Analysts Bullish on SEEDCO’s 2015 earnings

MARKET WATCHERS forecast that SeedCo’s annual earnings for the full year ending 2015 are likely to soar 48,3 percent buoyed by strong growth in East Africa where the seedmaker recently spread its tentacles.
Estimates from stockbrokers IH Securities suggest that net income is expected to jump to US$17,5 million next year from US$11,8 million recorded in 2014. As a result, basic earnings per share are projected to climb 44,7 percent to US8,5 cents. Revenue is guided to marginally rise 3,4 percent to US$124,3 million slowed by lack of growth in overall seed sale volumes, which are expected to remain relatively flat at 64 194 metric tonnes (Mt). In the full year to 2014 SeedCo’s revenues at US$120,2 million were 6,1 percent below market expectations.

IH Securities also expects local maize seed sales to drop due to “subdued Government participation”.

However, overall maize seed sales are tipped to grow 5,5 percent to 42 374 Mt on strong gains in Tanzania and Rwanda where maize seed sales are growing by an average of 32 percent.

In Zambia, maize seed sales will rise 4 percent, but exports to the DRC and expansion into Kenya, Uganda and Nigeria – markets that have a combined US$250 million maize seed potential – are expected to boost future earnings.

Though a 1 percent increase in cotton seed sales is projected, winter wheat and soya seed sales are forecast to be flat.

“The benefit flows from the strategic partnership with Vilmorin & Cie have already become evident, with the resultant share in research and development technical expertise driving regional expansion in the short to medium term,” said IH Securities in a research note.

SeedCo sold more than 30 percent of its equity to the French seed producer Vilmorin & Cie last year in a two-tranched deal worth nearly US$40 million as part of efforts to expunge its huge debts.

The first tranche of US$13,2 million in capital was paid earlier this year, helping ease finance costs that had suffocated SeedCo’s earnings in the last five years. IH expects the seed maker’s finance costs to fall by as much as 38 percent in 2015 when Vilmorin & Cie eventually settles the outstanding US$26,6 million.

“The fresh capital injection will finance further growth in new and existing markets and enable the company (SeedCo) to sustain its dominant position in seed business in Africa,” added the research note.

The group’s total seed sales of 62 082Mt in 2014, according to earnings released on July 1, missed expectations by 11,3 percent, while earnings before interest and tax (EBIT) at US$22,4 million fell 30 percent short of forecasts. In 2014, margins were largely unchanged at 44,7 percent from prior year “affected by stock write-downs which were done to ensure consistent quality on all seed, as well as re-handling costs related to the changeover to a new fungicide and packaging.”

Analysts predict a 47,2 percent margin increase in 2015. EPS fell 8 percent to US5,89c from US6,40c a year earlier, as the group closed the year with 18 600Mt of seed in holding, down from 36 600Mt prior, a deliberate management strategy to minimise losses. SeedCo share price closed a cent higher at US70c on Wednesday.

However, on a year-to-date basis, the stock is down more than 20 percent.

In the past 52 weeks, SeedCo’s shares have touched a US62c low and a high of US100c, rising much faster than the mainstream industrial index.

At current prices, IH Securities believes the firm is trading at a discount and are now targeting a 12-month price of US100c. Added IH Securities: “Shorter term government debtors (mainly Zimbabwe) remain a concern.

However, we note SeedCo’s business model is becoming less reliant on state entities as a result of regional expansion and reduced inventory holdings, allowing SeedCo to be more selective of their debtors.”

Formerly SeedCo used to rely on governments, which mainly made big orders but were much slower in paying.