Is Nufarm A Takeover Target?

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This story features NUFARM LIMITED.
For more info SHARE ANALYSIS: NUF
The company is included in ASX300 and ALL-ORDS

By Chris Shaw

Yesterday it was agricultural chemicals group Nufarm’s ((NUF)) turn in the takeover spotlight as rumours of a bid for the company emerged via a report in the South China Morning Post newspaper.

It appears a case of where there is smoke there may be fire as the company has both acknowledged having received a number of what it regarded as incomplete proposals in recent months and announced this morning a follow-up to one of those approaches it wants to consider more closely before responding to.

The company has requested a trading halt in its securities while it considers the matter in further detail and as the stock won’t re-commence trading until after further comment from management it is worth considering what brokers think about the prospect of a bid for the group.

According to UBS the stock is looking fairly stretched in valuation terms at current levels, the implication being if a bid doesn’t emerge the stock may correct back to more appropriate levels.

JP Morgan too thinks a bid would be difficult to justify on a valuation basis as assuming a 30% premium to the closing share price yesterday it implies paying 23x FY08 earnings, a level it considers a bit rich.

Credit Suisse is more positive on the prospects for a bid emerging as the broker is a believer there will be further consolidation in the agricultural chemicals sector. The broker’s point is a hostile bid is unlikely given the group’s founder, current managing director Doug Rathbone, still holds 17% of the company, meaning a price of something between $17-$20 per share may be needed to persuade him to sell.

Macquarie however doesn’t expect a bid to emerge and like UBS sees downside to the share price if an offer is not forthcoming, the broker taking the opportunity following yesterday’s share price gains to downgrade its recommendation to Underperform from Neutral.

This leaves the stock rated as Buy twice, Accumulate once, Hold three times and Sell twice according to the FNArena database, with an average price target of $14.54. The share price yesterday closed at $15.60, which tends to support those brokers suggesting there is downside risk if a bid for the group doesn’t eventuate.

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