Nufarm (ASX: NUF) announced guidance for the first half fiscal 2026 of underlying EBITDA of $239 million-$244 million, a 17% increase on first half fiscal 2025. The market cheered the turnaround, with shares up 11% on the day. First-half fiscal 2026 earnings will be reported on May 27, 2026.

Why it matters: While below our prior forecast of $265 million, guidance is nonetheless in line with prior commentary on strong full-year underlying EBITDA growth, assuming normal seasonal and market conditions. It cycles off a weak 2025, which suffered seed technologies losses.

  • Strong first-half improvement reflects higher margins in crop protection, growth in hybrid seeds, and stronger performance from emerging platforms, omega-3, and bioenergy. Improved cash generation and lower capital expenditure led to a 10% decline in net debt to $1.2 billion.
  • Annualized first half net debt/EBITDA of 2.4 is down 20% on the previous corresponding half, a creditable outcome. We anticipate sub-2.0 net debt/EBITDA for the full fiscal year. Nufarm achieved AUD 50 million run-rate cost savings in fiscal 2025 and targets doubling by the end of fiscal 2027.

The bottom line: Our $3.50 fair value estimate for no-moat Nufarm stands. But at around AUD 2.45, they still trade well below fair value, cruelled since omega-3 losses were reported in fiscal 2025. We expect the omega-3 losses to be a one-off.

  • We still credit a 5-year group EBITDA CAGR of 16% to $566 million by fiscal 2030, from a low base. We assume a 12.5% group midcycle EBITDA margin, up from 7.7% in fiscal 2025, reflecting stronger revenue growth from higher-margin seed technologies.
  • Population growth and rising living standards demand increased yields from limited land with more sustainable agricultural practices. We also see great potential in Seed Technologies for substantial growth from a low base and a reprioritized strategy, including the expansion of carinata bioenergy.

Market buoyed by positive trading momentum

Nufarm is a major producer of crop-protection products including herbicides, fungicides, and pesticides, selling into major world markets. The company is leveraged to growing demand for crops for biofuels, and food from rapidly industrializing markets such as China and India. Growth should come from astute brand and offshore business investments and from a customer service-focused strategy. However, the global crop-protection markets are competitive and earnings are cyclical, given a reliance on seasonal conditions.

Continued growth in food demand in industrializing nations should underwrite long-term earnings growth. Nufarm’s primary competitive strengths are marketing scale, dominant position in the Australian market, formulation expertise, and skills in marketing post-patent crop-protection products. Global expansion, including in North America and Europe, reduced dependency on the domestic market. The company’s dominance in Australia became less certain, with glyphosate pricing coming under considerable pressure. Due to the competitive nature of its markets, lack of pricing power and exposure to cyclical agricultural demand, we do not think Nufarm possesses an economic moat. Returns on invested capital have historically failed to meet the cost of capital.

In addition to its crop-protection business, Nufarm has a seed technologies business. With this, it aims to broaden its portfolio of products, all of which are targeted to improve agricultural yields. Nufarm has a growing presence in North America and Europe. Sound sales momentum has been evident in North America and Europe. Several Chinese companies have previously expressed interest in acquiring Nufarm, but withdrew either because of too high a price demanded by the board, or because of reduced availability of debt. In 2010, Japanese company Sumitomo Chemical bought 20% of Nufarm, subsequently increasing its stake to 23% before diluting to 16% and then selling out completely in 2022.

Bulls say

  • Nufarm benefits from potential strength in soft commodities markets.
  • Nufarm has well-established distribution platforms in most major global agricultural markets.
  • Product and geographic diversification helps reduce earnings volatility.

Bears say

  • Earnings volatility is high, given exposure to cyclical agricultural markets.
  • Pricing power is limited in some product categories, and competition is high.
  • Cash flow generation has been erratic, given earnings volatility, and debt is too high.