Nufarm shares dipped half a per cent yesterday after reporting an ostensibly solid underlying result for the half year to January.
The shares eased to $8.10 at the close.
The report came 12 hours after the company became a possible takeover target with the chairman of the Chinese supplier of the weedkiller, glyphosate, Nufarm’s key product, emerging with 5.16% of the company’s shares and leaving open whether this was the start of something bigger.
With Japanese giant, Sumitomo in the share register with 23%, a straight assault is not a goer, but the situation could develop. Sumitomo is bound to follow the company’s lead in any bid.
Nufarm reported a 12% lift in underlying earnings before interest and tax to just over $71 million and an unchanged dividend of 4 cents a share was declared.
But after one-off items, the company swung to a $91 million first-half loss from a $23.2 million profit in the year-earlier period because of foreign exchange losses and one-off restructuring costs.
The company told the market that underlying earnings before interest, tax and amortisation (EBITDA) rose a modest 10% to $112.3 million in the six months ended January 31.
Revenue was flat at $1.19 billion, compared with $1.18 billion in the company’s previous first half.
Nufarm’s interim results came as the chairman of one of China’s biggest glyphosate producers secured a substantial holding in the company, sparking speculation about a potential takeover.
Zhang Hua, chairman of Fuhua Group, one of China’s biggest glyphosate producer’s and a supplier to Nufarm, revealed on Tuesday that it had grabbed a 5.16% stake in Nufarm using companies based in the tax haven of the British Virgin Isles.
He said in a statement that he and the companies had been buying Nufarm shares since November of last year. He told the ASX the transaction was “currently” intended as a financial transaction but reserved the right to increase or decrease the holding "from time to time".
“The holders have no current intention to seek control of Nufarm (via a takeover or otherwise), to request a board seat, or to control or influence the composition of Nufarm’s board or the conduct of its affairs,” Mr Zhang said.
Investors clearly didn’t see any chance in the offing for corporate activity, hence the weak performance, though it came on a day when the wider market was weaker.
Looking to the rest of this year Nufarm said the result depended on the timing of wet weather in major cropping areas.
“The very dry February and early March have been a negative and rainfall over the next couple of months will be an important indicator for a successful winter crop season,” CEO Greg Hunt said yesterday. (Rain helps drive the company’s sales of agricultural chemicals and seeds.)
Excluding weather, Mr Hunt said he expected the group’s Australian business to continue to grow in the second half.
“We expect earnings recovery to continue in Australia, driven by a lower cost base and stronger margins," he said.
“The business will be better positioned to generate consistent returns when the full extent of our costs savings are realised from 2017,“ he added.
