MENU

Credit Suisse says Graincorp is a Buy

Shares in grains storage and transport company Graincorp Ltd (ASX: GNC) bounced higher on Monday despite brokers having mixed views on the stock after the company’s first-half result.

Credit Suisse is one broker that is positive. It upgraded the stock to “Outperform” from “Neutral” due to recent share price weakness going into the first-half result and Graincorp having a number of initiatives likely to deliver better profit and capital utilisation over the medium term.

The favourable view comes after Graincorp reported a large contraction in first-half earnings on Friday as ongoing dry weather conditions plagued crop production.

The company posted a 64% decline in underlying net profit after tax to $36 million and almost a 50% fall in underlying earnings before interest, tax, depreciation and amortisation to $119 million. Graincorp also cut its interim dividend from 15 cents to 8 cents per share.

The result came on the back of peer Incitec Pivot Ltd (ASX: IPL) posting a 1H2018 result that was below consensus forecasts, and fellow agricultural group, Nufarm Limited (ASX:NUF), downgrading earnings forecasts due to ongoing challenging weather conditions across Australia, Europe and the United States.

Credit Suisse says that whilst near-term catalysts for Graincorp are largely weather related, “medium-term prospects for a significantly more diversified grain marketing business, asset sale opportunities, an improving earnings picture in refined oils and further opportunities in craft malt and whisky remain supportive of valuation.”

The broker cut its target price to $8.80 from A$9.06 largely due to debt adjustments.

Other brokers are more cautious, however, with mixed views on the outlook for Graincorp in FY2019.

Macquarie says while Graincorp is continuing to push ahead with efficiency and diversification efforts and these are starting to see results, it believes the rest of these results are only likely to flow through in FY2019. The broker kept its “Neutral” rating on the stock.

Morgans, however, believes there is potential for another challenging year for Graincorp in FY2019.

“Given the challenging start to the next winter crop and the potential for it to be another below-average year, we are cautious on GNC in the short term,” it said in a report.

It also says while there is potential upside risk from the company realising value from the sales of its infrastructure assets, it questions whether the company would divest its liquid terminal assets in the near term given they generate stable earnings.

Morgans has a “Neutral” rating on Graincorp.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Gabriella Hold has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.