Anika Begay
UBS on Friday downgraded its stance on Nufarm (OTC:) Ltd (ASX:NUF) (OTC:NFRMY) from Buy to Neutral. The company also revised its price target to AUD4.50 from AUD6.90.
This rating change reflects a response to recent market updates, which suggest worsening market conditions due to increased competition and discounting.
The UBS analyst noted that the previous assumption that market prices had stabilized, potentially leading to a significant earnings recovery for Nufarm by fiscal 2025, no longer appears tenable.
The expected recovery was based on the company’s ability to align its inventory cost per tonne with the final market price per tonne, thereby improving gross profit margins.
However, the current market environment, characterised by aggressive competitive discounting, has obscured the visibility of this recovery. As a result, confidence in Nufarm achieving the expected earnings recovery of around AUD90 million or more in the crop protection sector has diminished.
Despite the downgrade, UBS says Nufarm is not expected to need a capital increase to manage its finances. This outlook is supported by the absence of earnings-based covenants in Nufarm’s core credit facility.
UBS estimates its leverage ratio for fiscal 2024 is expected to be 2.7 times, which is considered excessive but manageable within the company’s current financial structure.
In other recent news, Nufarm Ltd. has seen significant changes in its financial landscape. The agrochemical company has seen downgrades and revised price targets from both RBC Capital and JPMorgan following the announcement of its financial results and projections.
RBC Capital has downgraded shares of Nufarm from Outperform to Sector Perform and cut its price target to AUD 4.75, following the company’s earnings downgrade for fiscal 2024 and a 15% drop in its underlying EBITDA forecast for fiscal 2024.
On the other hand, JPMorgan has changed its position on Nufarm, moving the stock rating from Overweight to Neutral and setting a new price target of AUD 5.50, following the financial results of the first half of 2024.
The downgrade is mainly due to lower prices in the Crop Protection sector, which led to a decrease in Nufarm’s earnings (EBITDA) of approximately 14% compared to JPMorgan estimates.
Despite these challenges, Nufarm management expects operational improvement in the second half of 2024, with EBITDA forecast in the range of AUD$350 million to AUD$390 million.
The company also confirmed its intention to reduce net working capital by $500 million by the end of the first half of fiscal 2024. These recent developments suggest that Nufarm is actively managing its financial position in the face of ongoing market challenges.
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