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Nufarm shares wilt in hot weather

24 Jan 2013 THE AGE
BY PADDY MANNING


SHARES in pesticide maker Nufarm slumped 9 per cent on Wednesday after the company said unusually hot and dry weather in eastern Australia was hurting its earnings, stoking fears of a soft earnings season for agribusiness stocks.

Nufarm stuck to its guidance for the first half of 2012-13, saying a better-than-expected performance from its operations in South America and Europe would offset the weaker Australian business.

PhillipCapital analyst Paul Jensz said Nufarm was "just flagging Australia's been dry, as everyone knows, but they're a diverse company and can fight back".

Nufarm said autumn rainfall would determine planting activity and the demand for crop protection products for the second half of the financial year.

"It is very likely, however, that due to the poor first-half conditions in Australia, the regional result at the full year will also be well down on the 2012 full year," the company said. Nufarm expects its underlying profit for the six months to January 31 to be 15 per cent higher than the $37.8 million reported a year earlier.

Mr Jensz, who downgraded his full-year earnings estimates slightly, said the announcement would check some of the strong growth Nufarm experienced in the past few months, while the dry seasonal conditions could prove a minor challenge for Incitec Pivot and GrainCorp. Ridley Corp would benefit as growers relied more heavily on feed supplements.

Nufarm closed 58¢ lower to $5.75, while GrainCorp shares were flat up 1¢ to $12.01, Ridley was unchanged on $1.18 and Incitec Pivot - which was downgraded by CommBank analysts on Wednesday - fell 1.3 per cent or 4¢ to $3.10.

Nufarm also announced it had lost the Australian distribution rights for crop-protection products made by German conglomerate BASF, which accounted for under 10 per cent of its sales in this country and less than 3 per cent of global revenues. BASF will sell its own product in Australia, head-to-head with Nufarm, from March next year.

Nufarm said it would be in a position to supply alternative products and would be a "strong competitor" to BASF.

Mr Jensz said it was a "small loss in the scheme of things".

In a note issued ahead of Nufarm's announcement, Citi analyst Tim Mitchell said Nufarm's circa 10 per cent share price rise over the past three months was "not warranted . . . at a time when seasonal conditions in Australia have moderated and pest pressures have eased".

Mr Mitchell also noted the uncertainty over the looming BASF expiry and reiterated a "sell" recommendation.

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