London, UK, 27 July 2023

ArborGen Holdings (ARB): Green shoots appear in the spring

We believe ArborGen Holdings is in prime position, not only to address increasing demands from clients for its seedlings, but also for its ongoing investment in genetic improvement to continue to drive the switch to sales of higher-value, higher-margin seedlings to all its key markets. While this process plays out, underlying EBIT is set to increase five-fold in the next two years as gross margins return to and then exceed historical levels. We determine a value of NZ$0.49/share, implying attractive upside.

We believe there are a number of drivers of revenue growth that will push the top line in a positive direction, which will be augmented by margin expansion, thus allowing underlying EBIT to increase five-fold over the next two years. Furthermore, the business should see cash generation improve as profits rise and the build-up in working capital eases. This should result in reduced net debt such that balance sheet capacity expands, offering increased optionality in future years. These characteristics are reflected on our DCF, which implies a value for ArborGen of NZ$0.49/share, materially above the current share price.

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