Origin Enterprises seen as buyout target

Agri-services group Origin Enterprises has been touted as a potential takeover target, within the analyst community. There is speculation that former majority shareholder Aryzta may further reduce its stake in the business.

Aryzta is the Irish-Swiss baked goods business and Cuisine de France owner.

It raised over €400m for acquisition purposes in March by cutting its Origin stake from 68% to 29%.

It is due to report annual figures next week and is expected to give clarity on plans to further reduce its shareholding in Origin.

“Expectations are that Aryzta may reduce its holdings further and any clarity on this, within Aryzta’s upcoming results could be a positive catalyst for Origin and Aryzta,” said Darren McKinley of Merrion Capital yesterday.

“We would not rule out Origin Enterprises as a potential target by a larger agriculture company given that two large shareholders own 42% of the market capitalisation,” he added.

Analysts yesterday slashed earnings estimates for Origin on the back of the company suggesting the near-term agri-services industry climate is likely to be more challenging than expected.

Origin yesterday published annual results for the 12 months to the end of July showing a performance management called “a satisfactory result in line with expectations.”

Revenue rose by 3%, in the year, to almost €1.46bn. However, group operating profit was up by only 0.1% to just under €93m and pre-tax profit was only up 0.9% on the previous year, at €88.2m.

The half-year dividend has been raised by 5% to 21c per share and annual earnings per share (on an adjusted diluted basis) amounted to 60.10c; an increase of 4.5%.

However, while management said the company remains well-positioned to respond to market conditions, it noted that the weaker industry backdrop is impacting farm sentiment and “a lower demand profile for services and inputs is anticipated in 2016”.

As a result, analysts yesterday significantly cut their earnings forecasts for Origin’s current financial year. Goodbody Stockbrokers said it now expects earnings per share (for the 12 months to the end of next July) of around 52c, down from a forecast of 59.6c; while Davy Stockbrokers has lowered its same guidance from 64c to a 50c-51c range.

“Investor focus will be on the outlook statement, which anticipates lower demand for agri-services and inputs for 2016 as crop output markets remain under sustained pressure with limited near-term price visibility,” said Davy’s Cathal Kenny.

Origin’s share price was down around 40c at just over €7 yesterday. Analysts view €8 as a maximum growth level until clarity around demand and earnings outlook emerges. The company is set to update on first-quarter trading in November.


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