Fishing for investments
A Nufarm (ASX:NUF) product was given a tick of approval from the Norwegian Food Safety Authority (NFSA) for use in fish feed, another significant milestone for the company’s Omega-3 platform. This follows a better-than-expected 1H23 results and we are content with the solid operational execution being delivered by Nufarm.
The seeds technology platform continues to be an underrated growth opportunity in our view that investors get very cheaply around current share price levels. Profits in the segment surged in 1H23 and Nufarm has been winning market share in canola seeds. The Omega-3 platform continues to win business opportunities and slots nicely into the sustainable agriculture theme. Meanwhile, Nuseed Carinata, a non-food crop, could help fuel the bioenergy revenue stream should the early deals pan out as hoped. Planting hectares here are expected to double this calendar year and the planting footprint is being diversified. Nufarm acquired assets in the energy cane area in September 2022 and this acquisition was reported as integrated when 1H23 results were released.
Unlike many Australian agricultural plays often placed in the same ‘investment basket’ we expect Nufarm’s profits to be more robust in coming periods thanks to the hefty international exposure. This is as a downward normalisation in Australia is offset by upward support in Europe/US. Underlying profit in 1H23 rose from the pcp and management has expressed confidence in hitting or exceeding FY26 aspirational targets. The market is currently pricing in little chance of this in our view. We retain a hold rating on Nufarm while awaiting a better entry point.
On the technical side, Nufarm (ASX:NUF) looks to be one to watch currently. On the 5-year weekly chart below, Nufarm has risen above a primary uptrend with a series of higher lows. While each successive pullback has been met with stronger buyer support, resistance is still formidable. The shares are gearing up for a topside breakout in our view we anticipate better opportunities ahead.
Norway gives the green light to Aquaterra
The Norwegian Food Safety Authority (NFSA) has approved Aquaterra Omega-3 oil to be used in fish feed. The Aquaterra product is derived from Nufarm’s Nuseed Omedga-3 Canola – described as the world’s first plant-based source of DHA and EPA essential ingredients.
A translation of the NFSA assessment was provided, stating: “the requirement that the feed must be safe and not be harmful to human or animal health, or make food from animals unsuitable for human consumption, is met. Furthermore, we consider that the requirement that feed shall not have adverse effects on the environment has also been met.”
In the rather dry language one sees in these areas, this comes across as a sound endorsement. Nufarm CEO Greg Hunt welcomed the decision as a key milestone for Nufarm’s growth in the Omega-3 sector, expecting Norway to be a revenue contributor in FY25, bolstering the seeds technologies segment.
Norway is a global leader in farmed salmon production, producing approximately 1.6 million tonnes each year. Omega-3 oils, vital for the health of farmed salmon, are limited in supply. Just one to two hectares of Nuseed Omega-3 Canola can produce as much DHA as 10,000kg of wild fish. The need for alternative sources is due to increasing demand, sustainability issues, and the impacts of climate change on the wild fish supply. Aquaculture produces more than half the fish eaten around the world today. At the 1H23 results, Nufarm said it was on track to produce 16.5k MT of
The Nufarm (ASX:NUF) seeds business hummed along in 1H23, with revenue up 25% to $231 million and underlying EBITDA increasing 34% to $62 million.
Source: Nufarm (ASX:NUF)
The company cited strong growth for hybrid canola, sorghum and sunflower seeds in multiple markets.
In summary, this recent announcement is another positive for the seed technologies business, already a strong grower we see as under-appreciated by the market. meanwhile, earlier in the year, Nufarm (ASX:NUF) delivered a better-than-expected 1H result despite challenging markets and we believe is positioned to be more resilient than many Australian peers due to the secular growth in seeds and hefty international exposure in the traditional business.
We retain our hold rating on Nufarm (ASX:NUF).
