Nufarm Limited
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 18 March 2014, 1:17 PM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
At Nufarm's (NUF) Annual General Meeting in December 2013 the company announced it would conduct a thorough review of its Australian business. This business has been underperforming after two consecutive poor summer cropping seasons and is facing increased competition post the lost distribution agreements with Monsanto and BASF.
The outcome from the review was to drive greater efficiencies and cost savings and protect the company's market leadership position in Australia.
Specifically, the new structure includes:
- A stronger focus on product innovation and portfolio development (this is important as more innovative products are higher margin).
- Improving the utilisation of the company's manufacturing assets (importantly management believes that NUF can meet increased volume requirements in periods of higher demand).
- There will be efficiencies across logistics and supply chain areas. NUF intends to reorganise its regional service centre and warehouse network. This will result in the closure of six facilities, but the centres in key cropping areas will be retained.
- Various support and administration roles will be rationalised. There will be a significant headcount reduction across all areas of the business except product development - 105 employees out of the 673 workforce will be made redundant.
These changes will be implemented over a two year period. The annual cost savings are up to A$13m (approx. 10% of the total cost base). One-off restructuring costs of up to A$39m (A$28m is a non-cash item) will feature in the FY14 result.
A review of New Zealand manufacturing operations is also underway.
Our view
We view these changes positively. At the current share price, we belive that NUF represents excellent value for when a more normal season returns.
Our philosophy has always been to buy quality agricultural stocks in years of drought when they are trading at their lows. When seasonal conditions recover, earning and share prices will be materially higher.
We reiterate our ADD recommendation with a share price target of A$4.75ps.
More information
Morgans clients can access our detailed research on Nufarm Limited (NUF). If you are interested in finding out more, please contact your nearest Morgans office.
Disclaimer(s): Analyst owns shares.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
-
Print this page
-
Copy Link