At time of writing, Nufarm Ltd [ASX:NUF] is down 10% on the back of drought fears.
The price of $6.03 at time of writing represents its lowest price since 2015.
As covered earlier, Nufarm is experiencing a terrible year.
Nufarm Products Linked to Cancer
Nufarm is a major supplier of weed killers, one of which (Glyphosate) is under investigation for potentially causing cancer.
Adding to Nufarm’s woes is the fact that the losses it reported last year have caused it to seek $300 million in equity from investors with a share offer.
The losses which total $15 million this last financial year, it puts down to severe drought conditions in its main market — Australia.
CEO Greg Hunt explained the results by arguing that:
‘The major driver of the lower profit outcome was the drought here in Australia, with conditions in large and important growing regions in the eastern states being the driest on record for around 100 years.’
Areas such as Queensland and New South Wales expect that crop production will be down 30–40% compared with last year.
Quite simply if you are not planting crops, you will not need weed killers.
Nufarm Facing Debt Pressure
These losses for Nufarm also come at a time where the company faces increasing pressure due to debt.
Citi analysts report that Nufarm currently has $1.32 billion in debt.
This means that to pay back its debt, Nufarm would need to plough all its EBITDA (a measure of earnings) into the debt for 3.5 years to become debt free.
The share issue is aimed at to ease some of this debt pressure.
Looking forward, Hunt says:
‘Key drivers will be continued revenue growth both in North and South America, the full-year forecast from our European acquisitions and a partial earnings recovery in Australia on the back of return to more normal seasonal conditions for the winter cropping season.’
If you own shares in Nufarm, you can only hope that the second half of the financial year bears out the CEO’s claims.
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