Official agricultural forecaster, ABARES, has upgraded the winter crop outlook for Australia’s east coast to 24.4mt. UBS highlights the earnings leverage that exists for crop that is over 24mt, given Graincorp’s derivative payment is maximised at around 24mt.
A strong FY21 crop is also likely to support earnings growth into FY22. UBS also asserts the grain derivative should reduce the volatility of earnings through the cycle.
No earnings revisions have been made, with the next catalyst being the FY20 results in November. Buy rating and $4.50 target retained.
Sector: Food, Beverage & Tobacco.
Target price is $4.50.Current Price is $4.40. Difference: $0.10 – (brackets indicate current price is over target). If GNC meets the UBS target it will return approximately 2% (excluding dividends, fees and charges – negative figures indicate an expected loss).
