Nufarm: Updated Guidance Disappoints, but the Longer-Term Outlook Remains Sound

Our AUD 7.70 fair value estimate for no-moat Nufarm NUF stands, despite the Australian agricultural innovator announcing it expects fiscal 2023 underlying EBITDA to be within a range of AUD 430 million to AUD 440 million—about 14% below our prior forecast on a like-for-like basis. That is a disappointing decline on fiscal 2022′s AUD 447 million, despite the company previously guiding for modest underlying earnings growth, assuming normal seasonal conditions. But one season does not a company make.

We reduced our fiscal 2023 EPS and DPS forecast by 19% and 17% to AUD 0.35 and AUD 0.11, respectively. The dividend equates to only a modest 2.3% part-franked yield at the current share price, though on the back of a low 30% payout.

Despite the softer-than-expected fiscal 2023, our long-term assumptions stand. Nufarm remains on track for fiscal 2026 revenue aspirations of more than AUD 4.6 billion via increased customer relevance and market share. That would equate to a four-year revenue CAGR of 4.9% from fiscal 2022′s AUD 3.8 billion, considerably ahead of expected market average growth of 2.3%. Our AUD 4.6 billion fiscal 2026 revenue forecast remains in line with the firm’s minimum target, capturing new crop protection product introductions and accelerated seed technologies growth via Omega-3 canola and bioenergy developments.

Nufarm shares are down sharply from December 2022 highs above AUD 6.00, and at around AUD 4.70 are materially undervalued. Normalization to high agricultural commodity prices and El Nino are potential drivers, but ongoing earnings growth from the seeds technologies segment could be a key catalyst to share price appreciation, including via Omega-3 canola ramp-up. Our fair value still assumes a 5-year group EBITDA CAGR of 9.1% to almost AUD 700 million by fiscal 2027. Our group midcycle EBITDA margin assumption is 15%, improved against 12% in fiscal 2022, counting in particular on strengthening seeds technologies margins as product introductions scale.