##{"id":58917,"date":"2011-09-29T11:57:31","date_gmt":"2011-09-29T01:57:31","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/09\/29\/has-nufarm-turned-the-corner\/"},"modified":"2011-09-29T11:57:31","modified_gmt":"2011-09-29T01:57:31","slug":"has-nufarm-turned-the-corner","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/09\/29\/has-nufarm-turned-the-corner\/","title":{"rendered":"Has Nufarm Turned The Corner?"},"content":{"rendered":"

\n\t– Nufarm's<\/span> earnings met previously lifted guidance
\n\t– Forecasts and targets revised
\n\t– Ratings on Nufarm<\/span> remain split<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tEarlier this month Nufarm<\/span> ((NUF<\/span>)) lifted full year profit guidance to a result of more than the $88-$94 million forecast in July and yesterday's result met this guidance as underlying net profit came in at $98.3 million. This equates to growth of 68% relative to the previous corresponding period.<\/p>\n

\n\tThe result was viewed as somewhat mixed by brokers covering the stock, Goldman Sachs noting while improved operating performance within the South American division has seen estimates for that region lifted, this is offset by cuts to expectations for the North American businesses and to a lesser extent the Australasian operations.<\/p>\n

\n\tCompany guidance also suggests a higher tax rate for Nufarm<\/span> going forward, which supports the move by Goldman Sachs to cut earnings estimates in coming years. In earnings per share (EPS) terms forecasts have been cut by 14.8% and 14% respectively for FY12<\/span> and FY13<\/span>.<\/p>\n

\n\tCiti<\/span> has reacted differently to the result, lifting earnings forecasts by around 5% in both FY12<\/span> and FY13<\/span> to reflect an improved product mix and a modest increase in margins. Citi<\/span> expects above average operating conditions for Nufarm<\/span> should continue for another year.<\/p>\n

\n\tDeutsche Bank has also lifted forecasts by a similar level to Citi<\/span>, but the broker suggests earnings risk at present remains to the downside. BA Merrill Lynch has sided with Goldman Sachs, trimming forecasts slightly to account for more normal conditions in the Australian market. Consensus EPS forecasts for Nufarm<\/span> now stand at 41.9c<\/span> and 49.3c<\/span> respectively, which compares to the 33c<\/span> achieved in FY11<\/span>.<\/p>\n

\n\tOne key element in the Nufarm<\/span> result according to BA-ML was an improvement in debt, as gearing has fallen to 30% from 35% in the previous corresponding period. This suggests the benefits of recent restructuring moves are starting to become apparent, so there remains potential for further margin expansion in coming years as the product mix continues to improve.<\/p>\n

\n\tA further positive is Nufarm<\/span> appears close to finalising<\/span> a $600 million debt refinancing, an announcement BA-ML suggests will go a long way to allaying market concerns over existing debt. Citi<\/span> estimates an amount of a little more than $600 million is a sustainable debt level for Nufarm<\/span> going forward.<\/p>\n

\n\tWhile market conditions for Nufarm<\/span> are seen as favourable<\/span> for the year ahead, Citi<\/span> sees some growth constraints longer-term as conditions normalise<\/span>. There is also scope for some market share losses thanks to rising import competition in Australia and stronger competition generally in chemicals markets.<\/p>\n

\n\tThis leaves brokers with mixed views on Nufarm<\/span> at current levels, as evidenced by the breakdown of ratings in the FNArena<\/span> database of four Buys, two Holds and two Sells. Deutsche has made the only rating change post the profit result, downgrading to a Sell on Nufarm<\/span> on valuation grounds given the stock is trading at a 15% premium to the broker's valuation of $3.75.<\/p>\n

\n\tThe Hold argument from Citi<\/span> is that while the stock appears fairly priced given reduced refinancing risks and favourable<\/span> near-term conditions, there is a need to be cautious longer-term given the expectation of increasing competition in Nufarm's<\/span> markets.<\/p>\n

\n\tThe Buy argument from BA-ML is that the evidence of restructuring benefits flowing through and reduced debt concerns makes the stock more attractive, especially given the expectation of another year of good operating conditions. The split in broker views is reflected in a wide spread of price targets, which range from $3.75 to $5.90.<\/p>\n

\n\tThe consensus price target for Nufarm<\/span> according to the FNArena<\/span> database is $4.89, up slightly from $4.80 prior to the profit result.<\/p>\n

\n\tShares in Nufarm<\/span> today are weaker in line with the broader market and as at 11.15am<\/span> the stock was down 16c<\/span> at $4.16. This compares to a range over the past 12 months of $3.08 to $5.80. The current share price implies upside of around 14% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"