LA Private

Nufarm looking like the cream of the crop

Unlike other companies operating in the rural sector such as United Malt, Incitec Pivot and Elders, Nufarm (ASX:NUF) seems to have had an almost trouble free six months to March 31 with revenue up, earnings up and a higher dividend.

The only negative was the seasonal surge in debt to handle the expected rise in sales of its range of pesticides and services later in the year.

At a time of higher interest costs, that increase might have been expected to worry investors but yesterday it was ignored as the shares leapt more than 14% to end at $6.05, the highest they have been since January this year.

United Malt, Elders and IPL all reported lower earnings, lower or static dividends or no dividends in the case of UMG because it’s facing a possible takeover.

But Nufarm lifted interim dividend 25% to 5 cents a share (sounds better than a one cent a share increase) on a 7% rise in underlying net after tax profit of $142 million.

Underlying gross profit was up 3% to $609 million, with Nufarm reporting that the underlying gross profit margin improved over 120 basis points to 31%.

But underlying EBITDA eased 4% to $316 million which was explained by a 9.7% slide in revenue to $1.95 billion, from the $2.165 billion reported for the first half of 2021-22.

“Favourable seasonal conditions and relatively high grain prices generated strong demand for Nufarm crop protection products and seed technologies. This was somewhat offset by softening demand following record high prices achieved in the first half of FY22 due to supply uncertainty,” Nufarm explained in Thursday’s release.

“This resulted in revenue reducing 10% to $2.0 billion relative to the comparative period while operating profit increased by 27% to $235 million.

CEO Greg Hunt was upbeat in the ASX filing, saying in a prepared commentary that “This is an excellent result, that has been driven by Nufarm’s transformed structure and increasing shift to innovative and differentiated solutions.”

“Our diverse portfolio and geographic footprint provide earnings stability and resilience, while our omega 3 and bioenergy platforms provide significant growth potential.

“Global conditions remain positive, with agricultural commodity prices at or above five- year averages.

“We have made excellent progress on our key growth initiatives; we are hitting our key milestones and remain on track to meet or exceed our growth aspirations.”

And looking to the rest of the year Mr Hunt said the outlook for Nufarm was positive.

“We continue to expect to deliver modest underlying EBITDA growth in FY23, on a constant currency basis and assuming normal seasonal conditions.

“Our net debt and leverage have increased driven by net working capital movements reflecting seasonal build and increased inventory, particularly in the North America, however inventory is expected to reduce in the second half as growers take delivery to meet seasonal deadlines and stocks are consumed closer to use periods.

“Accordingly, leverage is anticipated to return to within or below the targeted range of 1.5 to 2.0 times net debt to underlying EBITDA by 30 September 2023.

“Favourable seasonal conditions are being experienced in most key agriculture markets and we are seeing good demand for our seed and crop protection products in early 2H23 trading.