Terrible, Horrible, No Good, Very Bad Year for GrainCorp is Finally Past; AUD 9 FVE Maintained

No-moat GrainCorp’s fiscal 2019 results reflected an abnormally challenging period, with one of the worst years on record for east-coast Australian grain production severely damaging the company’s short-term profitability. Full-year consolidated EBITDA of AUD 69 million and underlying net loss after tax of AUD 82 million were both slightly worse than our AUD 82 million estimated EBITDA and AUD 74 million forecast net loss, owing to ongoing drought and trade disruptions that led to higher costs and trade disruptions in Australian grains and oils alongside timing issues which dented profitability in GrainCorp’s malt segment. Nonetheless, we expect some relief in fiscal 2020 given improved production, cost savings, and the benefit of a new grain derivative contract, and continue to forecast substantial improvement over the long run during more-normalised growing years. We maintain our AUD 9.00 per share fair value estimate, suggesting the name is undervalued for those willing to look past the current environment.