Nufarm delivered a strong set of results for the first half of FY17, with earnings before interest and tax (EBIT) and net profit firmly ahead of Ord Minnett estimates. Outside of financial performance, our focus was squarely on the performance improvement program and the opportunity for Nuseed’s omega-3 canola platform.
Management guided to benefits of $20 million for FY17 from the performance improvement program and reiterated its target for an increase in EBIT of “at least” $116 million by FY18.
On the Nuseed’s omega-3 canola platform, management said it had submitted filings for regulatory approval in Australia, and expects to do likewise in the US and Canada this month. Expectations are for commercialisation of the Nuseed platform to begin in 2018 or 2019. We have not factored in earnings relating to this development, but it remains a potential source of upside.
The Nuseed omega-3 canola technology comes from a research collaboration between Nufarm, the CSIRO and the Grains Research and Development Corporation to develop canola which can produce long-chain omega-3 oil, which contains nutrients essential for human health. The project uses advanced technologies for genetic improvement to transfer plant genes from microalgae to canola to produce omega-3 oil, similar to that found in fish, thus reducing pressure on wild fish stocks.
Nufarm is set to deliver strong growth in the coming periods – we see a FY16–19 EBIT compound annual growth rate of 9.3% – but we maintain our Hold recommendation given minimal upside to our new target price of $10.10, raised from $9.10.