GrainCorp - below average FY15 crop expected
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 11 September 2014, 9:11 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts a below average 2014/15 east coast winter crop of 15.860mt.
This is down from its June forecast of 16.485mt due to drier weather. ABARE's
forecast implies a winter crop 3% lower than the pcp and is below an average
crop of about 16.5mt. ABARE stressed that sufficient and timely rainfall during
spring is critical to realising its new forecast.
We revise our FY15 & FY16 NPAT forecasts 19.3% & 17.9%
A below average 2014/15 crop will have a negative impact on most of GNC's
business units in FY15. Last year, GNC's market share of the 2013/14 crop was
44%, down from 55-60% in an average year.
Given FY15 conditions are similar
to FY14, applying a 46% market share to ABARE's total crop forecast (winter
and summer) of 17.7mt, implies FY15 GNC grain receivals of 8.1mt (FY14 was
7.7mt), below an average year of 10mt.
We have downgraded our FY15 and
FY16 NPAT forecasts by 19.3% and 17.9% to reflect our new grain receival and
export forecasts. Our FY15 forecasts are now based on grain receivals of 8.1mt
(was 9.5mt) and exports of 4.3mt (was 5.0mt).
What we think
Similar to FY14, GNC's FY15 earnings will be impacted by below average carry-in, reduced volumes and increased competition for a smaller crop, which all lead to margin pressure. We forecast carry-in grain into FY16 of 1.1mt. Given this is well below average, it will impact FY16 earnings.
Despite this challenging
outlook, GNC's share price is being supported by the likelihood of corporate
activity emerging again at some point in the future.
We have revised our price target, which Morgans clients can view in my full report.
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