How long have you held the stock?
More than five years.
What do you like about it?
It offers a diversified exposure to the agriculture thematic with a strong position in generic crop protection and a distribution platform in most key global markets.
It is delivering self-help via an integration and rationalisation strategy across the business to generate efficiencies and enhance returns, with excess savings to be reinvested for growth.
Acquisition opportunities as global peers seek approval for a number of mega-mergers which may force divestments, while NUF itself could also be seen as an attractive target.
How is it better than its competitors?
Nufarm operates primarily in the generic crop protection market that can provide it with a degree of defensiveness in low commodity price environments.
The company is a manufacturer and distributor of off-patent chemicals that are used to protect against various of types of weeds, diseases and pests that can impact crop yields.
After the GFC and the collapse of the glyphosate market, NUF negotiated a difficult period and has managed to successfully diversify its product offering, rebuilding sales and margins and in the process re-earning the right to grow. An improving balance sheet and extensive distribution capability has it well placed to grow its product offering. NUF also has a seed business that may provide some blue-sky growth.
What do you like about its management?
The CFO, Paul Binfield has been with Nufarm since 2011 having previously been part of the Wesfarmers Group. His financial experience and technical skills were instrumental in helping turn around the company post the GFC. Greg Hunt developed a strong operational background within Nufarm and was promoted to the CEO role in 2015. He and Paul have used their relevant experience to embark upon a streamlining of the business that is expected to deliver material cost savings and efficiencies.
What is your target price on NUF?
$10.25 on a standalone 12-month forward basis.
At what point would you sell it?
Execution on the cost out program together with the acquisition and integration of a product portfolio divested by one of the global majors. On the negative side if a material deterioration in soft commodity prices reduces planted crop acreage.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has added over 0.7% to portfolio performance in excess of the market.
Is it a liquid stock?
Yes, it is in the top 200 largest stocks listed on the ASX and turnover recently has been in excess of $5 million per day.
Where do you see the value?
Despite a recent re-rating NUF represents value, only trading in line with pre-GFC historical averages. Near term growth is underpinned by management’s cost out program which should enable them to deliver above market growth, while forecast consolidation of competitors should leave Nufarm far better placed in a more rational competitive environment.
*Simon Brown is Portfolio manager with Tribeca Investment Partners. Tribeca funds are distributed by Grant Samuel Funds Management.
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