Company Interview / The "fundamentally cheap" stock that's bearing fruit

Key points:

Nufarm (ASX:NUF) viewed as cyclically undervalued after fish‑oil‑driven weakness Higher‑margin seed technologies, including omega‑3 canola and carinata, seen as key earnings drivers Rising crop and vegetable oil prices considered supportive for Nufarm’s crop protection pricing

Mark Taylor from Morningstar sets out a constructive view on Nufarm (ASX:NUF), arguing the recent share price weakness is driven by cyclical rather than structural pressures. Taylor points to last year’s sharp fall in fish oil prices, which hits the omega‑3 canola business, and market worries about balance sheet risk and a possible equity raising, as the trigger for the stock to become fundamentally cheap in Morningstar’s assessment.

Taylor highlights Nufarm’s diversified seed technologies portfolio, including omega‑3 canola and bioenergy carinata, tailored to specific growing conditions and niche markets. In his view, these higher‑margin seed products, alongside improving conditions in agricultural markets, underpin a more positive earnings outlook. He notes broadacre crop prices and vegetable oil prices are rising, partially linked to tensions around the Straits of Hormuz, which he sees as supportive for near‑term pricing of Nufarm’s crop protection products.

On leverage, Taylor judges the balance sheet as much improved, with net debt to EBITDA potentially trending towards about two times as major capex winds down and higher‑margin products lift cash flow. While he cautions that Nufarm’s cyclical agricultural exposure can produce “horror years”, he considers the balance sheet now robust enough to withstand downturns and still sees upside potential in the share price.