EUR 850.00 For Business Accounts Only

Morningstar | Bunge Announces Detailed Results; Maintaining $72 FVE With Long-Term Outlook Intact

Bunge announced detailed 2018 results with few surprises. Adjusted segment EBIT was $881 million during the year, up from $577 million in 2017, due largely to higher soy crush margins throughout much of the year. This follows preliminary 2018 results released on Jan. 22. With our long-term outlook largely unchanged, we maintain our $72 per share fair value estimate for Bunge. Our no-moat rating is also intact. At current prices, we view Bunge shares as modestly undervalued on a risk-adjusted basis.

In the agribusiness segment, adjusted segment EBIT fell nearly 30% year on year during the quarter to $55 million, driven by losses in the grains business. As global trade patterns have already begun to shift, we anticipate fewer price dislocation opportunities for the segment, which houses the grain merchandising operations, going forward. Further, Bunge could face additional headwinds in 2019 if China continues to purchase lower U.S. crop volumes than it did before the dispute, although the company's larger South American footprint should benefit from a prolonged decline in U.S. crop exports.

However, within the agribusiness segment, the grains losses were partially offset by higher oilseeds profits, which were driven by an elevated soy crush spread. That said, during the fourth quarter, the soy crush spread fell from around $1.20 per bushel to $0.90 per bushel. This is only slightly above the 2013-17 average of roughly $0.80. While the soy crush spread is just one of many variables that drive profits for the the oilseeds segment, we forecast that the lower spread will weigh on profits in 2019.

Over the past few months, Bunge has announced leadership changes, appointing a new interim CEO, new chair of the board of directors, and seven new board members. These changes have come at the request of two activist investors. As a prelude to any major changes, the board is conducting a strategic review of the company. On the earnings call, management gave few updates other than to confirm the review is underway. We think management will likely provide a more concrete update at some point this year. However, the outcomes of the review could result in a wide variety of changes, including acquisitions and divestitures. As a result, our fair value estimate continues to assume no future M&A until any strategic changes are announced.