ASX:NUF
Nufarm Ltd
Investment Summary
The fund managers believe that Nufarm Ltd has faced significant challenges due to drier weather conditions and a decline in on-farm purchases by farmers, resulting in a contraction in demand for crop protection products. Despite announcing a ~5% downgrade to EBITDA guidance for FY23, they view this outcome as relatively strong, especially compared to peers facing negative earnings impacts of over 20%. The fund managers express confidence that Nufarm is a higher quality business than in previous years, bolstered by the company's focus on high-margin, high-growth proprietary formulations in its crop protection segment. Additionally, Nufarm's seeds division is expected to experience strong earnings growth, driven by innovations like Omega-3 and Carinata traits. Overall, they anticipate a return to normalised ordering patterns as agricultural conditions improve.
Commentary From The Managers
L1 Capital
31 Dec 2023
$5.29
- Seed technologies segment within Nufarm Group has achieved a CAGR of 49% p.a. over the past three years.
- This segment now accounts for 20% of group earnings.
- Nufarm aims to grow EBITDA in this segment to ~$150m by FY26 and over ~$400m by FY30.
- A significant driver of growth is the proprietary Omega-3 seed technology.
- This technology offers a sustainable and scalable solution to meet the increasing Omega-3 demand from the fish farming industry.
L1 Capital
31 Dec 2023
$5.29
- Nufarm shares have recovered by 10% following solid FY23 results despite challenging weather and destocking.
- Improved agricultural conditions and a return to normal inventory levels are supportive of future ordering patterns.
- L1 Capital views Nufarm as a higher-quality business compared to previous years.
- Augmentation of crop protection business with high-margin proprietary formulations is in progress.
- Nufarm's seeds division is commercializing new traits such as Omega-3 and Carinata, expected to drive earnings growth.
- L1 Capital continues to hold Nufarm due to these positive developments and growth prospects.
L1 Capital
31 Oct 2023
$4.33
- Nufarm (Long -9%) shares have declined alongside global agriculture peers due to adverse weather conditions.
- A decrease in on-farm purchases by farmers has been observed, shifting from inventory build-up during COVID-19 to just-in-time purchasing.
- Significant contraction in demand for crop protection products, especially in North America, is noted as inventories are adjusted.
- Nufarm announced a ~5% downgrade to EBITDA guidance for FY23, reflecting the challenging operating environment.
- This performance is considered relatively strong, especially compared to peers experiencing negative earnings impacts of >20%.
- L1 Capital views Nufarm as a higher-quality business than in previous years.
- The company is enhancing its crop protection operations with high-margin, high-growth proprietary formulations.
- Nufarm’s seeds business is commercializing innovative traits like Omega-3 and Carinata, aiming for strong earnings growth.
L1 Capital
30 Sept 2023
$4.73
- Nufarm (Long -8%) shares decreased, reflecting broader trends in global agriculture.
- Decline attributed to drier weather conditions and reduced on-farm purchases.
- Post-COVID-19, farmers shifted to just-in-time purchasing for crop inputs amidst falling prices and normalised supply chains.
- Significant contraction in demand for crop protection products, especially in North America.
- Nufarm announced a ~5% downgrade to FY23 EBITDA guidance due to operating challenges.
- Despite these challenges, this outcome is viewed as relatively strong, with peers facing negative impacts of 20% or more.
- Nufarm is now seen as a higher quality business compared to previous years.
- The company is enhancing its crop protection segment with high-margin, high-growth proprietary formulations.
- Nufarm's seeds business is commercialising exciting traits like Omega-3 and Carinata, projecting strong earnings growth.
L1 Capital
30 Sept 2023
$4.73
- Nufarm shares have declined along with global agriculture peers due to drier weather conditions.
- There has been a reduction in on-farm purchases by farmers.
- Farmers are shifting to just-in-time purchasing for key crop inputs as prices fall and supply chains normalise.
- This shift has led to a significant contraction in demand for crop protection products, especially in North America.
- Nufarm announced a ~5% downgrade to EBITDA guidance for FY23 due to the challenging operating environment.
- L1 Capital views this as a relatively strong performance given major industry headwinds, which are considered transitory.
- Nufarm has much higher quality business attributes compared to a few years ago.
- The company is enhancing its crop protection business with high-margin, high-growth proprietary formulations.
- Nufarm’s seeds business has commercialised exciting traits like Omega-3 and Carinata, expected to drive strong earnings growth.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.