Forum Archive Index - March 2001

["David Ling" <seechoke@hotmail.com>]

There are several reasons why Nufarm looks cheap but is not. I have 
mentioned the qualitative reasons (Insider trading etc) but from 
institutional investors point of view, Nufarm is not cheap :

1.  Nufarm carries a high level of contingency risks - lawsuits amounting to 
tens of miilions of dollars regularly hit chemical companies. Some suits 
relate to historical activities, others to existing operations which could 
hit revenue and income out of the blues.

2.  EBITDA is not an appropriate measure for a company like Nufarm. EBITDA 
is only used for companies like Sky TV or Optus where initial establishment 
capex are high but the company does not have high ongoing capex requirements 
to maintain earnings. Nufarm has very high capex of a replacement nature - 
capex in prior years = depreciation & amortisation.

3.  The company's earnings are cyclical.

I wish I could say better things of this company but history shows 
otherwise.  Those with long enough memories will recall the Chairman playing 
up its medical and pharmecuticals divisions(Interferon and Captec)about 7 
years ago. Share price rocketed (now I wonder who sold shares during that 
period - any guesses?) and the company failed to deliver.

Don't invest in a company where there is a question over management 
integrity.  Plenty of good companies around.  Compare the Warehouse with 
Nufarm. Who would you prefer to leave your money with?


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