Nufarm claws back into investor favour

Saturday 19th May 2001

Like the legendary phoenix rising out of the ashes, chemicals group Nufarm appears to be slowly but steadily clawing its way back into investor favour. Ever since the company moved its main listing to Australia in late 1999, the share price has been tumbling from a pre-shift high of $6.10 to a 10-year low of $3.15 in April this year. Over the past few weeks however, the price has appreciated by some 23% to around the current $3.87 mark as announcements of expansion plans and a share buyback have led to renewed investor interest in the company's business.

Nufarm moved its main listing to Australia because about 45% of its revenue was generated there and only 10% in New Zealand. The company had wanted to make use of tax benefits in Australia to support its share price there but more importantly, to reinvent itself into a major Australasian chemicals group that could entice solid international investor support. The move across the Tasman was also expected to save on administrative costs, improve tax deductions for research and development, and place the company on the radar screens of global multi-national chemical conglomerates.

However there were just some flies in the ointment. The Nufarm directors had not taken into account the possibility that a significant number of New Zealand shareholders would sell out because their dividends no longer came with significant tax credits. Such selling pressure just about halved the share price over the last 18 months. The company also soon realised that a market capitalisation of only around $500 million was not enough to get it into the hallowed halls of Australia's Top 100 listed companies.

The agricultural chemical business worldwide is a multi-billion dollar market with room for many players - but it has become increasingly competitive with mergers being the name of the current game as global giants battle to increase market share. In recent times, Novartis and Astra-Zeneca of the US have merged some of their business operations while Rhone Poulenc and Agrevo have similarly merged operations in Europe.

In response, Nufarm has been trying to get bigger so that it is more than a dot on the global agricultural chemicals map. The company says it intends to increase core capabilities in chemical manufacturing and expand its global production and marketing operations in both crop protection and fine chemicals. This had led analysts to infer that Nufarm will be making acquisitions in those sectors but will also be selling assets that do not fall within those boundaries.

Interestingly enough just a few weeks ago, NuFarm announced it had acquired the US-based Agtrol International fungicides business. The acquisition facilitates Nufarm's entry into the lucrative US$6 billion market for fungicide products, the fastest growing sector of the global crop protection business. Agtrol is a global leader in the development and marketing of copper fungicides used to prevent fungal disease in a wide variety of crops. Sales revenues in 2000 were US$50 million.

In the last year, Nufarm sold its 19.9% stake in rural services company Iama after an attempted takeover bid was scuttled. It has also sold its timber treatment and construction chemicals business and bought a biotechnology company, Florigene. It is also believed to be close to selling off its loss-making $40 million fertiliser plant in Canada, and is also near to securing a deal to sell down a cash-draining healthcare business Pharma Pacific.

There is no doubting that Nufarm has the necessary financial fundamentals and balance sheet to entice investors back. For its half-year ending 31 January 2001, the company reported a tax-paid profit of A$12.6 million representing an 18.4% increase on the A$10.7 million net profit reported for the interim (eight months) period last year. The company changed its balance date last year to July 31 and the first period therefore reflected eight months of trading. In the directly comparable six-month period ending 31 January 2000, the company earned $14 million.

Most analysts reckon that Nufarm shares are currently trading at a 30% discount to their valuations of the company but this may well change in the near future. Nufarm spokesperson, Robert Reis has intimated that a recent road show targeting institutional investors around Australia had been extremely successful with six more broking houses investing in the stock while all brokers had "buy" ratings for Nufarm and considered the shares as "massively undervalued".

A planned share buyback of up to 5% or 7.7 million shares over the next six months is further expected to assist the share price recovery process although curiously enough, the planned share buyback, originally scheduled to begin just after Easter, has not been implemented yet. A clue could be the fact that Australian Stock Exchange regulations do not allow a company to institute a share buyback programme if it is negotiating business opportunities that may impact on the share price. The market waits in anticipation!

Comments from our readers

No comments yet