GrainCorp [ASX:GNC] shares were as high as 9% this morning following its FY22 earnings guidance update.
GNC shares traded as high as $9.46 per share — a new all-time high.
Over the last 12 months, GNC is up 70%.
Source: Tradingview.com
GrainCorp updates earnings guidance
GrainCorp, the 100-year grain and edible oils business, saw its shares reach a record high on the back of a FY22 earnings guidance upgrade.
The upgrade comes just two months after GNC’s last earnings guidance, highlighting how quickly market conditions have changed.
GrainCorp attributed the improved market outlook to ‘significant ongoing global demand for Australian grain and oilseeds and favourable planting conditions for winter crops.’GNC now expects EBITDA to increase from $480–540 million to $590–670 million.NPAT is expected to rise from $235–280 million to $310–370 million.
These estimates are subject to variables like 2022 product trades, supply and production margins, next year’s crop outlook, and global conditions.
Despite recent weather-related supply chain disruptions, GrainCorp said it continues to operate its ports ‘at close to full capacity, exporting as much grain as possible to international markets.’
GNC forecasts to export 8.5mmt to 9.mmt in FY22. In FY21, GNC exported 7.9mmt.
Ukraine conflict disrupts grain trade
Russia’s invasion of Ukraine has disturbed global agricultural markets.
Russia and Ukraine both make up about a third of global wheat imports, triggering supply concerns.
For instance, since the war began, global wheat futures prices rose 50% to a record high of US$13 a bushel but have since retraced to US$10 a bushel.
As the European Commission observed, the war in Ukraine has ‘created more uncertainty regarding the future availability of grains and oilseeds and has added a layer of instability to already tense markets.’
GrainCorp CEO Robert Spurway is noticing this, too:
‘The conflict in Ukraine and resulting trade disruptions in the Black Sea region have created uncertainty in global grain markets, with buyers looking for alternate sources of supply. This has further increased both the demand for Australian grain and oilseeds and export supply chain margins.’
GrainCorp share price outlook
The earnings guidance upgrade saw Morgan Stanley release a bullish note on the stock.
Morgan Stanley analyst Ella McAlister placed an ‘outperform’ recommendation on GNC, arguing:
‘In the context of global wheat trade distortions, we believe demand for Australian wheat will be elevated and expect GrainCorp to benefit from increased margins on export sales.’
Now, whether GNC is a good investment or not partly depends on how much one thinks the stock is worth.
But how do you come up with a fair valuation? What do you base it on?
If you’re interested in finding out how to approach valuing businesses, I suggest checking out our free report on just that.
Access our report here: ‘How to Find Bargain-Priced Superstars after a Big Sell-Off’.
Regards,
Kiryll Prakapenka,
For The Daily Reckoning Australia
