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Caution of lingering ag downturn sends Origin shares lower

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Shares in Origin Enterprises tumbled 9% after the agronomy and farm inputs group warned that it faced a "lower demand profile" next year, citing "sustained pressure" in agricultural commodity markets.

Shares in the group, whose agronomy empire including Agrii in the UK, Dalgety in Poland and Agroscope in Ukraine, touched E6.846 in early deals in Dublin, coming close to matching a 19-month low.

The decline followed a caution over the continued pressure on the group's prospects from a "most challenging period" for farmers, as "price and currency volatility exert considerable pressure on their incomes and cash flow".

London wheat prices set fresh contract lows this week, undermined by a pound which has strengthened even against the dollar, undermining UK export prospects, besides by soft international values.

'Sustained pressure'

Markets for agricultural products "continue to remain under sustained pressure", Tom O'Mahony, the Origin Enterprises chief executive, said.

"This weaker backdrop is impacting farm sentiment, and a lower demand profile for services and inputs is anticipated in 2016."

The comments, which come a day after US fertilizer giant Mosaic also saw its shares tumble on a soft outlook statement, received a lukewarm response from investors including Dublin broker Davy, which said that the "cautious outlook" was prompting it to cut profits forecasts for Origin Enterprises.

"Investor focus will be on the outlook statement," Davy said.

"The scale of the deterioration in farm sentiment, and its associated impact on input and service spend for Origin, is more marked in the forthcoming year."

The broker said it was likely to cut its forecast for Origin Enterprises' earnings per share for the group's 2016 financial year, which ends next July, to 50-51 euro cents per share.

The market has been expecting a figure for the next financial year of 63 euro cents per share, according to Reuters data.

'Satisfactory result'

For the year to the end of July 2015, Origin Enterprises reported underlying earnings of 60.1 euro cents per share, up 4.5% year on year, on revenues up 3.0% at E1.46bn.

However, excluding currency moves and income from acquisitions, revenues at the core agri-services operations fell by 2.4%, reflecting lower agrichemical and crop sales volumes, besides weaker prices of grains and of farm inputs such as feed and fertilizer.

Underlying operating profits fell by 3.3%.

But this represented a "satisfactory result" given the market conditions, Mr O'Mahony said.

Origin Enterprises shares recovered some ground to closeat E7.15, down 5.2% on the day.

By Agrimoney.com

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