Earnings growth for Seed Co
Analysts project earnings growth for Seed Co International Limited in the current financial year despite the adverse effects of Covid-19 pandemic across the region.
IH Securities sees the seed processor maintain a growth trajectory going forward underpinned by its status as an essential service provider.
This is in addition to the increased seed demand across the region as economies focus on food security to minimise the effects of the pandemic.
Already the group recorded improved earnings performance during the past financial year as its business remained operational as an essential service provider.
“Despite Covid-19 resurgence, we expect the company to register positive revenue growth benefiting from its essential business status. We anticipate food security to remain a priority on nations’ agendas and continue driving seed demand,” said IH Securities in an earnings review update for the seed maker.
However, the anticipated bumper harvest from across the region may weaken grain prices resulting in lower seed demand in the group’s already existing markets while currency fluctuations in regional markets will add more pressure.
But its expansion programmes into the region should be fruitful for the Victoria Falls Stock Exchange (VFEX) listed firm.
“The company continues to make inroads into new markets with business development taking place in Francophone countries such as Mali, Burkina Faso, Cameroon, Ivory Coast, and Togo. The Group recently secured business license in Ethiopia and is looking forward to establishing business in the country post Covid-19 pandemic and political
instability.
“Considering the level of uncertainty surrounding Covid19 and Ethiopian politics, we assume the effect of this transaction will be realised in the long-term. We expect the new processing plant which was recently commissioned in Nigeria to help improve efficiency as the country becomes self-reliant,” said IH Securities.
Revenue for FY22 is seen jumping 7 percent to US$95 million from the US$88 million achieved in FY21.
Gross margins are expected to remain fairly constant coming in at 49,9 percent from 49,4 percent recorded in FY21.
Earnings before interest, tax, depreciation and amortisation (EBITDA) of US$21,55 million is projected for FY22, compared to the US$19,9 million in the prior year, yielding an EBITDA margin of 22,7 percent against 22,5 percent in FY21.
In FY21, profit after tax (PAT) closed the year 81 percent higher to US$11,1 million from prior year’s US$6,10 million, driven by robust revenue growth.
The group’s selling season coincided with above normal rainfall across most of its markets which resulted in a spike in seed demand while governments also came in to support food security initiatives.
In Malawi for instance, sales doubled to US$18,4 million on the back of huge government inputs program, while Kenya recorded a 46 percent increase in sales on the back of both local and export demand. Attractive grain prices in Tanzania improved seed uptake resulting in sales revenue going up 7 percent to US$17,7 million.
IH Securities also forecast a 61 percent increase in the seed processor’s share price on VFEX to US41 cents with a buy recommendation on the stock.-herald.xl.zw
