The Nufarm Limited (ASX: NUF) share price rose as much as 7% today following the release of an announcement to the ASX, which includes an earnings update.
About Nufarm
Nufarm is one of the world’s leading developers and manufacturers of seed and crop protection solutions, helping farmers fight disease, weeds and pests to increase crop yields. With the company’s origins dating back over 100 years, Nufarm has built a global crop protection business with operations in North and South America, Europe, New Zealand and Asia.
There’s a fair bit of information in the announcement, however, the major points are as follows…
Trading Update
Nufarm provided a trading update which includes a downgrade in earnings/profit expectations for the 2019 financial year. Nufarm now expects to report underlying EBITDA of around $420 million, which is lower than the previously advised range of $440 million to $470 million and consensus estimates of $436 million.
The following Rask Finance video explains underlying EBITDA.
Nufarm said its earnings/profit has been impacted by adverse seasonal weather conditions and supply related impacts. Unprecedented flooding in North America, continued dry conditions in Australia, higher costs for products sourced from China and lower planned sales in Europe combined to make it a tough year.
Share Placement / Capital Raising
Nufarm management has decided to undertake a placement worth $97.5 million in preference securities to their existing shareholder and strategic business partner, Japanese firm Sumitomo Chemical Company. The money raised will be used to strengthen the balance sheet.
Sumitomo is able to exchange the securities for shares in Nufarm after 24 months at a price of $5.85 per Nufarm share. A quarterly distribution on the securities at a fixed rate of 6% will be paid to Sumitomo for the first year, and 10% after that.
The following Rask Finance video explains ASX capital raisings:
A Difficult Year
Nufarm Chief Executive Greg Hunt said, “it’s been a difficult year, with external headwinds impacting performance in three of our four major markets”.
He said that while the contribution from Nufarm’s European portfolios acquired last year and growth in its seed technologies business will see the company deliver underlying EBITDA growth on the prior year, he was disappointed the work done to mitigate external challenges hadn’t been enough to achieve targets set for the financial year.
Two months ago shares in Nufarm fell on the back of concerns around glyphosate.
Buy, Hold or Sell
With the shares up 7% at the time of writing, the market has given the tick of approval to the placement and may have expected the earnings/profit downgrade to have been worse. The Nufarm share price is down almost 50% from this time last year, so investors may believe the worst is over for and its time to dip their toes in.
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Disclosure: At the time of writing David does not hold a financial interest in any of the companies mentioned.
