So why did the shares in agricultural chemicals company Nufarm drop out of bed yesterday in the wake of what appeared to be a set of solid 2021 financial year results?
Revenue rose 10% to $3.2 billion, up from $2.85 billion in 2020, the first dividend (unfranked) since the back end of 2018 and profit of $61.6 million, up from the $80.6 million loss the year before.
Not stellar, but clear evidence the company has seen a recovery to go with the better conditions in rural and regional areas of the country, especially along the East Coast.
The company also announced unfranked dividends of 4 cents per share, the first dividend since a 6 cents per share payment was declared this time in 2018.
However, the market was disappointed, with shares down 10% to $4.535 during the day after falling more than 6% at the opening. They closed the day down 8.5% at $4.59.
Nufarm CEO Greg Hunt said investors may be hesitating because they were not expecting to see the same strong performance until the 2022-23 financial year.
“The market may have been a little disappointed with our commentary around the outlook (for the 2021-22 year),” Mr Hunt told Nine/Fairfax media.
“I wasn’t prepared to be more bullish at the moment for a number of reasons: we’ve still got global supply chains that are unpredictable, raw material prices increasing.”
“So the market’s probably saying, ‘great results – but can you do it again?’ I’d say there’s probably more leverage to the downside than the upside.”
Mr Hunt said that while the company was looking for favourable growing conditions for this summer’s crop, it reckons earnings and revenue growth would be much stronger in 2023-24 than the current financial year.
He said in earlier commentary that the year’s performance was thanks to “exceptionally positive” seasonal conditions that looked to continue into the 2022 financial year.
Growth in the European, North American and seed technology businesses were also behind the strong performance.
Mr Hunt said the business was continuing to monitor ongoing supply chain challenges but flagged that this would continue pressuring profit margins.
“However, we expect price increases and volume growth will provide an offset,” he added.
For 2022, Mr Hunt said the business would focus on its long-term growth strategy as well as “optimising trading, improving margins and lifting cash generation”.