Brazilian acquisition could boost Nufarm’s long-term earnings growth

Ironically, while the market looked past Nufarm’s (ASX: NUF) bumper first-half earnings due to heightened uncertainty over farmers pulling sales forward, the agricultural chemicals company received a long-awaited kicker yesterday, up around 8% in late trade.

Yesterday’s gains were more about bargain hunters recognising value when they see it, rather than any specific news on the day.

Given that Nufarm is by nature a complex stock to understand, there’s no guarantee that any investors – beyond the loyal cohort who have bothered to truly understand the stock - will immediately recognise the value in a major new 'energy cane' agreement announced today.

New cane assets

To accelerate the development and expansion of low-emission energy cane, Nufarm has acquired Brazilian group GranBio’s energy cane production assets, including germplasm, breeding materials, products and customer contracts for US$25m ($37m).

It’s understood Nuseed, a division of Nufarm, plans to develop energy cane as a renewable, advanced agricultural feedstock with significantly greater biomass than conventional sugar cane.

Management believes the GranBio acquisition is highly complementary to Nuseed’s existing bioenergy platform, including its proprietary low-carbon renewable energy feedstock, Nuseed Carinata.

“The long-term alliance with Nuseed… will create a very powerful global solution to secure large-scale, non-food biomass as a reliable feedstock to biofuels such as Net Zero 2G ethanol and 2G sustainable aviation fuel (SAF),” the company noted.

Significant future earner

CEO Greg Hunt notes today’s announced agreement exemplifies Nufarm’s growth strategy in action – investing in sustainable innovative technologies that help growers get more from their land.

Hunt expects the GranBio acquisition to deliver "modest underlying earnings (EBITDA) in the short-term".

“… it has significant potential to contribute to Nufarm’s earnings growth over the medium to long-term as global expansion ramps up to meet demand for sustainable biofuels".

What happened at the half year?

Nufarm’s interim result highlighted the company’s impressive earnings turnaround over the past 18 months.

Nufarm’s underlying earnings (EBITDA) jumped 41% in the six months ended March 31 to $330m from the previous period.

Underlying net profit after tax more than doubled to $133m, while statutory net profit rose 61% to $99m from the previous period.

The company paid a dividend of 4 cents per share, its first interim payout since 2018.

Nufarm's share price was up 5.70% an hour out from the open today.