Wednesday, 4 February 2015

Syngenta - why I remain long after today's good numbers

Hard to believe that it is six months since I specifically wrote on Syngenta here at Financial Orbit. The stock has been one of my top pension fund positions for a number of months now and plays to a number of positive thematics I like (pricing power, emerging market exposure and agriculture).

I concluded the above linked write-up with the observation that I believed in the cost-cutting led turnaround plan and finally judging by today's results it appears to be kicking in with ebitda margins anticipated to rise over the next four years driven (at least initially) by cost cutting efforts:


This ebitda margin contribution is useful as the underlying 2015 guidance is for sales and ebitda approximately at 2014 levels.  Clearly there is a slight inconsistency given the progressive ebitda margin observation but my belief is that the company is guiding in a mildly conservative fashion especially given certain headwinds including trying to offset the impact of plunging currencies in Russia/Ukraine plus other issues like extra pension expense.  


Pricing remains positive and despite good working capital gains which drove FY14 free cash flow to levels equivalent to around 3.5% of market cap (basically offsetting the dividend - in any case there is a light gearing/net debt level) management perceive this can continue into FY15.  Even in the North American market - possibly the most difficult to push through price rises - management were not prepared to guide to lower pricing.

The above major positive are the emerging markets which not only offer growth scope but at a majority of full sales are hugely material within themselves.  I liked the comment about 'significant yield gaps versus developed markets'.

Crop protection/seed businesses are never going to be very cheap but this year's x14 EV/ebit rating and next year's prospective x12s EV/ebit still feels like good value to me - and of course a discount to stocks like Monsanto (who I last wrote about here).  A return to the (to use the US$ quote) US$70-80 share price range feels correct and possible to me.  I remain long. 

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