Nufarm Limited

NUF Details

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

Financial Results for 1H’FY22

• The company has posted revenue growth of 31% YoY to AUD2.2 billion, benefitted from healthy seasonal demand and improved commodity prices.
• The company has reported an underlying EBITDA (uEBITDA) of AUD330 million, an increase of 41% on pcp driven by transformation initiatives, a better portfolio mix and better cost management.
• The Board approved an unfranked interim dividend of 4 cents per share.
• It holds a healthy balance sheet, with leverage at 1.1 times (net debt to uEBITDA).

Key Updates

• On 21 September 2022, the board of the company appointed Ms Alexandra Gartmann as a Non-executive director of the board, effective from 23 September 2022
• On 9 September 2022, NUF acquired the energy cane production assets of GranBio Investimentos SA (GranBio) group for USD25 million. NUF has also signed a long-term technology access and license agreement with GranBio group to fast-track the development and global expansion of energy cane.

Outlook

The outlook for soft commodity prices remains positive, and better seasonal conditions in key grain-producing regions are driving robust demand for crop protection products. However, the uncertainty and volatility about active ingredient pricing, global supply chain, and logistics constraints persist, which has led to a rise in forward sales in 1HFY22. The company expects the underlying EBITDA in FY22 will be deeply weighted to the first half of the financial year, given the elevated forward sales due to the uncertainty and volatility. NUF aims to attain more than AUD4 billion in group revenues by 2026, with the seed technologies revenues expected between AUD600-AUD700 million in 2026.

Key Risks

The company’s business is exposed to the risks of adverse weather conditions, such as prolonged drought or excessive flooding, which may lower the demand for crop protection products. Changes in customer choice pose a greater risk as it sells and distributes its products through third parties. Crop protection products are prone to regulatory review and approval due to the heavily regulated industry.

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

Stock Recommendation

Over the last one year, the stock has given a return of ~+26.38%.

The stock has been valued using EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering global supply chain disruptions and inflationary pressure.

Considering the resistance and target level achievement, current trading levels and risks associated, it is prudent to book profits at the current levels. Hence, a ‘Sell’ rating has been provided on the stock at the current price of AUD5.535 per share, as of 28 October 2022 (Time: 11:11 AM (GMT+11), Sydney, Australia). 

Technical Overview:

Daily Price Chart

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Nufarm Limited (NUF) is a part of Kalkine’s Global Primary Product

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is October 28, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

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