Nufarm shares wilt in hot weather
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.
Frequently Asked Questions about this Article…
The article says Nufarm warned that unusually hot and dry weather in eastern Australia was hurting its earnings, prompting investor concern and a roughly 9% drop in the share price. The stock closed 58¢ lower at $5.75 after the update.
According to the article, Nufarm stuck to its guidance for the first half of 2012–13, saying stronger-than-expected results from its South American and European operations would offset the weaker Australian business. The company also said autumn rainfall would determine planting activity and demand for crop‑protection products in the second half.
The article reports Nufarm expects its underlying profit for the six months to January 31 to be 15% higher than the $37.8 million it reported a year earlier.
PhillipCapital analyst Paul Jensz said Nufarm is a diverse company that can ‘fight back’ despite dry Australian conditions and slightly downgraded his full‑year earnings estimates. Citi analyst Tim Mitchell said the roughly 10% share price rise over the past three months was ‘not warranted’ given moderating seasonal conditions and reiterated a 'sell' recommendation.
The article says Nufarm lost the Australian distribution rights for BASF’s crop‑protection products. Those products made up under 10% of Nufarm’s Australian sales and less than 3% of its global revenues. BASF plans to sell its own product in Australia from March next year; Nufarm said it can supply alternative products and be a ‘strong competitor,’ and an analyst described the loss as small in the scheme of things.
Yes. The article notes Paul Jensz warned the dry seasonal conditions could pose a minor challenge for Incitec Pivot and GrainCorp, while Ridley Corp might benefit if growers increase their reliance on feed supplements.
Per the article, GrainCorp shares were effectively flat, up 1¢ to $12.01; Ridley was unchanged at $1.18; Incitec Pivot fell about 1.3% (4¢) to $3.10 and had been downgraded by CommBank analysts; Nufarm fell to $5.75.
The article highlights a few investor takeaways: weather can materially affect agribusiness earnings and share prices; Nufarm’s geographic diversification (South America and Europe) is helping offset Australian weakness; losing BASF Australian distribution rights looks to be a small revenue hit; and analysts have mixed views—some see resilience, others caution that recent share gains may not be justified given seasonal uncertainty.
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