Former Nufarm (ASX: NUF) CEO Doug Rathbone (formerly FERNZ) used to lament to anyone willing to listen to him (including the author of this article) that the share price didn’t reflect the company’s underlying business because the market simply didn’t understand the stock.
Fast-forward over 20 years, and it appears that the large cap agricultural chemical company – which sits a little outside the ASX300 - continues to trade at a significant discount to the value of the underlying business.
Nufarm’s share price is down 47% in one year and down 32% year-to-date.
Over the five years, the stock has bounced 65% lower than its previous $6.76 high in April 2022.
At today’s price ($2.40), the stock is trading with around 40% upside to the $3.22 target price ascribed by the six brokers reported on by FN Arena.
Shareholders put company on notice
To put Nufarm’s share price discount in context, at 15x global leader Corteva - a US-based agricultural chemical and seed company - trades at more than three times the Australian company’s multiple.
Needless to say, long-suffering shareholders aren’t happy.
In light of last week’s weak 1H FY25 profit - which saw the share price fall 40% - shareholders Allen Gray, L1 Capital and Tanarra – which collectively control 30% of the stock - are agitating for action.
They want the company to either look for an acquirer or potentially split the crop operations from Seed Technologies.
It’s understood that Allen Gray’s Simon Mawhinney will ask the board to put feelers out for interested suitors willing to takeover business.
Given the market’s limited appetite for the stock, Allen Gray favours a potential buyout over external funding needed to expand the seed technology business which experienced a 46% drop in 1H FY25 earnings.
Poor return on capital
The company’s previous ability to deliver returns on previously deployed capital has not been good – down to 3.6%.
Disgruntled shareholders also have long-standing Nufarm CEO Greg Hunt in their crosshairs.
While Hunt has successfully pushed Nufarm into new technologies, including Omega 3 canola and carinata seeds, global commodity volatility has caused delays.
Meantime, while Hunt and Nufarm chairman John Gillam have little choice but to listen to Mawhinney’s requests, any ensuing fire sale doesn’t appear to be in anyone’s best interests.
Meanwhile, the board has long argued that the business lacks sufficient scale to withstand perpetual commodity volatility.
For example, a major fall in fish oil prices - after Peru significantly increased its allowed catch - has negatively impacted omega-3 margins.
Already in-play
This may go a long way to explaining why the company recently hired UBS to strategically review the seed technologies business which sells seed to farmers for crops like canola.
At face value, this appears to be insto-speak for "find external investors".
It’s understood that Nufarm has already received approaches from Kohlberg Krais Roberts-backed Advanta and BP for its $900 million seed operation.
The UK-based oil giant already has a research and development agreement with Nufarm.
Nufarm has a market cap of $921 million; in the last 12 months the stock has underperformed the ASX200 by 55%.
The stock’s shares appear to be in a long-term bearish trend confirmed by multiple indicators.
Consensus is Hold.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
