Nufarm’s profit and dividend up as company dives deeper into biofuel

Australian agribusinesses are increasingly pivoting from dealing into farm commodities to energy, with Nufarm reaping the benefits of its push into biofuel.

Agriculture is emerging not only as the new wellhead in the push to produce greener fuel but also the entire well, according to Nufarm chief executive Greg Hunt.

Nufarm’s bet on becoming an energy giant is paying off, with the seed and crop protection company’s interim profit soaring more than 50 per cent.

The Melbourne-headquartered company has joined GrainCorp in capitalising on the new green energy push, producing biofuels for use in aviation and other fossil fuel-heavy industries.

Nufarm has produced a feedstock source called carinata, which is planted and harvested between crops when paddocks are normally bare, and processed into biofuel with the company signing a 10-year deal with petroleum behemoth BP last year.

It has the potential to not only stabilise but grow earnings against a notoriously risky agriculture market – a strategy that appears to have won over investors, with Nufarm’s shares vaulting 14.15 per cent to $6.05 on Monday.

In the six months to March 31, Nufarm’s net profit surged 51 per cent to $149m, with its seed technologies – which includes carinata – recording double-digit growth. This was despite revenue easing 9.7 per cent to $2bn.

Chief executive Greg Hunt attributed the profit surge to the company’s “increasing shift to innovative and differentiated solutions”.

“Companies like BP and other global oil companies are looking to agriculture as sort of the new wellhead,” Mr Hunt said, referring to the component at the surface of an oil or gas well.

“Well, agriculture is the new oil field and crops like carinata, that are actually grown as a cover crop between primary food crops, and provide new crops that are targeted at new markets that deliver economic benefits to farmers.

“There are over 170 million hectares that can benefit from cover crops globally. By planting only 1.5 per cent of that to carinata – and it doesn’t displace food crops – we could grow feedstock for over 1 billion gallons of sustainable aviation fuel annually by 2030 and remove 8 million tonnes of CO2 per year.”

Nufarm has delivered the first shipment of carinata to its crush partner in Saipol in France under its deal with BP.

Nufarm will pay an unfranked interim dividend of 5c a share – a 25 per cent increase on the prior corresponding period – on June 9.

It comes after GrainCorp upgraded its full-year profit forecast and announced a special dividend after processing the “third bumper crop” on Australia’s east coast and expanding deeper into biofuel.

GrainCorp’s Auscol division collected more than 10,000 tonnes of used cooking oil in the six months to March 31 – a 4 per cent increase on the previous corresponding period – from over 5000 restaurants.

Nufarm has taken a different approach with developing carinata, which is grown on existing farmland after the main crop is harvested and before the following season planting begins when fields are typically bare.

The practice is referred to as cover cropping which protects the land, removes carbon from the air, regenerates soil, and improves soil health conditions for the following main crop.

The company’s success in this field has caught the attention of the US Biden administration, which has launched a “Grand Challenge” of producing 35 billion litres of sustainable aviation fuel by 2050.

Nufarm group executive for its Nuseed business, Brent Zacharias, was invited to attend a sustainable aviation fuel roundtable at the White House as part of the Grand Challenge’s launch.

Nufarm’s seed technologies revenue soared 25 per cent to $231m, with earnings before interest, tax, depreciation and amortisation surging 34 per cent to $62m.

Across its crop protection business, its Asia Pacific division’s EBITDA fell 28 per cent to $71m was the previous corresponding period’s record high. Earnings also fell 16 per cent to $US57m ($85.63m) in North America, while Europe firmed 7 per cent to €81m ($131.89m).

UBS analyst Evan Karatzas said: “in the face of weak 1H results from other ag exposed stocks, Nufarm has delivered a very strong earnings result 8 per cent ahead of consensus”.

“Working capital unwind will be an obvious focus and we will look for an update into if the normalisation has begun through the first six weeks of 2H23,” Mr Karatzas wrote in a note to investors.

The share price gain on Thursday came after a 15 per cent slump in the past month as analyst feared an earnings downgrade, which didn’t eventuate.

Mr Hunt said Nufarm expected to deliver “modest” full-year EBITDA growth, “assuming normal seasonal conditions”.

“Our net debt and leverage have increased driven by net working capital movements reflecting seasonal build and increased inventory, particularly in North America, however inventory is expected to reduce in the second half as growers take delivery to meet seasonal deadlines and stocks are consumed closer to use periods,” Mr Hunt said.

“Accordingly, leverage is anticipated to return to within or below the targeted range of 1.5 to 2.0 times net debt to underlying EBITDA by September 30 2023.

“Favourable seasonal conditions are being experienced in most key agriculture markets and we are seeing good demand for our seed and crop protection products in early 2H23 trading. Against this backdrop, Nufarm’s evolution as an agricultural innovator leaves us well placed for future growth.”