On Friday, UBS adjusted its stance on Nufarm (OTC:NFRMY) Ltd (ASX:NUF) (OTC:NFRMY) stock, downgrading it from Buy to Neutral. The firm also revised the price target to AUD4.50 from the previous AUD6.90.
This shift in rating reflects a response to the latest market updates, which suggest a decline in market conditions due to increased competition and discounting.
The analyst from UBS noted that the previous assumption that market pricing had stabilized, potentially leading to a significant earnings recovery for Nufarm by the fiscal year 2025, no longer seems tenable.
The anticipated recovery was based on the company's ability to align its inventory cost per ton with the end market price per ton, thereby improving gross profit margins.
However, the current market environment, characterized by aggressive competitive discounting, has obscured the visibility of such a recovery. Consequently, the confidence in Nufarm achieving the projected earnings recovery of approximately AUD90 million or more in the crop protection sector has diminished.
Despite the downgrade, UBS maintains that Nufarm is not expected to need an equity raise to manage its finances. This outlook is supported by the absence of earnings-based covenants in Nufarm's principal debt facility.
The projected leverage ratio for the fiscal year 2024 by UBS estimates stands at 2.7 times, which is considered stretched but manageable within the company's existing financial structure.
In other recent news, Nufarm Ltd. has been experiencing significant changes in its financial landscape. The agrochemical company has been subject to downgrades and revised price targets from both RBC Capital and JPMorgan following the announcement of its financial results and projections.
RBC Capital downgraded Nufarm's stock from Outperform to Sector Perform and reduced its price target to AUD4.75, following the company's profit downgrade for fiscal year 2024 and a 15% decrease in its FY24 underlying EBITDA guidance.
On the other hand, JPMorgan adjusted its stance on Nufarm, shifting the stock rating from Overweight to Neutral, and set a new price target of AUD 5.50, following the company's first-half financial results for 2024.
The downgrade was mainly due to lower pricing in the Crop Protection sector, which resulted in Nufarm's earnings before interest, taxes, depreciation, and amortization (EBITDA) falling approximately 14% below JPMorgan's estimates.
Despite these challenges, Nufarm's management anticipates an operational improvement in the second half of 2024, with EBITDA guidance set between AUD 350 million and AUD 390 million.
The company also confirmed its intention to reduce net working capital by $500 million by the end of the first half of FY24. These recent developments suggest that Nufarm is actively managing its financial situation in the face of ongoing market challenges.
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