No surprises from the Nufarm FY19 result given the company kept the market well-informed. The surprise came with the sale of the LatAm business, which had been soaking up 33% of working capital while representing 28% of earnings, suffering negative cash flow for the last five years and exposed currency risk, at what Macquarie describes as a “good price”.
Significantly, the sale reduces debt to a comfortable level at this difficult time. The broker has subtracted LatAm earnings forecasts but lifted its target to $6.56 from $5.30, noting the stock trades at an enterprise value discount to global peers and the market is ascribing no value to Omega-3. The sale also increases Nufarm’s leverage to improved seasonal conditions in Australia. Upgrade to Outperform.
Sector: Materials.
Target price is $6.56.Current Price is $6.23. Difference: $0.33 – (brackets indicate current price is over target). If NUF meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges – negative figures indicate an expected loss).
