Nufarm Ltd

NUF Details

Decent profit result but below expectations: Crop protection company, Nufarm Ltd.’s (ASX: NUF) stock plunged 2.5% on September 26, 2017, despite the group reporting for a healthy FY17 NPAT growth with support from increased revenues and benefits from the performance improvement program and reduced net financing expense. The reported NPAT surged 316% to $114.5 million, however, this was below the consensus forecast by market, whileunderlying net profit moved up 25% to $135.8 million (excluding one of items, including the impact of $23 million in one-off restructuring and asset rationalisation costs). The group reported revenue growth of 12% while underlying EBIT is up by 5% given the industry headwinds. Reduced interest and foreign exchange losses also helped achieve a better profit result. While the group’s average net debt is down, the year-end net debt is higher than last year at the back of year-end working capital balance impacted by later seasonal conditions in several regions.

EBIT Scenario (Source: Company Reports)

Performance at LATAM was a drag: NUF achieved good earnings growth in all regions except for LATAM owing to difficult market conditions in Argentina where market demand was delayed due to excessive rain. The group now expects a modest earnings recovery for Argentina in FY18. European sales were also below the prior period by 2%. With regards to segment-wise result, seed technologies segment generated strong revenue and profit growth.

Vouching for opportunities: The group is continuing to assess opportunities that might arise from broader industry consolidation moves; and expects to achieve further growth in the current financial year. The group is evaluating opportunities to benefit from mega-mergers in the agrichemical industry (to the likes of ChemChina and Synengta, Dow Chemical and DuPont and Bayer's deal for Monsanto). It is also worth noting that group’s performance improvement program has delivered incremental EBIT benefit of $26 million and remains on track to deliver at least $116 million by FY18. In the last three years, NUF has delivered a revenue growth of 19% while margin expansion of nearly 300 basis points has been reported. However, the group’s underlying earnings have increased from $200m to just over $300m.

Stock Performance: NUF has fallen about 9% in last three months (as at September 25, 2017) owing to volatility, weak sentiments and challenging market scenario. On the other side, the group expects to have earnings growth in 2018 driven by revenue growth, margin expansion and additional cost savings benefits. However, given the challenges in some of the regions and trading scenario, we believe that the stock is still “Expensive” at the current price of $ 8.76


NUF Daily Chart (Source: Thomson Reuters)

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