Morgan Stanley lifted PT to $5.20

Morgan Stanley lifted price target to $5.20 on Tuesday 19 Jan 2021:

La Nina is bringing above-average rainfall to cropping regions in Eastern Australia. It has been a wet summer by recent standards, with rainfall much improved vs the prior year. NUF reported strong revenue growth in Asia-Pacific for the first two months of FY21, +59% yoy indicating strong underlying demand, driven by herbicide sales. The key planting period for Australian wheat and canola begins in April and May, and we note that the outlook suggests above-average rainfall through March with the continuation of the current La Nina event. We lift our FY21 Asia-Pacific EBITDA forecast to A$115m (vs FY20a A$76m). Our forecast sits 6% above Visible Alpha consensus, supported by improved rainfall and channel health.

Improved seasonal conditions in Europe are driving strong revenue growth, supported to some degree by covid/pull-forward. Seasonal conditions appear supportive for the upcoming spring wheat planting, despite parts of Germany and Poland experiencing drought. We expect easing raw material costs, delivery of performance improvement benefits, and underlying demand growth to support earnings growth in FY21, and lift our EBITDA forecast to A$152m (vs FY20 A$102m).

North America channel health appears to have improved, and seasonal conditions are supportive in the Midwest/corn belt regions. Although 45% of the United States is currently experiencing drought, importantly, the main cropping regions for corn and soybeans are unaffected. Channel issues appear to have dissipated, and demand for the troubled T&O segment is coming back. We lift our EBITDA forecast to A$107m which is somewhat impacted by appreciation in the AUD (MSe 0.75 US cents).

PT increases to A$5.20 - remain OW. Our group EBITDA forecast increases 11% to A$370m. We continue to see meaningful upside for NUF under improved seasonal conditions, and believe that the Omega-3 project remains undervalued by the market (which we value at A$2.10/share with 75% probability in our valuation). Our PT increases 8% to A$5.20 on higher earnings forecasts.