WEEKLY: What's Short On The ASX?

Nufarm (NUF.AX) is a multi-national company that sells and operates crop protection and seed technology solutions in over 100 countries. The company manufactures and delivers a wide range of  herbicides, insecticides and fungicides containing different chemical foundations that in turn helps it build a broadly diversified earnings base across product and continent.
 

In FY19, Europe accounted for 22% of sales with 27% from North America and ANZ's 12% making up the bulk of the rest. Nufarm's South American unit, despite contributing around 29% of sales, struggled to impact the bottom-line. This was primarily the reason for it's ~$1.2bn sale to long-term strategic partner Sumitomo. And why, Nufarm's share price jumped +46% on the day of the announcement. The South American unit as Nufarm themselves put it was capital intensive, required large financing costs and did little to add to free cash flow generation, arguably one of the most important factors for shareholders. A carve-out of the South American unit helps to strengthen Nufarm's balance sheet and reduce funding costs going forward.
 

In light of the sale, there still exists a number of external headwinds for Nufarm ahead. One of those is the persistent dry weather conditions afflicting the Australian farming landscape where continued drought saw ANZ segment revenues fall -10% in FY18 and -24% again this financial year. Another is the supply disruptions and dry winter conditions in Europe and floodings in the US South and Midwest, which have also worked to constrain earnings. Furthermore, the issue surrounding the potentially but yet-to-be-confirmed cancerous use of glyphosate lingers given 7% of Nufarm's gross profit is contributed to by glyphosate-based products. However, with Bayer's glyphosate trial delayed till further notice, its impact on future sales won't be seen till furthe down the track.