Here's the latest from Macquarie.Third consecutive above average...

Here's the latest from Macquarie.

• Third consecutive above average ECA winter crop expected in FY23 withABARES forecasting 27mmt vs LTA of 18mmt. This compares to 31mmt inFY22 and 33mmt in FY21, with upside eroded by disruptive rainfall andflooding across ECA. This has to some extent resulted in crop damage/loss,quality downgrades and crop abandonment (ABARES notes the latter couldaccount for 16% of the planted area in NSW, 7% in VIC and 5% in QLD).However, total crop losses are generally isolated to low lying paddocks andriverine areas, so most ag land is not directly affected. ABARES also notesthat near record production in areas not flooded should offset these losses.

• Flooding has also caused logistical challenges for supply chains. This hasimpacted GNC’s NSW receivals to some extent, -35% and -41% in FY23 todate vs FY22 and FY21 (ECA is -15%). However, deliveries will likely continuebeing received over the coming weeks given planting was delayed. There isalso a higher than expected amount of grain being held on farm given thedifficulty for some growers to access roads due to flooding. We anticipate thisvolume will make its way into GrainCorp’s network through the year.

• Global demand for Australian grain and oilseeds remains strong, albeitwe have seen some production improvement in other global grain growingregions. The Marketing business including supply chain margins is the keyswing factor for upside to FY23 earnings, in our view. Whilst theexceptional margins achieved in 1H22 moderated in 2H22 as expected, basis(domestic/global price spread) has improved since November.

• Processing business (22% of FY23e Group EBITDA) has likely continued toperform well, benefitting from strong crush margins and high utilisation.

  
  Earnings and target price revision

• No change.

Price catalyst

• 12-month price target: A$10.80 based on a Avge of FY23 SoP & thru-the-cyclevaluation methodology.

• Catalyst: 2023 AGM on 16 Feb. ABARES crop report on 7 March.
  
  Action and recommendation

• O/P $10.80 TP. GNC continues to be supported by a third above average ECAwinter crop in a row, strong global demand for Australian grain and oilseeds,and strong supply chain margins for grain exports. Key focus for investors aregrowth options (organic, M&A), valuation upside from through the cycleearnings revisions, & capital return optionality given strong b/s (net core cash).

O/P $10.80 TP - is short for "Outperform" with a 12-month target price of $10.80.