Bunge Limited

BG Details

Bunge Limited (NYSE: BG) connects farmers to consumers to provide essential food, feed, and fuel globally. The company is the global leader in processing oilseed and a prominent manufacturer and supplier of specialty plant-based oils and fats.

Result Performance for the Third Quarter Ended 30 September 2021 (Q3FY21)

• The GAAP EPS stood at $4.28 in Q3FY21 $1.84 in Q3FY20, while on an adjusted basis, it stood at $3.72 in Q3FY21 vs. $2.47 Q3FY20 primarily supported by the strong performances across core and non-core operations.
• Agribusiness results were primarily led by robust execution and a better market environment.
• Refined and Specialty Oils performance bettered across regions with strength in North America.
• Establishing renewable fuel feedstocks joint venture with Chevron and sale of Mexico wheat mills
• Repurchased $100 million of common shares and reached $500 million authorization; the company authorized a new $500 million program

Consolidated Financial Snapshot (Source: Company Reports)

Outlook

The company has increased the FY21 adjusted EPS forecast to ~$11.50 per share. The agribusiness is expected to accelerate, driven by favourable market trends, while positive demand trends in North America drive the refined and Specialty Oils segment. However, the Milling segment is expected to be in line with last year.

Additionally, the company anticipates an adjusted annual effective tax rate between 15%-17%, net interest expense in the ambit of $200-$210 million, capital expenditures between $350-$400 million, and depreciation & amortization of ~$420 million.

Key Risks

Due to its business activities globally, the company is exposed to risks of fluctuations in the agricultural commodity prices, transportation costs, and energy costs. Further, it is susceptible to changes in the foreign currency exchange rates and interest rates that would directly or indirectly impact its results of operations as well as its financial position.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

Over the last six and nine months, the stock price increased by ~7.33% and ~36.94%, respectively. In addition, the stock is trading above the average price of the 52-week low-high range for the stock at $54.00-$93.68, respectively.

The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price that reflects a low double-digit decline (in percentage terms). The company might trade at a slight discount to its peers average, considering a higher debt to equity ratio in Q3FY21 over the industry median and longer cash conversion cycle in Q3FY21 versus industry median.

Considering the factors above, the current trading levels, and the associated business risks, we advise the investors to book profits. Accordingly, we give a “Sell” rating on the stock at the current market price of $94.08 per share as of 1^st November 2021 (Time: 9:47 AM, NY, USA).

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period) 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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