A catch-up to play on Vilmorin

Despite good performances over the first nine months of the year, this vegetable and cereal seed specialist is struggling to climb up the stock market. Even if the uncertain environment casts a veil on the prospects, the title undoubtedly deserves a better fate.

by Aymeric Val

Is the market unfair to Vilmorin? We can think of this in the light of the disconnection – which has become manifest – between share prices and the reality of the fundamentals of this world-class seed company. If, due to the turbulence recorded by the agricultural markets, the performance of the group chaired by Daniel Jacquemond has not always been up to expectations in recent years, the 2019-2020 financial year looks rather favorable, despite the inevitable disturbances caused by the coronavirus since March. Its leaders touch wood: the organization of the group has not been shaken by this pandemic. The necessary measures taken to preserve the health of the teams do not affect productivity. Most of the industrial sites and research centers are in operation. In addition, Vilmorin has not yet seen any negative impact of the crisis on its sales. On the contrary, the month of March was extremely stimulating due to precautionary purchases and anticipation from customers. The only downside, garden products, dedicated to the general public, suffered from the closure of stores and large DIY stores at the start of confinement. The fact remains that sales for the third quarter of 2019-2020 (January to March period) were good. Excellent even with regard to the context. Growth amounted to + 5.5% at current data and + 5.6% at constant scope and exchange rates, driven by the vegetable business. Cumulative over the first nine months, revenues reached 1.06 billion euros, up 6% as reported and 4.2% organically.

Increasing haircut relative to equity

What about prospects? The cautionary message from leaders can be confusing. Admittedly, the annual targets have been suspended. They required organic growth in turnover of between 2 and 3%, while generating an operating margin of 8%. To justify its prudence, Vilmorin evokes several important risks linked to the crisis (disruption of supply chains, additional logistics costs, charges linked to the implementation of health measures in particular), the impacts of which can still materialize from the fourth quarter, both in terms of activity and operating margin. It should be noted that the last months of the financial year are traditionally the most important in terms of activity and therefore of contribution to results. Vilmorin is dependent on exogenous parameters which it does not control, hence the prudence of its management. However, nothing suggests an “accident” on the landing of the annual accounts. At this point, the 2020-2021 season promises to be uncertain. However, the strategic nature of the seeds, a source of productivity for farmers and market gardeners, nonetheless invites some optimism. Vilmorin’s model is currently proving its resilience, which is worth highlighting. Faced with this, the current valuation highlights a discount of around 20% compared to equity. The file also capitalizes 10 times the estimated net profit for next year, which is much lower than the historical average (multiples usually greater than 15 times the profit). By putting these different elements in the balance, the title seems to us to have become attractive again. We will not hesitate to bet on a catch-up!

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