Forum Archive Index - January 2001

["Ben Dutton" <bendutton@sharechat.co.nz>]

Great post on NUF Peter - thanks for bringing this undervalued share to chatters' attention. 

 

I'd like to add a couple of comments as well.

 

At their last AGM Nufarm's Chairman, Kerry Hoggard, stated:

 

"The board believes that if the company is consistently adding economic value and the market is convinced that it will continue to do so then, the share value will appreciate. It is therefore very disappointing to both the management and the board that this has not proven to be the case and the current share price significantly undervalues the business."

 

(Check out the full ShareChat news article on Nufarm's AGM here:)

 

http://www.sharechat.co.nz/articles/20001214-NUFagm2000.shtml

 

What I find most interesting is Nufarm's apparent backtrack on the exposure a home listing on the ASX would give.  Way back in October 1999, when shareholders voted on Nufarm (it was then called Fernz Corporation) moving to Australia, Bill Wilson, then chairman of Fernz, said that he saw potential upside in the share price of the Company when its primary listing was in Australia.

 

However, as we have now seen, this has not happened.

 

I believe Nufarm fell into the trap of thinking that an ASX listing would be the panacea for their poor share price (of course, there were many other reasons for moving to Australia as well - share price was only part of the equation).

 

At their latest AGM, Mr Hoggard also said that it could also be a question of time for the company to be recognised on the Australian market, and that the market has also been preoccupied with high tech and dotcom stocks. 

 

This may be so, but I certainly don't think that Nufarm's share price has performed badly because of the tech stock craze - that ended in April.  In fact, if anything, Nufarm's share price should have *increased* in the months following the tech crash, as investors sought out "safe" stocks.  Many of its peers found favour amongst investors again - so why not Nufarm?

 

As Peter has elucidated, Nufarm is an excellent business, trading at low multiples compared to its industry fellows. 

 

I believe that it is simply a case that many Australians do not care about investing in Kiwi companies (or in NUF's case, an "ex" Kiwi company).

 

Just being listed on their exchange doesn't mean that Australian investors are immediately going to jump up and plonk their money down for some shares. 

 

Remember what happened to Telecom a few weeks back when there were rumours floating around that our largest company - a company with around 30% of the total NZSE capitalisation may not even get included in the new ASX S&P top 200 indexes?  The shares got wacked.  (I'm not sure what the end result was on this - if someone know's if TEL was accepted I'd appreciate if they could post it).

 

Small fish in a big pond indeed.  Thus, I've come to the conclusion that, in a joint market, NZ companies would find it even harder to gain exposure and win investor dollars than they do now.

 

A merged market will not be a panacea for our underperforming companies' share price's.

 

I know there are many Nufarm fans on this forum (Mark comes to mind).  I think it's an excellent company that, sooner or later, will be recognised by investors as being undervalued.

 

But the ASX listing was certainly not the "quick-fix" that it was made out to be - and it won't be for many other companies as well.

 

Best Regards

 

Benjamin Dutton

(Disc. do not hold NUF).

 

 

 

 

----- Original Message -----

From: Peter Maiden

To: sharechat@sharechat.co.nz

Sent: Friday, January 05, 2001 6:36 AM

Subject: [sharechat] NUF to come right

Currently NUF is trading at 390 wiith a PE of 8.4 (based on 2000 earnings) . If based on forecast earnings (as stated at their AGM) PE is about 7.3.

Back in  Dec 1998 NUF were trading at 600 with a PE close to 20.

Similar companies in Australia trade with a PE in the 14 to 17 range. Futuris (FCL) are at 14, Orica (ORI) at 14, ICT at 17 and SRP at 15.

The EPS graph in the NUF annual report looks impressive with a steady growth since 1996. EPS rose 15% from 29.9 cents in 1999 to 34.4 centsin 2000 (Australian cents).

Whereas other 'old' economy stocks such as AIA have fought back strongly since technology stocks started falling to realistic values in April last year NUF has been left behind.

Maybe the reason for being left behind is that they are now domiciled in Australia. Even though relatively high up on the NZSE 40 they are small fish in the big Australia pond and as such find it hard to get investor (both retail and institutional) interest.

If this is the reason then won't all NZ companies find it difficult on a merged ASX/NZSE - interesting thought.

 

Back to NUF -  their earnings growth does support a higher PE with the subsequent increase in price.

 

Fundamentally a companies share price should reflect levels of ongoing profitability. NUF history and future prospects does say that they should be priced near to a PE of 15, similar to what their counterparts in Australia are trading at.

If that is the case a fair value of NUF is 650 based on last years profitability and 750 based on forecasted 2001 earnings.

 

Interestingly that is where the price would be if NUF had maintained its 1998 price. The difference between the past and present shows us how much the market has discounted some 'old' economy and out of fashion stocks.

I hold some NUF bought at todays price some months ago. Even though not been the success I hoped I have put an order in to buy some more, even though I am not generally that keen on chemical companies.

Only time will tell whether this 'analyst' is right - but at least I have put my money where my mouth is..

Peter