GrainCorp - below average FY15 crop expected

About the author:

Belinda Moore
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.

More information

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