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ISEQ higher as B of Japan prints money

Wednesday, September 19 08:49:08

The ISEQ is higher this morning at 3,287, up 19 points as markets respond to yet more liquidity, this time it's the Bank of Japan which took the easing measures in the face of domestic credit tightening and the rise of the Yen. Origin released it's results this morning and they are analysed by Davy Stockbrokers:

Origin Enterprises released FY 2012 results this morning. Revenues and profits increased strongly on a year-on-year (yoy) basis, coming in slightly ahead of our expectations. As a result of the strong out-turn, the board is proposing an increase in the dividend of 36pc on a yoy basis.

ANALYSIS: Revenue from Agri-Services was E1,340m, an increase of 6.6pc yoy. Operating profits from Agri-Services was E69.7m, up 5.6pc yoy. The contribution from joint ventures and associates decreased by E1.7m to E13.1m. Adjusted EPS increased by 4.2pc yoy. Underlying EPS growth, excluding the dilutive impact of the acquisitions and disposals, was 11pc. Net debt at the end of the period stood at E68m, a E24m improvement. There were some exceptional items amounting to E15.5m, principally relating to the write-down in the carrying value of investment properties and its share of the Valeo rationalisation costs.

Given the strong FY out-turn and the robust cash flow generation in the period, the board is recommending an increase in the dividend of 4c per share to 15c, a 36pc increase on a yoy basis. Based on yesterday's closing price, this implies a yield of 3.55pc.

The company's Agri-Service division benefitted from the backdrop of particularly difficult farming conditions in the UK. The year began with extremely dry weather, prompting fears of drought, and then proceeded to be one of the wettest summers on record. This brought many challenges to farmers and, as a result, further enhanced the value of Agrii's agronomy offering. Revenues and profits grew strongly in the period. Returns on capital employed for the division as a whole stand at a very impressive 23.4pc. The company is committed to spending circa E25m over the next four years, expanding its R&D and technical support capability.

Operating profit from business-to-business agri inputs was marginally lower yoy. Underlying fertilizer volumes fell yoy with weather and price volatility impacting the farmers' purchasing decisions. The fall in profits at the JV & Associates line is almost fully attributable to the performance of Welcon, its marine proteins and oils JV. This fall was not unexpected given the weak pricing for marine proteins that was evident for the majority of the year. Commentary around current trading is positive. Valeo performed satisfactorily in what is a challenging trading environment. The company is confident of delivering earnings growth in 2013.

DAVY VIEW: The 36pc increase in the annual dividend is an obvious highlight of a very robust reported and very good underlying performance (operating profit and EPS up by 6.9pc and 11pc respectively) in a weather challenged year for the farm production sector. The increase hallmarks confidence. But another good pointer to management's belief that its consolidating agronomy model (under Agrii) can deliver autonomous growth is the proposed four-year E25m investment in new research and development technology centres, satellite trials investigation units and mobile on-farm information and decision support systems.

Cash generation was as good as ever; the balance sheet is very strong and creates plenty of scope to invest; and the investment record is good. The share price continues to move in line with commodity grain prices. This is an unjustified correlation. The history of profits growth in the business over a long period is one of linearity, not cyclicality, although the rate of growth is influenced by profit margin conditions in the farm sector. With H1 representing only 15pc of the full year result, conservative forecasting is in order so early in the year. We are looking to 7pc EPS growth for this year (existing 5pc). We reiterate our 'Outperform' rating notwithstanding the recent strong run-up in the price according to Davy Stockbrokers.