eBusiness Weekly
Enacy Mapakame
Regional seed producer, Seed Co International is projected to overturn the loss recorded in the first half of the current financial year into profitability for the full year spurred by increased demand for seed across the region.
Traditionally, the business incurs costs during the first half of the year but gains momentum in the second half, which falls within the region’s start of the farming season.
During the half year to September 30, 2019, the group widened its loss to US$2,5 million from US$1,5 million recorded during the same period in the prior year also on the back of the decrease in exchange gains and increased finance costs.
Inventories increased by 53 percent to US$30 million compared to US$19 million in the same period in the prior year.
But market watchers anticipate an uptick in earnings on the back of increased demand for grain in the region following shortages caused by effects of drought experienced during the 2018/19 season.
A 6,6 percent year on year growth in revenue is projected to amount to US$64,1 million from US$60 million while gross margins should come in at around 50 percent from 49,7 percent in the prior year.
Earnings before interest, tax depreciation and amortisation (EBITDA) of US$11,8 million is projected compared to the US$9,7 million achieved in the prior year, yielding an EBITDA margin of 18,4 percent from 16,3 percent in the previous year.
A profit after tax of US$4,8 million is projected, implying an improvement of 28,8 percent on prior year’s US$3,7 million.
The group’s acquisition of Alliance Seeds South Africa, which will be equity accounted as joint venture with Limagrain is also seen as a positive move. Brokerage firm IH Securities, sees this and other factors as bearing positive impact to the group’s topline.
“As a result, we anticipate that for financial year 2020, the group will be profit making,” said IH Securities.
Management at Seed Co also anticipate margin improvement in the second half of the year due to the normal to above normal rainfall forecasts in Kenya and Tanzania.
Indications are that the group is also working on drought resistant varieties as the effects of bad weather have proven to have a knock on effect on the group’s numbers.
In line with this, new drought resistant varieties are also anticipated to help enhance sales volumes and earnings. New varieties have already been released in Zambia, Kenya and Tanzania.
“The changing weather patterns have a potentially significant impact on the group’s future financial performance. With the emerging risks of global warming and erratic rainfall; the group’s research and development is increasingly focusing on breeding more drought tolerant varieties,” said the group in a statement accompanying the financials.
The anticipated improvement in margins as well as planned operating cost control initiatives should also add to the group’s advantage. IH upgraded Seed Co International to a buy recommendation on the Zimbabwe Stock Exchange (ZSE) at an estimated target price of $4,28 on the local bourse. As of Tuesday, the seed producer was trading at $2,81 a share on the local bourse.
