We researched Nufarm (ASX:NUF) in The Dynamic Investor in early December. Following the release of results for the 12 months to 30 September 2025 (FY25), the share price recovered well. Outlook comments were upbeat. In particular, the Company pointed to expectations for material earnings growth and a reduction in gearing for FY26.

Since our report, the shares have weakened further and have largely reversed the post-result gains. Accordingly, we consider whether the risk-reward has become more favourable. Or, is it more prudent to remain on the sidelines?

About Nufarm

Nufarm is a leading crop protection and seed technologies company. NUF develops, manufactures, and distributes a range of herbicides, insecticides and fungicides. These products are used by growers to protect their crops against weeds, pests, and diseases. The Crop Protection business primarily operates in the off-patent segment of the market and is focused on major agricultural markets in Europe, North America, and Asia Pacific (APAC).

The Seed Technologies business covers Nufarm’s hybrid seed operations, including canola, sorghum and sunflowers, as well as its emerging industries portfolio, which spans bioenergy crops and plant-based omega-3.

Key Fundamental Drivers

Crop Protection a Steady Performer – But All Regions Need to Deliver

The Crop Protection segment benefitted from improved product mix (+4% benefit to revenue) across all regions. The segment also benefitted from a shift into higher-price differentiated products compared to more commoditised products.

NUF has taken a conservative stance with its outlook commentary around Crop Protection. While it is hopeful of uptick in pricing, its base case for earnings growth centres around improving volumes across every region. In this regard, the outlook is mostly positive:

• EBITDA for the APAC region in FY26 is likely to be flat given the record result in the Asia business. In addition, Croplands (a Nufarm subsidiary) is expected to incur lower equipment sales given the timing of the replacement cycle. With average seasonal conditions, winter crop sales in FY26 should be above FY25. NUF expects earnings growth to resume in FY27 given its new pipeline of higher margin products.
• Volume growth in North America is expected in FY26. A switch to more corn plantings from soybeans should also help NUF’s 2,4-D sales and channel inventories have now normalised. The tariff environment has stabilised and there is greater certainty.
• In Europe, NUF expects volume growth in FY26 and further margin improvement.

NUF also has a number of new products in Crop Protection development pipeline with product launches and registrations. These are expected to have a favourable positive impact on margins in FY26.

Retention of Seeds Technologies Still an Overhang

At its interim results announcement in May 2025, NUF announced a strategic review into its seed-technologies arm, with options including the possible sale of some or all the business platforms. The Company has since decided to retain ownership. On the one hand, there is market relief that the Seeds Technologies business wasn’t sold at the bottom of the cycle. On the other, the decision to retain the business removes any potential benefit from a having a steadier and more concentrated business portfolio and/or using sale proceeds to de-gear the balance sheet.

Earnings are underpinned by Hybrid Seeds. As such, NUF is committed to delivering break-even earnings outcome from its Emerging Platforms business (i.e. Bio-fuel and Omega-3) in the near-term. In particular, there is upside earnings risk for Omega-3 (a key earnings contributor) especially if fish oil prices continue its upward trajectory. The higher prices reflect Peruvian catch quotas.

Gearing Remains Elevated but Expected to Reduce

NUF reported gearing (on a net debt to EBITDA basis) of 2.7x as at 30 September 2025, which was lower than the guidance for 3.0x issued in August 2025. In context, gearing remains above the upper end of the target gearing range of 1.5x – 2.0x, as debt levels remain elevated.

NUF is expecting gearing to improve in the near term, driven by improved earnings and continued focus on working capital reduction. The gearing level is expected to increase in 1H26 (vs FY25) due to the 1st half of the financial year typically carrying a higher working capital burden). However, the gearing level is expected to reduce to 2.0x by the end of FY26 and as EBITDA improves.

As was the case in 1H25, the Board did not declare a final dividend given that the gearing level is above the top end of the target range.

Fundamental View

We highlight two factors supporting a cautious view on NUF:

i. The Company has outlined four key priorities for in order to improve the performance of the Seed Technologies business. However, a track record of earnings misses and underperformance (often due to external factors) warrant investor caution. Accordingly, the investment market will likely wait for 1H26 results in May to assess the progress regarding any improvement in the performance of the Seeds Technologies business

ii. Elevated gearing levels are likely to remain a longer overhang on the shares given that the 2H26 period will be crucial in determining whether the gearing level fall to the targeted level of 2.0x by the end of FY26.

Charting View

NUF remains in a long-term downtrend, but for the short-term it looks like it can head higher. NUF bounced well in November on strong volume. Since then it has been drifting sideways on lower volume to consolidate the move. Because we are not seeing any heavy selling after that spike higher, it means that NUF is likely to bounce again from here fairly soon and retest the recent gap near $2.80. For a sustained move higher, we would first need to see a weekly close above $2.80.

 

Michael Gable is managing director of Fairmont Equities.

 

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