Nufarm Limited

NUF Details

Nufarm South America Sale to Sumitomo for $1,188 Mn: Nufarm Limited (ASX: NUF) is involved in the manufacturing and sale of crop protection products and its proprietary seed technologies business. It employs around 3,200 people at its various locations in Australasia, Africa, the Americas and Europe. Recently, the company entered into an agreement for the sale of crop protection and seed treatment businesses in South America to Sumitomo Chemical Company for cash proceeds of $1,188 Mn and customary net working capital adjustments on completion.The agreement is subject to review by an independent expert, shareholder approval and competition approval by relevant South American regulatory bodies.

FY19 Key Highlights for the period ended June 30, 2019:Revenue for the period increased by 14% to $3,758 Mn, majorly driven by growth seen in all regions except Australia and New Zealand. Underlying EBITDA increased by 9% to $420 Mn, driven by a full year contribution from the European portfolio acquisitions and growth in the North America, Seed Technologies and Asia business segments. Underlying net profit after tax for the period decreased by 9%, primarily due to the impact of a full year of depreciation and amortisation (D&A), relating to the acquired European portfolios. Net debt for the period reduced by 9% to $1,247 Mn, with the equity raising in first half of the year, strengthening the company’s financial position. In order to deleverage its balance sheet, the company decided to suspend dividend for FY19.


FY19 Key Financial Metrics (Source: Company Reports)

What to Expect:As per the release, continued drought conditions are expected to impact the east coast for the summer cropping season. No material impacts are expected from the government policy changes or additional third-party supply interruptions. FY20 actual results are expected to be impacted by the completion timing of the sale of Nufarm South America.

FY20 EBITDA is expected to improve in the range of c.$10-$15 Mn, on ANZ performance improvement program. Moreover, c.$15 Mn net EBITDA improvement is expected over supply issues and c.$5 Mn EBITDA improvement is expected due to no planned scheduled maintenance shut down in Europe.

FY20 Interest expense is expected to be in the range of c.$105-$110 Mn, including c.$30 Mn relating to South American businesses. Cost related to hedging and net FX is expected at c.$20 Mn, including c.$12 Mn relating to South American businesses. Depreciation and Amortisation expenses (D&A) are expected at c.$190 Mn, including $8 Mn relating to South American businesses. FY20 capital expenditure is expected at c.$150 Mn.
Stock Recommendation:NUF’s share generated a negative YTD return of 3.42%. Its gross margin and EBITDA Margin for FY19 stood at 27.5% and 11.5%, lower than FY18 results of 29.1% and 12.6%, respectively. Currently, the stock is trading closer to its 52-week high level of $6.940. Hence, we advise investors to book the profit at the current juncture and recommend a “Sell” rating on the stock at the current market price of $6.500, up 15.248% on October 1, 2019.

 
 NUF Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.