TASSAL GROUP LIMITED (ASX: TGR)

TGR Details

Prevailing negativity: Tassal Group Limited, which is engaged in hatching, farming, processing, sale and marketing of Atlantic salmon, suffered a blow with many negative sentiments erupting against the stock despite giving a positive twist to its outlook. The Company is an integrated Salmon grower and Seafood processor, seller and marketer, and produces smoked, canned and frozen Tasmanian grown Atlantic salmon products for distribution in retail and wholesale channels throughout Australia and export markets. However, the stock seems to be hit by the falling salmon prices and softness anticipated in export prices.
 
After having a look at the financials, FY17 NPAT improved over FY16 and increased from $48.49m to $58.08m up 19.8%. Tassal’s FY17 performance reflected that the Company’s clear focus is on optimising fish growth and margins. The focus on fish size allowed Tassal to match fish to sales market demand both domestically and internationally to support sales mix which in turn optimised margins and also its safety performance improved in the current year. However, Tassal is still an agricultural stock and continues to focus on further risk mitigation in the hatching and growing ends of its business. Tassal is committed to maintain sustainable operations in Macquarie Harbour. Over the past 5 years, the entity has achieved significant growth in revenue, profits and earnings per share. Net Debt to equity ratio decreased from 33.48% to 12.42%. The only concern was that the group had its biological assets valued at $312.405 million at 30 June 2017 and these biological assets were measured at fair value less estimated point of sale costs which reflected an uncertainty in the valuation. However, Tassal’s cost of growing efficiency has improved and the group continues to get closer to global best practice.
 

Performance over the years (Source: Company Reports)
 
The group has given a positive outlook for 2018 and aims to maintain existing channels to market with continuing growth in domestic per capita consumption. TGR also intends to expand in Farming sector at Okehampton, Port Arthur and Oceanic sites, and expand exports with focus on processing sector in terms of automation.
 
Stock performance: The stock has fallen 8.63% in last one year and 17.05% in last one month, as at December 07, 2017. Given the weakness, we put an “Expensive” recommendation atthe current market price of $3.62
 
 

NUFARM LIMITED (ASX: NUF)

NUF Details

Trading softness: Nufarm Limited is one of the world's leading crop protection and specialist seeds companies which has products to help farmers protect their crops against damage caused by weeds, pests and disease. NUF has achieved above market growth and has increased market share in all the hub countries around the world. They have reduced the fixed cost base of the business which lifted the profitability and enhances the competitiveness, and the group now expects cumulative net benefit of at least $116 million through the program. Over the last three years, they have achieved a revenue growth of 19% and a compound annual growth rate of 6% despite challenging conditions. An increase in return on funds employed was also seen from 9.1% to 13.6% over the last the three years. In the recent financial performance, Nufarm’s European sales were noted to be below the prior period by 2% (2017: $539.8 million versus 2016: $550.4 million), but grew 7% on a constant currency basis. A majority portion of revenue comes from Australia and New Zealand from crop protection as compared to North America, Asia and Latin America.
 
However, the group now expects softness in trading in Latin America along with an impact on productivity from plant shutdowns in Australia. Further, competitive pricing pressure on commodity products is seen to be mounting up. The group now updated that the first half earnings before interest and tax (EBIT) will be between $70 million to 80 million, and this is below the prior corresponding period’s EBIT of $85 million. This weakness led the stock suffer some losses on ASX. On the other side, the latest acquisitions (for which regulatory clearances are yet to be sought) with revenue growth and cost savings are still expected to benefit the group over the full year.
 

Trading Update (Source: Company Reports)
 
Stock performance: Given the mixed outlook and certain shortcomings, we believe that the stock is “Expensive” atthe current market price of $8.45

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