MENU

Nufarm Limited (ASX:NUF) profits hit by Australian drought

Source: Company presentation

The Nufarm Limited (ASX: NUF) share price will be one to watch next week when it returns from a trading halt.

This morning the company released a disappointing set of results for FY 2018 and announced a $303 million pro rata renounceable entitlement offer.

Here’s how Nufarm performed in FY 2018 compared to a year earlier:

  • Revenue increased 6% to $3,308 million.
  • Underlying EBITDA down 1% to $386 million.
  • Underlying net profit after tax fell 28% to $98 million.
  • Reported net loss after tax of $16 million.
  • Full year dividend down 15% to 11 cents per share.
  • $303 million pro rata renounceable entitlement offer announced.

Although a weak full year result was expected due to the negative impact of the drought in regional Australia, this result may have been even worse than feared.

According to a note out of Goldman Sachs this week, it was expecting the crop protection and specialist seeds company to post a net profit after tax of $111.4 million, down 18.1% on the prior period. Whereas its underlying result was $98 million, down 28% on FY 2017’s result.

As you can see below on the EBITDA bridge, the drought (first orange column) had a major impact on its result and offset the benefits of its European acquisition and organic growth.

Source: Company presentation

Had it not been for the ANZ segment, FY 2018 would arguably have been a reasonably positive year for Nufarm.

Its North American segment saw sales and EBIT rise 10%, the Latin America segment achieved sales growth of 8% and EBIT growth of 2%, the European segment grew sales by 19% and EBIT by 1%, and the Asia segment saw sales rise 3% but EBIT fall 9%.

Outlook.

Assuming average seasonal conditions for the major selling periods in its key markets and no material impacts from government policy changes or third party supply interruptions, management expects EBITDA to be in the $500 million to $530 million range for the FY 2019 financial year.

This will be an increase of between 29.5% and 37.3% on FY 2018’s result and is expected to be driven by a combination of revenue growth, the partial recovery in the Australian business, and the full year benefit of its European acquisitions.

Entitlement offer.

As well as announcing its results, the company announced a $303 million pro rata renounceable entitlement offer.

All shares offered under the offer will be issued at a price of $5.85 per share, which represents an 11.9% discount to dividend-adjusted last close price of $6.64.

The proceeds will be used to strengthen its balance sheet and help fund the continued growth of its business.

Should you invest?

Based on today’s underlying result and the addition of 52 million new shares to the registry, I estimate that Nufarm’s shares are changing hands at 24x underlying earnings.

I don’t think that this is particularly good value for its shares and would suggest investors hold out for a better entry point.

In the meantime, I see more value in materials sector peers BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

Alternatively, these blue chip growth shares could be better than all three shares.

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 James Mickleboro 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!