Agricultural innovator Nufarm (NUF) reported a 25% decline in first-half fiscal 2025 underlying earnings to AUD 38 million. Crop Protection EBITDA increased 20% to AUD 203 million but Seed Technologies EBITDA halved to AUD 41 million, with oversupply of fish oil affecting omega-3 Canola prices.

The result was well below our expectations and the shares were savaged, down around 30% intraday to AUD 2.85 lows. They were already down about 30% in the 12 months prior on cyclically low crop protection prices.

If current fish oil prices persist, Nufarm says it expects second half Seed Technologies EBITDA to be AUD 20 million below the prior period. We assume this will be the case and reduce our group fiscal 2025 earnings per share forecast to negative AUD 0.08 from AUD 0.28.

Nufarm paid no interim dividend, and we now don’t anticipate a final either. We expect reinstatement in fiscal 2026 at AUD 14.5 cents for a useful 5% unfranked yield at the current share price. This anticipates normalization to fish oil pricing from five-year lows.

Fair Value estimate unchanged

Our AUD 7.70 fair value estimate for no-moat Nufarm stands. We credit 5-year group EBITDA CAGR of 24% to almost AUD 850 million by fiscal 2029. Our 15.5% group midcycle EBITDA margin assumption to be much improved against first-half fiscal 2025’s 11% on recovery in fish oil.

The market seemingly extrapolates softer fish oil prices persisting. The current share price appears to imply the death of the omega-3 canola business and/or a dilutionary equity raise. However, we don’t ascribe to either possibility with supply from fish to be constrained over the long term.

We still expect the global fish oil market to double over the next 10 years. With limited ability to increase the contribution from wild caught fish stocks, the fish oil deficit could approximate 850,000 metric tons by early next decade.

Key company targets maintained

Nufarm maintains its target for AUD 50 million annualized run-rate overhead savings by end fiscal 2025 and hasn’t withdrawn its fiscal 2026 revenue target of AUD 4.4 billion-AUD 4.6 billion.

We still credit the high end, anticipating recovery in crop protection from cyclically low prices, new crop protection product introductions and accelerated seed technologies growth and pricing.

Growing demand for Nufarm’s omega-3 canola in the longer run is supported by aquaculture production, rising incomes, urbanization, and dietary trends. Recent fish oil prices have been affected by above-average quotas from Peru. But fish stocks are not limitless and prices will recover.

Solid demand and stable costs saw a strong first-half performance from Crop Protection, with revenue up 4% to AUD 1.6 billion and EBITDA margin up 180 basis points to 13%. But Seed Technologies revenue fell 3% and margin nearly halved to 16%.

Seasonally, the period for inventories being built, first-half net operating cash flow was negative as expected, though at AUD 460 million worse than anticipated given fish oil prices. This and peaking Seed Technologies capital expenditure saw net debt climb 13% on the previous corresponding period to AUD 1.2 billion, gearing elevated at around 50%. The inventory build can be expected to unwind in the second half consistent with prior years.

We estimate fiscal year end gearing nearer 30%, and net debt/EBITDA at 2.6. Nufarm is completing major capital programs and targets sub-AUD 200 million in capital expenditure for fiscal 2026, down from AUD 240 million-AUD 250 million levels over fiscal 2024 to fiscal 2025.

Nufarm (NUF)

  • Moat Rating: No Moat
  • Fair Value estimate: $7.70 per share
  • Star Rating: Five stars

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.