7th Mar 2023 16:15
(Alliance News) - Shore Capital on Tuesday backed Origin Enterprises PLC as a "long-term opportunity", shortly after the company posted "strong" first half results, while backing its share price to re-rate once trading conditions become normalised.
Earlier Tuesday, the Dublin-based agricultural services group said pretax profit in the six months that ended December 31 was up 75% to EUR13.3 million from EUR7.6 million a year earlier, while revenue increased 35% to EUR1.18 billion from EUR877.1 million.
Origin said the revenue growth reflected the impact of commodity led price inflation of 40%, volume growth in Latin America and "satisfactory" early season seed and crop protection volumes.
It also said it had acquired Agrigem Ltd, an independent specialist supplier and advisor of ground care products throughout the UK and Ireland. It did not disclose the price of the acquisition.
The company announced an interim dividend of 3.15 cents per share, unchanged from the previous year.
"We believe Origin represents a long-term opportunity given it is a market leader/well-positioned across its end markets, has strong routes to market with long-standing customer relationships, solid cash generation characteristics and has good market consolidation opportunities in large, but fragmented markets," said Shore analysts Akhil Patel and Clive Black.
"We believe that the shares will start to re-rate once trading conditions become more normalised, less dependent on weather conditions and with the product mix transition (to more higher margins activities/products)".
As a result, Shore retained its 'buy' rating for Origin, setting a target price of EUR4.32. Shares in Origin were up 3.4% to EUR4.40 each in London on Tuesday afternoon.
"While the first half is seasonally quieter, the statement highlights that given it has delivered a strong start to financial 2023 with good autumn/winter plantings levels, it has set a solid foundation," the Shore analysts said.
Based on its forecasts, Shore said Origin trades on a financial 2023 price-to-earnings ratio of 9.1 times and an enterprise value against earnings before interest, tax, depreciation and amortisation of 4.2 times. This is alongside a dividend yield of 3.9%.
Patel and Black also noted the agricultural sector for a normalised year has an average price-to-earnings ratio of around 12 to 13 times, this believing Origin is trading below at a discount "we believe is unjustified".
For its financial 2023, Shore forecasts Origin's Ebitda to be EUR116.4 million, down 23% from EUR150.6 million a year earlier.
Shore also noted that underlying business volumes, excluding crop marketing, fell by 4.6%, reflecting reduce demand for fertiliser and significantly lower activity in Ukraine.
In the UK and Ireland, where underlying business volumes fell 4.5%, Shore said: "While there was a favourable planting profile resulting in a good early season volume across its seed portfolio, fertiliser demand reduced given higher prices."
Underlying business volumes in continental Europe also reduced 3.8% but increased 35% in Latin America.
Looking ahead, Origin said it is well positioned to deliver on its financial and strategic targets thanks to the strong start to its year, with good autumn/winter planting levels and "generally favourable" weather conditions.
By Greg Rosenvinge, Alliance News reporter
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