Seasonal headwinds confront agricultural chemical supplier Nufarm in some jurisdictions but several brokers retain a positive view based on acquisitions and cost savings.<\/p>\n
-Caution prevails re Latin America crop yields By Eva Brocklehurst<\/p>\n Agricultural chemical supplier Nufarm ((NUF)) is facing seasonal headwinds, as usual, but several brokers brush this aside, instead favouring a positive view based on the company's transformation program and acquisitions. Geographical diversity also provides support.<\/p>\n Argentina's worst drought in decades has ensured a poor crop, although Citi believes this should help reduce stockpiles and farmers may increase plantings, given a rally in grain prices. The broker believes the downside to Nufarm's business is minimal.<\/p>\n Bell Potter adopts a more cautious approach to earnings from the Argentinian crop because of low yields. Argentina accounts for over 15-20% of the company's Latin American business.<\/p>\n The broker is also careful about forecasts for Europe in light of recent inclement weather, as well as the drier-than-average finish to the Australian summer crop. These conditions suggest the focus will shift to the earnings growth profile through FY19-21 as this year progresses.<\/p>\n Yet, Bell Potter retains a favourable view on the stock based on the integration of the Century and FMC portfolios,<\/strong> as well as the cost savings to be delivered from back-office consolidation in Europe. Omega-3 canola is also expected to be profitable by FY21.<\/p>\n Citi, too, has a favourable view, upgrading to Buy from Neutral. The broker believes Nufarm is entering a period of double-digit growth calculated as a three-year CAGR of 11%. Recent acquisitions will introduce higher margins and the broker also flags the launch of Omega-3 canola.<\/p>\n The broker considers the shares oversold and offering a compelling buying opportunity, despite the weak first half guidance which has weighed on the shares recently, and anticipates a strong second half rebound.<\/p>\n Bell Potter reduces net profit forecast by -18% in FY18 and -3% in FY19. This is based on changes to the broker's settlement timeline for the Century acquisition and the contributions from FMC, which have a combined $110-115m pro forma in operating earnings (EBITDA).<\/p>\n The assumption for the close of the Century transaction is pushed out to the September quarter from the end of the first half, but forecasts for both assets in FY19-20 are unchanged.<\/p>\n Changed Earnings Drivers<\/u><\/p>\n Credit Suisse upgraded in early February to Outperform, believing the market is under-appreciating the long-term benefits of the company's transformation program<\/strong>.<\/p>\n The market may be struggling with the changes to earnings drivers, the broker also suggests. This view is based on improvements that emerge from a larger scale European position, a rebuilding of Australian market share and growth in the seeds business.<\/p>\n Moreover, Credit Suisse suggests a successful development of Omega-3 canola has not been factored into the share price and, while this contribution may not be completely certain, potential material upside exists.<\/p>\n There are five Buy ratings, one Hold (Ord Minnett) and one Sell (Deutsche Bank) on the FNArena database. The consensus target is $9.46, signalling 19.3% upside to the last share price. Targets range from $6.85 (Deutsche Bank) to $11.20 (Morgan Stanley).<\/p>\n<\/p>\n
\n-Omega-3 canola potential may be under estimated
\n-Changes to earnings drivers may not be fully recognised in share price<\/strong>
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