Morningstar | As Bunge Leadership Transition Continues, We Lower Our FVE to $72 on Weaker Near-Term Expectations. See Updated Analyst Note from 22 Jan 2019
On Jan. 22, Bunge announced preliminary 2018 results that were below our expectations, as the company reduced its adjusted segment EBIT guidance due to weaker-than-expected performance in the agribusiness and sugar and bioenergy segments. Having updated our model to reflect lower near-term profits, we are reducing our fair value estimate to $72 per share from $74 for no-moat Bunge. At current prices, we view Bunge as undervalued on a risk-adjusted basis, with the shares trading firmly in 4-star territory.In addition to the preliminary results, Bunge announced that Greg Heckman was appointed as acting CEO effective immediately, replacing the outgoing Soren Schroder. Heckman joined Bunge's board of directors late last year at the request of activist investors. Heckman brings over 30 years of industry experience to Bunge, most notably as CEO of Gavilon, the grain merchandising business that was spun off from ConAgra. Heckman oversaw the spin-off of Gavilon in 2008 and the company's subsequent sale to Marubeni in 2013.
We think the appointment makes sense, given Heckman's industry and leadership experience in running a grain merchandising company. Additionally, given Heckman's experience overseeing a spin-off and company sale, he is a good choice to lead Bunge if the board decides to sell the company or spin off assets.
As we wrote in our Dec. 10 note, the board is conducting a strategic review to determine the future of the company. While no timetable has been set for completion of the review, we expect an update at some point in 2019. All options, including acquisitions, divestitures, or a sale of the full company, will likely be explored. However, with a range of possible outcomes and no concrete announcements, our fair value estimate will not reflect any strategic moves until one is announced.
Bunge also announced that three of its longest-serving board members will not seek re-election in 2019. We think the activist investors will probably nominate new board members to replace them, which will increase the activists' strategic influence on the company.
After lowering our 2018 forecast for the agribusiness and sugar and bioenergy segments, we now forecast adjusted segment EBIT of just under $900 million, well below management's third-quarter guidance of $1.2 billion.
For more information, see our Dec. 10 note, "Bunge Announces Leadership Transition; Strategic Review Likely to Yield Portfolio Changes."
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