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RBC insights: Nufarm's 1H24 results - Market challenges & outlook

EditorOliver Gray
Published 24/05/2024, 01:13 pm
© Reuters. - Nufarm Ltd (ASX:NUF), a global distributor of pesticides, recently reported a weaker than expected 1H24 result, with EBITDA falling 31% year-on-year to $217 million, marking an 11% miss versus RBC and consensus estimates. Despite this, the company declared a dividend of 4 cents per share, slightly below the RBC and consensus forecast of 5 cents per share.

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The less-than-stellar performance and future guidance primarily resulted from ongoing challenging market conditions and soft pricing. However, operationally, the company managed to register volume and mix gains, reduce inventories by 20%, and make progress on seed technology rollouts. Looking ahead, the company projects a return to price growth from FY25, forecasting a 3-year EBITDA CAGR of around 20%.

Nufarm's FY24 EBITDA guidance of $350-390 million missed market estimates by 16-17%, largely due to an unexpectedly flat market pricing profile for 2H24. However, the company continues to focus on operational improvements, anticipating a "strong" 10-40% year-on-year growth in 2H24 EBITDA driven by further volume growth and recovering margins.

The company reaffirmed its FY26 Ambition targets, including crop protection revenue of $3.8-3.9 billion and seed technologies revenues of $600-700 million. This target assumes a return to FY21 pricing by FY26, equivalent to a roughly 20% increase from current levels or approximately $600 million in revenues.

Despite a 20% reduction in inventories, the seasonal working capital build led to a rise in net debt to $1.2 billion and leverage to 3.6x EBITDA. However, Nufarm expects a seasonal unwind of receivables in 2H24, which would reduce net debt and bring leverage back to the upper end of the 1.5-2.0x target range by the end of FY24.

RBC has revised its estimates for Nufarm to reflect the weaker-than-expected 1H24 result and FY24 guidance, a flatter 2H24 pricing outlook, but a steeper FY25 price recovery, and MTM of macro drivers and peer comparisons. As a result, RBC's FY24/25/26 EBIT estimates fall by 34%, 20%, and 7%, respectively. RBC's 12-month price target is reduced by 7% to $6.25 per share, maintaining an Outperform rating.

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