Why Macquarie isn't spooked by the plummeting Nufarm share price

The Nufarm Limited (ASX: NUF) share price has fallen to a fresh four-year low but this hasn't shaken Macquarie Group Ltd's (ASX: MQG) faith in the stock.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Nufarm Limited (ASX: NUF) share price has fallen to a fresh four-year low but this hasn't shaken Macquarie Group Ltd's (ASX: MQG) faith in the stock.

The Nufarm share price dipped 0.5% to $3.73 today, marking the fifth consecutive trading day of losses for the agriculture chemical and products group.

The stock is one of the worst performing large caps as it has lost nearly 40% of its value since the start of 2019 compared with a 12% gain by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

Litigation risks on the rise

Nufarm has been under pressure on a number of fronts. It issued a profit downgrade due to adverse weather, and more recently, had to deal with the risk of a major lawsuit stemming from the use of glyphosate after fellow chemical company Monsanto was successfully sued in the US for hundreds of millions by cancer patients who claim glyphosate caused their disease.

To be clear, Nufarm isn't named in any lawsuit but there is a growing risk that it will get swept up in the scandal.

"However, we note the issues raised aren't necessarily new. Importantly NUF does not manufacture glyphosate, rather it purchases glyphosate material from manufacturers like Monsanto to formulate into glyphosate-based products for sale," said Macquarie.

"NUF is one of many formulators and sellers of glyph-related product in Australia and US markets, with Monsanto and Chinese manufacturing the 'active' technical ingredient. We note that 143 companies have a registered and/or approved status on 600 glyphosate products in Australia with NUF having 10 registered products."

Bad news may be in the share price

The fact that Nufarm is a small player in the glyphosate market may provide some protection to the company even if the scandal widens.

This, coupled with the fact that the valuation for the stock is at a 10-year low has convinced Macquarie to stick with its "outperform" recommendation and 12-month price target of $6.38 per share.

Using Macquarie's numbers and if dividends are thrown in, the potential upside for Nufarm's share price is 73%!

There could also be upside from potential merger and acquisition activity as some out of favour stocks have attracted bids, such as Vocus Group Ltd (ASX: VOC).

"Potential risks [regarding] glyph are difficult to quantify although we note that main litigation focus has been Monsanto to date and NUF's valuation is already factoring in a substantial discount in this regard with >$400m of mkt cap wiped off specifically re glyph since first Monsanto court case award in August 2018," said Macquarie.

"It's all about the [balance] sheet in near term and June/July are seasonally important months for the business."

Motley Fool contributor Brendon Lau owns shares of Nufarm Limited. 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.

More on 52-Week Lows

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
52-Week Lows

3 ASX shares sinking to 52-week lows today

These ASX shares are having a bit of a nightmare this year.

Read more »

Young man sitting at a table in front of a row of pokie machines staring intently at a laptop. looking at the Crown Resorts share price
52-Week Lows

Star Entertainment share price crashes 26% upon return to trade

This is a new 52-week low.

Read more »

Rede arrow on a stock market chart going down.
Materials Shares

Core Lithium and 2 other ASX 200 lithium shares plunging to 52-week lows

Lithium stocks like Core are exploring new lows today.

Read more »

A man looks nervous as he inflates a balloon, scared it might pop.
Materials Shares

Arafura share price resets 52-week low after quarterly update

The rare earths explorer also announced the results of its share purchase plan today.

Read more »

A woman stands at her desk looking a her phone with a panoramic view of the harbour bridge in the windows behind her with work colleagues in the background.
Industrials Shares

APM shares rebound on Friday following 40% thrashing on weaker profit news

The international employment services company was punished for its 1H FY24 update.

Read more »

Piggy bank sinking in water symbolising a record low share price.
52-Week Lows

3 ASX 200 stocks starting the new year at near 52-week lows

Are these stocks buying opportunities?

Read more »

A businesswoman ponders why her boat is sinking in the ocean.
52-Week Lows

Lake Resources share price falls 7% to new 52-week low amid second strike AGM vote

Chair Stu Crow described "a year of significant progress" amid an 80% decline in the share price in 2023.

Read more »

A man sits uncomfortably at his laptop computer in an outdoor location at a table with trees in the background as he clutches the back of his neck with a wincing look on his face.
Materials Shares

Why did the Core Lithium share price just hit a 2-year low?

Top broker Goldman Sachs says falling lithium commodity prices may hit Core Lithium particularly hard.

Read more »