By Jenny Ruth
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Wednesday 24th June 2009 |
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The downgrading of expected earnings for Australia-based Nufarm, which has $251 million of perpetual debt securities listed on the NZX, wasn't unexpected, says Aegis Equities Research.
Last week, Nufarm downgraded its profit guidance for the year ending July by about 15% from its previous $A220 million ($NZ276 million) target, citing a sharp decline in glyphosate demand in Australia and the US.
"We have long questioned the company's ability to achieve its stated net profit guidance levels," says Aegis analyst Dane Roberts.
"We expected weaker glyphosate prices and challenges in relocating volumes from South America into other markets to be the key drivers of weakness," Roberts says.
Still he underestimated the shortfall. "Conditions continue to deteriorate as Nufarm moves through the all-important final quarter sales period where a significant portion of annual sales are typically conducted," he says.
He has cut his forecast for Nufarm's net profit from $A209 million to $A190 million, as the company will report it. Roberts treats Nufarm's hybrid securities as debt while Nufarm treats them as equity, paying the about $A20 million annual interest from net profit. Taking this interest cost into account, his forecast net profit is $A169.8 million.
"Despite the downgrade, we view Nufarm as well-positioned to generate solid shareholder returns over the coming years."
BROKER CALL: Aegis Equities Research rate Nufarm as neutral.
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