Although they have fallen a back a touch now, the shares of agricultural chemical company Nufarm Limited (ASX: NUF) rocketed higher by almost 14% to a new 52-week high of $9.48 in early trade following the release of its full year results.
Despite announcing a 36% fall in net profit to $27.5 million, the result was far better than the $4.2 million loss which the market was expecting according to The Australian.
The drop in profits came as a result of one–off restructuring costs of $81.4 million. Excluding these costs underlying net profit after tax was $108.9 million, which also beat market expectations of $100.5 million.
If you exclude the restructuring costs, Nufarm actually delivered a reasonably solid result in a challenging market. The performance of its Australian business was a slight concern, but management is confident that it will strengthen in the year ahead.
Restructuring initiatives resulting in a lower and more flexible cost base, together with a better mix of high margin and commodity products are expected to see sales and production volumes increase. Furthermore, the outlook for the summer cropping season in Australia is positive following favourable weather conditions in winter and spring.
For the company as a whole management is expecting cost savings, margin expansion, and revenue growth to fuel earnings growth in FY 2017. This is despite the expectation of soft commodity prices and subdued market conditions.
Things are certainly looking positive for Nufarm and it could arguably be a better investment than materials sector peers Orica Ltd (ASX: ORI) or Incitec Pivot Ltd (ASX: IPL).
But with its shares changing hands at around 24x underlying full year earnings, I wouldn't necessarily rush to buy its shares right now. This is quite expensive compared to where it would trade at historically and as a result I would approach this one with caution.
