Forum Archive Index - March 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

David wrote -

What do you expect from a company whose Chairman is being charged with insider trading, who shifted the company to Australia to gain an Australian lifestyle for the company's senior executives at the company's expense(stuff the loyal NZ shareholders and their imputation credits), and who now complains bitterly that the Australians are ignoring SUCH an undervalued opportunity! The Australians have a general policy of simply avoiding companies where there are any suggestions of insider trading. I suggest investors in Nufarm think carefully
about management integrity before investing in the company.

 

David - obviously written with a fair bit of passion - and you are probably correct.

 

As far as the undervaluation goes I have taken a recent piece from thestreet.com about renowed investor Nygren, who likes Buffet invests in undervalued companies, and changed the words and numbers to make it fit Nufarm. Apologies to the original writer but this how it would read about Nufarm.....(in A$)

 

Nufarm will generate about $154 million of EBITDA this year. It has about 154 million shares outstanding. So, the company offers $1 of cash flow a share. Put the 11 to 12 times cash flow multiple on that, and you get about $11-$12 a share. Then knock off the debt, which is about $3 a share, and you get an intrinsic value for Nufarm of $8 and $9 a share.

The stock closed Friday at $2.90. Why so cheap? Because of the current slowdown in the chemical cycle.. This  variable will undoubtedly reverse. They always have. That's why $2.90  a share is cheap for a stock with an intrinsic value of $8 to $9.

So do I. This is the kind of stock that can help you compound your money at a superior rate without risking major losses in any one year. That's how to win in this post-bubble market.

 

Taking David's point one could say that the bad goodwill created by  having a chairman charged with insider trading and moving the company to Australia has cost the shareholders in Nufarm dearly. If these factors are the cause of the low Nufarm share price then shareholders have paid dearly - up to $450M of value.

 

Cheers

 

Peter