GrainCorp’s Derivative Contract Reduces Uncertainty, but also Valuation; FVE Cut to AUD 9.20
No-moat GrainCorp’s 10-year derivative contract to smooth earnings through the volatile east-coast Australian crop-growing cycle tightens its valuation range, but is a net negative for shareholders under our base-case scenario. The contract should help management plan for long-term capital allocation and asset utilisation rather than struggle with annual volatility, and we’ve reduced our uncertainty rating to medium from high. But we assume the company and its counterparty will see payments net ...GrainCorp is a food ingredients and agribusiness company. Co. focuses its activities on three main grains (wheat, barley and canola). Co.'s reporting segments are: Storage and Logistics, which include grain receivals, transport, testing, storage of grains and other bulk commodities; Marketing, which markets grain and agricultural products and operates grain pools; Malt, which produces malt products, provides brewing inputs and other malting services, sells farm inputs, and exports malt; and Oils, which includes the processing and crushing of oilseeds. Co. also has a 60.0% joint venture interest in Allied Mills Australia Pty Ltd, a supplier of milled edible flour for human consumption.
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