Small Caps | Nov 22 2022
This story features NUFARM LIMITED. For more info SHARE ANALYSIS: NUF
Nufarm wraps up a strong year with guidance for modest growth ahead, surprising analysts who had largely predicted an earnings decline.
-Solid growth in Australia Pacific and North America underpins a solid FY22 result from Nufarm
-Guidance for modest growth in FY23 came as a positive surprise
-The company retains its five-year aspirational revenue targets
By Danielle Austin
Analysts have largely been surprised by Nufarm ((NUF)) guiding to modest earnings growth in the coming year, with some labelling guidance as optimistic as the company faces tough comparables.
Nufarm has closed out its FY22 fiscal year with underlying earnings of $447m, equating to 17% growth year-on-year. Geographically, Australia Pacific earnings grew 21% year-on-year to $135m, while North American earnings grew 42% to $148m. Revenue and margin expansion particularly benefited from higher selling prices.
Despite facing tough comparables in both regions, Nufarm has guided to modest underlying earnings growth in the coming fiscal year. The company anticipates conditions will remain favourable.
While its seeds segment is a major growth driver for Nufarm, the company has a strong pipeline of crop protection products in the works, with some already entering the market in the year past.
Nufarm also feels it remains on track to reach its aspirational five-year targets. The company maintains a revenue target of $4.6bn by FY26, equating to a 7.5% compound annual growth rate from its FY21 base. Nufarm anticipates growth in its seeds and crop protection segments.
What do the brokers say?
Macquarie (Outperform, target price $7.75) finds Nufarm to be progressing towards its five-year targets nicely, but does continue to forecast revenue of $4.1bn by FY26.
Macquarie anticipates demand for crop protection will remain strong over the coming year, and that a tight industry will continue to support pricing despite some easing of supply chain pressures. The broker notes inventories have increased, partly in anticipation of North American demand. Macquarie also feels the long-term value of Nufarm’s seeds potential is not yet captured in the share price.
A positive outlook from Credit Suisse (Outperform, target price $7.09) is underpinned by new product launches in crop protection and growth in Nufarm’s legacy seed business. This broker considers growth acceleration in seeds over the last year to be a highlight of the FY22 result.
Citi (Buy, target price $6.40) and UBS (Buy, target price $7.50) round out the equivalent Buy ratings on Nufarm.
Morgans (Hold, target price $6.70) described the near-term earnings outlook as uncertain given the material earnings growth the company has delivered over the last two years. This broker assumes flat growth in the coming year on more normalised seasonal conditions, and a return to solid growth from FY24 as the company benefits from higher margin products and the scaling up of its seeds segment.
Lifting its rating to Accumulate, Ord Minnett (target price $6.40) expects good seasonal conditions to persist. This broker highlighted growth in Europe over the last year has been muted amid manufacturing interruptions and supply chain issues challenged. Positively, regulatory headwinds in Europe appear to be abating, but Ord Minnett estimates a -GBP21m revenue impact in the coming year from product deregulations.
The broker sees further upside potential for the share price while Morgan Stanley (Equal-weight, target price $6.80) sees the current valuation as fair, and expects progress on growth targets to be key to a better outlook.
Outside of core coverage, Wilsons (Market-weight, target price $5.63) was surprised by Nufarm’s guidance for growth in the coming year. This broker had previously assumed a -12% earnings decline, and maintains that guidance appears optimistic.
Wilsons does add it is encouraged by the progress expected for both the Omega-3 and Carinata programs.
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