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Origin Enterprises shares rebound from six-year low, as it unveils profits rise


Shares in Origin Enterprises rebounded from a six-year low as the agronomy and input sales group unveiled results slightly ahead of market forecasts, despite a hit from “highly competitive trading conditions” in Ukraine.


Shares in the Irish-based group ended 11.1% higher at E5.00 in Dublin, recovering from a close to the last session which was the weakest since February 2013.


The recovery followed the release of results showing that the group achieved pre-tax profits up 9.7% at E77.17m for the year to the end of July, on revenues up 10.5% at E1.80bn.


Earnings per share, adjusted for one-time factors, came in 52.65 cents, a little above market expectations.


Stockbroker Davy signalled that the shares appeared undervalued, given results which were “in line with our forecasts” and up for a third successive year.


“Notwithstanding this progress, Origin’s equity trades at multi-year lows and is the lowest rated stock across our coverage.”


Goodbody, viewing that Origin had achieved a "solid underlying performance", said it was keeping a "positive stance on the stock, noting its attractive valuation", estimating the shares trading a multiple of 8.5 times forward earnings, compared with a three-year average of a multiple of about 12 times.


‘Significant reduction in profitability’

Origin Enterprises acknowledged a “challenging operating environment” for its Continental European business, which reported operating profits down 14.5% at E13.9m, a drop “primarily driven by the under-performance of our Ukrainian business”.


The Ukraine operation suffered a “significant reduction in profitability”, in a distribution market for inputs such as seed and fertilizer “characterised by lower liquidity and excessive inventories, which drove highly competitive trading conditions”.


In Romania too, the group flagged “challenging operating conditions”, although said that it had achieved higher profits in this market nonetheless, helped by an operational shake-up which is seeing the company combine its two operations in the country.


‘Strong harvest’

However, Origin Enterprises reported an “excellent first time contribution” from Fortgreen, the crop input distributor in Brazil’s Parana state, where the group has also now bought a 20% stake in agronomy-to-trading service Ferrari Zagotto.


“Performance in the year was supported by good growth in soluble nutrition technologies for grain and speciality crop applications, and aided by a strong harvest for Brazil’s principal spring crop, soya.”


Origin reported operating profits of E8.1m in Latin America, on revenues of E33.6m,. equivalent to an operating margin of 24.1%, well above the 3.2% reported for Continental Europe.


‘Beneficial impact of sterling’

In the core Ireland and UK division, Origin Enterprises reported an operating margin of 5.2%, based on 9.5% growth to E60.0m in operating profit, while revenues gained 11.7% to E1.16bn.


The group termed this a “very strong” performance, backed by 6.8% volume growth, “supported by strong demand for crop inputs” - in part a reflection of comparison with a 2018 year marked by dryness setbacks to pasture growth and crops.


In feed, “volume development in the period was positively supported by higher livestock numbers and generally stable returns for primary dairy producers”.


Furthermore, the group flagged a UK boost from the knock-on effect of Brexit in weakening sterling.


“Demand for agronomy services and inputs was… supported by the beneficial impact of sterling weakness on growers’ crop margins,” with the currency softness raising the value in pound terms of agricultural commodities traded internationally in euros or dollars.


‘Expected to normalise’

The group forecast some slowdown in its Irish and UK operations ahead, as the boost from 2019’s improved weather wears off.


“Demand for agronomy services and crop inputs for Ireland and the UK is expected to normalise in the 2020 financial year and to be lower than the above average market demand levels experienced” in the latest year, said Tom O’Mahoney, the Origin chief executive.


“Fertiliser and feed demand is not expected to match the demand created by the fodder crisis in the first half” of the latest financial year.


However, he added that the group was “well positioned to capitalise” on its diversified operations and “strong” balance sheet to deliver on its financial targets for 2023.

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