather conditions, mainly in Australia and the continuation of robust customer demand across regions for Nufarm’s crop protection and seed products. Meanwhile, the company is witnessing upward pressure on costs owing to the impact of raw material costs as well as global logistics challenges. These are being offset by higher revenues.

Recent Updates

• NUF’s wholly owned subsidiary, Nuseed Limited, has entered into a long-term strategic offtake and market development agreement with BP Products North America Inc., an affiliate of BP p.l.c., that would see bp, or its affiliates, purchase Nuseed Carinata oil that it plans to process or sell into the growing markets for the production of sustainable biofuels.
• The company, on 28 January 2022, declared the settlement of US$350 million in aggregate principal amount of senior unsecured notes having maturity in 2030 that were issued by its wholly owned subsidiaries, Nufarm Australia Ltd and Nufarm Americas Inc.

Key Risks

Changes in customer choice pose a greater risk as it sells and distributes its products through third parties. The crop protection products are prone to regulatory review and approval due to the heavily regulated industry.  Further, adverse weather conditions viz, prolonged drought, or excessive flooding, may lower the demand for crop protection products.

Outlook

The company highlighted that the outlook for soft commodity prices remains positive as well as improved seasonal conditions in key grain producing regions is resulting in continued demand for the seeds as well as crop protection products.

The company expects earnings in FY22 will be deeply weighted to the first half of the financial year and remains more assured of revenue and earnings growth for FY22. Besides, NUF aims to attain group revenues of >$4 billion.

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

Stock Recommendation

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects the potential fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Median) considering the cost side pressure as well as the risks associated with the business.

Considering the aforementioned factors along with the current trading level, we advise the investors to liquidate the stock.

Thus, we give a “Sell” rating on the stock at the closing market price of A$5.590 per share, up by 20.215% on 3^rd February 2022.

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

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.