Nufarm board lobbied by investors to put the business up for sale

Allan Gray’s Simon Mawhinney is due to meet with the board on Wednesday and wants it to test the market’s interest in a takeover for the whole business.

Simon Mawhinney from Allan Gray.

Nufarm chair John Gillam is under increasing pressure to put a ‘for sale’ sign on the entire company as its stock price plummets since reporting a weak first-half profit.

Allan Gray’s Simon Mawhinney is due to meet with the board on Wednesday and told The Australian he wants the board to test the market’s interest in a takeover.

He sees this as preferable to the present plan to seek more external equity to help keep the seed technology expansion on track.

The stock price has fallen 42 per cent from $4.02 early this month to $2.38 a share on Monday after its first-half profit disappointed.

Sales were up 3 per cent but earnings before interest tax, depreciation and amortisation were down 6 per cent, and earnings from the seed technology business were down 46 per cent.

Chief executive Greg Hunt is also in shareholders’ sights after 10 years at the company but they acknowledge now is not a great time to change leadership with doubts over just how much of the crop protection and seed technology business will be left to run.

Mr Hunt has been successful in pushing Nufarm into new technologies including Omega 3 canola and carinata seed but global commodity volatility has slowed delivery.

He has also built a strong management team including portfolio boss Rico Christensen and Asian Pacific boss Brett Sutherland along with European boss James Barkhouse and seed boss Brent Zacharious.

Mr Gillam and Mr Hunt are focussed on meeting shareholder demands but are likely to push back against a perceived fire sale.

Company insiders say it is rare for businesses to achieve their full value with a fire sale especially when it is yet to receive a full offer and the earnings weakness in the seed business.

Global leader Corteva trades at around 15 times earnings, more than three times the Nufarm multiple.

Shareholder angst is understood by the board given the plummeting share price.

Mr Mawhinney has around 17 per cent of the company and together with Raphael Lamm from L1 Capital and Vidhur Rangaswamy from Tanarra they control 30 per cent of the stock.

The company has said it is seeking external investment for its seed technology business because it is difficult to sustain the investment required given volatility in fish oil and other commodity prices.

The board figures with a market value of around $900 million it is not big enough to tolerate the commodity volatility.

Mr Mawhinney expresses doubts over the long term sustainability of the company with partial asset sales.

Nufarm has hired UBS to conduct a strategic review of the seed business.

There are a range of external investors including partner BP which have expressed interest, according to DataRoom.

Fish oil prices slumped last year after Peru significantly increased its allowed catch.

The first half is always peak debt for Nufarm with inventory sold off in the second half bringing down working capital, but Morgans broker Belinda Moore is forecasting net debt to EBITDA to fall from 4.5 times to 2.5 times, above management’s guidance.

While there is plenty of blue sky in the technology business the failure to deliver has added to the uncertainty raising questions over the company’s inability to deploy capital effectively with return on funds down to 3.6 per cent.

Ms Moore noted “just when the crop protection industry appears to be recovering from its recent downturn, seed technologies is now in a downgrade cycle”. Nufarm has shown this business can be severely impact by unfavourable seasonal conditions, volatile pricing and is highly capital intensive, she said.