Seed Co Ltd’s top-line is seen declining marginally in the full-year to March (FY17) weighed down by reduced government input support schemes in the region and generally declining volumes.
By Chris Muronzi
Government input support programmes in all markets Seed Co operates in have reduced significantly with Zimbabwe down 68%, Malawi down by 13% and Zambia down by 37%.
The group posted a solid set of numbers in the full-year (FY16) to March 31 2016. The top-line grew slightly to US$95,96 million from the prior year.
Revenue growth was driven by the recovery in the demand for winter cereals. Seed Co embarked on an early seed sale drive in some of its operating regions (Zimbabwe, Kenya and Botswana).
Although Seed Co witnessed solid demand for cereals, the group witnessed a decline in maize seed sales volumes from 34,220 metric tonnes in 2015 to 31,745 metric tonnes in 2016.
“The positive results came in an environment which continues to be challenging, characterised by natural impediments such as El- Nino and the decrease in government inputs support across the region,” MMC Capital said in research note.
“The decline in volumes was however offset by the price adjustments in select markets (such as in Zambia, Malawi, Tanzania and Kenya), as well as the positive impact of the new vegetable seed.”
Gross profit margin increased 7% to 53% aided by the US dollar product pricing in some depreciating currencies, such as the Zambian kwacha. Management said it is now focusing on decreasing the unit cost of production in a bid to improve yields as well as creating efficient value chains.
Earnings before interest, taxes, depreciation and amortisation and earnings before interest and taxes margins, however, retreated 2% apiece to 19% and 16%, respectively in the period
Other incomes component on the income statement retreated, in the period under review, owing to the decline in currency values and reduced non-seed disposals.
Operating costs in the period under review were up 15,6% stemming from the new vegetable line business, increased investments in research and development as well as selling and marketing expenses.
Profit after tax grew 3% to US$15,4 million in the period.
Borrowings as at March 31 2016 stood at US$29,8 million against US$13,98 million recorded in 2015.
Borrowings increased owing to the need to fund seed production, 44 000 metric tonnes in 2016, compared to 20,000 metric tonnes in 2015. The group continues to have access to cheaper bank facilities as well as intensified debt collections, resulting in the group’s lower finance cost.
“MMC Capital Research view is that, the forecasted dry weather conditions will likely boost demand for Seedco’s early maturing varieties, in line with management guidance, as well as the traction on vegetable business,” MMC added.
“We thus project 1% decline in revenue growth to US$95m for the financial year ending 2017. This will translate into an earnings per share of US$0,0608 per share. Our price to earnings valuation metric using a peer average PE of 16.01x, and an EPS (+1) of 6.08 cents points to a fair value price of 96.06c., an upside potential of 75% relative to the current price of 55 cents.”
While the operating environment remains tough, exacerbated by the erratic rains as a result of El-Nino and Lanina, MMC placed a buy order on the stock.
Seed Co is a blue chip counter with a consistent dividend policy.
The group has experienced currency depreciation in all markets, with the effects of the depreciation partially shared with the consumers as well.
On the positive, the group has started operating its molecular laboratory, with new soybean, maize and other crop varieties being registered in Uganda and Kenya.
Management said the group will continue to increase input programmes to address regional food deficits.