ArborGen Holdings — Mixed trading, but solid long-term growth outlook

ArborGen Holdings (NZX: ARB)

Last close As at 22/05/2024

NZD0.16

0.00 (0.00%)

Market capitalisation

NZD85m

More on this equity

Research: Industrials

ArborGen Holdings — Mixed trading, but solid long-term growth outlook

ArborGen’s H124 results highlighted contrasting trading conditions with challenges in the US offset by a strong performance from Brazil. However, despite the short-term issues, ArborGen remains in prime position to address increasing demand for its seedlings and to continue investment in genetic improvement to drive the switch to sales of higher-value, higher-margin seedlings in both markets. While this process plays out, underlying EBIT is set to increase fivefold in the next two years as we expect gross margins to return to and then exceed historical levels. However, the recent US weakness has led us to trim our DCF valuation from NZ$0.49/share to NZ$0.44, still implying material upside.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

forestry04

Industrials

ArborGen Holdings

Mixed trading, but solid long-term growth outlook

H124 results

Basic materials

14 December 2023

Price

NZ$0.17

Market cap

NZ$90m

US$0.57/NZ$

Net debt (US$m), excluding leases
at 31 September 2023

16.7

Shares in issue

527.0m

Free float

34%

Code

ARB

Primary exchange

NZX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.6)

(9.5)

(15.8)

Rel (local)

(0.2)

(2.3)

(16.4)

52-week high/low

NZ$0.24

NZ$0.18

Business description

ArborGen Holdings is a New Zealand-listed investment company and is the world’s largest integrated developer, commercial manufacturer and supplier of advanced forestry seedlings, with operations in the United States and Brazil.

Next events

Preliminary results

May 2024

Analysts

Andy Murphy

+44 (0)20 3077 5700

Natalya Davies

+44 (0)20 3077 5700

ArborGen Holdings is a research client of Edison Investment Research Limited

ArborGen’s H124 results highlighted contrasting trading conditions with challenges in the US offset by a strong performance from Brazil. However, despite the short-term issues, ArborGen remains in prime position to address increasing demand for its seedlings and to continue investment in genetic improvement to drive the switch to sales of higher-value, higher-margin seedlings in both markets. While this process plays out, underlying EBIT is set to increase fivefold in the next two years as we expect gross margins to return to and then exceed historical levels. However, the recent US weakness has led us to trim our DCF valuation from NZ$0.49/share to NZ$0.44, still implying material upside.

Year end

Revenue (US$m)

EBITDA*
(US$m)

EBIT**
(US$m)

EPS
(c)

P/E
(x)

Net debt*** (US$m)

03/22

47.6

10.1

2.7

0.3

30.2

16.5

03/23

56.1

9.2

1.6

(0.5)

N/A

17.9

03/24e

64.8

12.0

4.1

(0.3)

N/A

21.3

03/25e

71.3

16.1

8.2

1.0

10.5

12.5

Note: *EBITDA is US GAAP, adjusting for investments in intellectual property, government grants, inventory adjustments, public company costs and exceptionals. **EBIT excludes strategic review costs, grants and exceptionals. ***Includes capitalised leases.

H124 reveals ST US weakness but confirms LT trends

ArborGen’s H124 results highlighted short-term weakness in the US, but continued strength in Brazil. Although volumes in the former are likely to be down this year, prices are rising, driving an increased gross margin contribution. In Brazil, both volumes and prices are buoyant, implying strong revenue growth. This positive trading situation coincides with the appointments of a new CEO and a GM for Brazil and some additional one-off costs, but the underlying outlook for the company remains very promising, which is reflected in our operating earnings forecasts.

Switch to higher-price/margin seedlings ongoing

ArborGen has sold 87% of its budgeted US seedling volumes for the current year, all its eucalyptus and most of its pine seedlings in Brazil. Therefore, on a normalised basis, management is expecting a ‘materially’ improved performance in FY24, supported by higher volumes of higher price mass control pollinated (MCP) seedlings, an improved gross margin from lower MCP seed costs and expansionary activity. These latest-generation MCP seedlings deliver significant step-change gains to forest owners and command price premiums 2–4 times that of earlier-generation open pollinated seedlings. The ongoing switch to higher-priced MCP seedlings and continued strong growth in Brazil is expected to drive margins and profits materially higher.

Valuation: Shaved DCF offers material upside

We have reduced estimates, especially in FY24, to reflect tougher US trading and a series of other factors, which results in a reduction on our DCF valuation, from NZ$0.49/share, to NZ$0.44/share. However, we believe there are a number of drivers of revenue growth that will expand the top line, which will be augmented by margin expansion, thus allowing underlying operating earnings to increase fivefold over the next two years. Furthermore, the business should see cash generation improve as profits rise and a reversal in the build-up in working capital.

US hit and some one-off costs, but Brazil very good

Trading in the US has been affected in recent weeks by order cancellations due to a number of factors outside the control of the company, but Brazil continues to trade very well. This situation coincides with significant management change and some additional one-off costs, but the underlying outlook in both geographies for the company remains very positive. These factors are reflected in our revised operating earnings forecasts, which anticipate a fivefold increase by FY25 over FY23. However, the short-term weakness in the US has led to a reduction in our DCF valuation, from NZ$0.49/share, to NZ$0.44/share, more than twice the current share price.

US headwinds, but Brazil flying

In the US, following the cancellation of some orders due to industry, weather and economic factors, ArborGen is now c 87% sold out of all seedlings it has available, having been c 90% sold around the time of the annual shareholders meeting in September. Low pulp prices have resulted in the closure of several large pulp mills, and a decline in demand for saw timber, notably from the construction market, has prompted some customers to delay harvesting, thus reducing demand for seedlings in the short term. The weather in the summer also hampered clients’ ground preparation plans, adding downward pressure to demand.

In Brazil, the market remains very strong, driving demand for both eucalyptus and softwood seedlings. It follows that seedling prices are also higher. ArborGen is also benefiting from its US$3m investment (to be paid over seven years) in in-house nursery production, which has taken capacity to 80m seedlings pa in H124. The net result is that the company is anticipating strong growth in seedling volumes and prices, which will drive revenue firmly higher. Margins are also expected to expand strongly.

Despite the US headwinds, the company continues to anticipate a year-on-year improvement in earnings in FY24 and beyond, which is reflected in our revised forecasts.

Change of management, but not strategy

In the wake of the disposal of the Australian and New Zealand operations in late 2021, which raised c NZ$22.25m for reinvestment, the company has seen a change in personnel at the CEO level and a new GM appointed to the group’s Brazilian operations in 2023. Firstly, Justin Birch took over as CEO in June from Andrew Baum. Justin was most recently the CFO at Prima Wawona, a leading producer and innovator of fresh fruit production in California. Prior to this he held a number of positions in private equity businesses focused on the food and agriculture industries.

Since he started at ArborGen, Justin has visited almost all of the company’s operations with a view to ‘look under every rock’. That said, we believe that under his stewardship, the company’s strategy is likely to be typified by evolutionary rather than revolutionary change. He has also relocated from California to Ridgeville, South Carolina, where ArborGen is headquartered.

The other significant change was the appointment of Adriano de Almeida as GM of the Brazilian operations. He took over from Gabriela Monnerat, who remains with the company on a consultancy basis to ensure a smooth transition. Adriano has a strong understanding of the Brazilian forestry market, having accumulated a wealth of knowledge and experience in tree improvement and tree breeding in the country.

Other changes are likely in calendar Q124 as ArborGen is actively looking to hire a chief financial officer and a vice president of operations. The company has downsized its New Zealand corporate office and both of these roles will be based in the US.

One-off costs incurred in FY24, but strong underlying growth

Following the H124 results, we have revised our FY24 and FY25 estimates; see Exhibit 1 below. The deferred US orders account for the reduction in revenue growth in FY24, which we have also reflected in FY25, although as some orders appear to be deferred, they may simply be pushed into FY25, implying that our revenue estimates are conservative.

This revenue weakness is the key driver of the decline in EBITDA – US GAAP adjusted, which has been reduced from US$14.4m to US$12.0m, in line with recent guidance of ‘$11.6m to $12.6m’. It is worth noting that our estimate implies year-on-year EBITDA growth of over 30%. EBITDA US GAAP is reduced by a greater proportion as it includes one-off costs, from US$14.4m to US$7.5m, in the middle of the guided range of US$7m to US$8m.

The one-off costs include CEO related charges of US$2.1m (US$1.8m for equity grants, relocation costs and other costs associated, and US$0.3m that relates to shares and other arrangements regarding the previous CEO) and a further US$1.8m that relates to the write down of its US seed inventory. This equates to c 15,000lb out of a total inventory of 75,600lb.

The one-off costs feed into PBT and EPS and are also a major factor in the net debt estimate increase from US$8.9m to US$18.8m in FY24, as is a working capital increase, M&A, growth investment in Brazil and the repurchase of warrants.

Exhibit 1: Revised earnings estimates (US$m)

FY23

FY24e

FY25e

Old

New

% change

Old

New

% change

Revenue

56.1

68.0

64.8

-4.7%

74.7

71.3

-4.5%

Y-o-y % change

17.9%

21.2%

15.5%

-

9.9%

10.0%

-

EBITDA - US GAAP, adjusted

9.2

14.4

12.0

-16.7%

17.1

16.1

-5.8%

Y-o-y % change

-8.9%

56.9%

30.4%

-

18.3%

34.3%

-

EBITDA - US GAAP

10.3

14.4

7.5

-48.0%

17.1

16.1

-5.8%

Y-o-y % change

 

11.2%

40.1%

-27.2%

-

18.3%

115.0%

-

Operating earnings, normalised.

1.6

6.8

4.1

-39.8%

9.5

8.2

-13.6%

Y-o-y % change

-41.0%

327.2%

156.0%

-

38.7%

100.5%

-

PBT

0.9

5.8

(1.5)

-125.2%

8.5

7.2

-15.2%

Y-o-y % change

6.4%

542.0%

-262.7%

-

46.8%

-592.8%

-

EPS from continuing (basic) - diluted, underlying (US cents)

(0.5)

0.8

(0.3)

-133.2%

1.2

1.0

-19.6

Y-o-y % change

N/A

N/A

N/A

-

46.5%

-454.1%

-

DPS (US c)

0.0

0.0

0.0

N/A

0.0

0.0

N/A

Y-o-y % change

0.0%

0.0%

0.0%

-

0.0%

0.0%

-

Net (debt)/cash (pre IFRS 16)

(13.0)

(8.9)

(18.8)

111.3%

(5.1)

(11.2)

118.9%

Y-o-y % change

N/A

-31.3%

44.7%

-

-42.8%

-40.6%

-

Source: ArborGen accounts, Edison Investment Research

Exhibit 2: Financial summary

US$m

2021 (restated)

FY22

FY23

FY24e

FY25e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

42.8

47.6

56.1

64.8

71.3

Cost of Sales

(27.2)

(29.8)

(37.9)

(40.0)

(42.1)

Gross Profit

15.6

17.8

18.2

24.8

29.2

Operating Expenses

(15.4)

(15.1)

(16.6)

(20.7)

(21.0)

Other Income/(Expense)

0.8

-

-

-

-

EBITDA - US GAAP, Adjusted

 

7.4

10.1

9.2

12.0

16.1

EBITDA - IFRS - ArborGen

 

14.0

9.3

13.9

10.9

19.5

D&A

9.8

9.6

10.2

10.5

10.5

Operating Profit (before except.)

 

1.0

2.7

1.6

4.1

8.2

Exceptionals/Other

1.9

(4.0)

0.6

(4.5)

-

Operating Profit/(Loss) (EBIT)

 

2.9

(1.3)

2.2

(0.4)

8.2

Net Interest and financial expense

(2.0)

(1.7)

(1.3)

(1.1)

(1.0)

Profit Before Tax (norm)

 

(1.0)

1.0

0.3

3.0

7.2

Profit Before Tax (IFRS)

 

0.9

(3.0)

0.9

(1.5)

7.2

Tax

0.6

4.7

(3.4)

-

(2.0)

Profit After Tax (norm)

 

(0.4)

5.7

(3.1)

3.0

5.2

Profit After Tax (IFRS)

 

1.5

1.7

(2.5)

(1.5)

5.2

P/(L) from discontinued operations

1.7

-

-

-

-

Net income (IFRS)

 

3.2

1.7

(2.5)

(1.5)

5.2

Average Number of Shares Outstanding, basic, millions

499.5

500.8

502.4

518.8

527.5

EPS - normalised, cont ops, basic (US cents)

 

(0.1)

1.1

(0.6)

0.6

1.0

EPS - normalised, cont ops, diluted (US cents)

 

(0.1)

1.1

(0.6)

0.6

1.0

EPS - IFRS, cont ops, basic (US cents)

 

0.3

0.3

(0.5)

(0.3)

1.0

Gross Margin (%)

36.4%

37.4%

32.4%

38.3%

40.9%

EBITDA Margin (%)

17.3%

21.2%

16.4%

18.5%

22.6%

BALANCE SHEET

Non-currentAssets

 

150.4

138.8

141.5

137.0

132.8

Intangible Assets

101.3

97.1

92.9

89.1

85.3

Tangible Assets

43.3

32.9

33.5

35.3

34.9

Right of Use Assets

5.8

4.7

4.9

2.4

2.4

Other

-

4.1

10.2

10.2

10.2

Current Assets

 

52.9

53.3

58.3

63.3

73.4

Cash and liquid deposits

6.2

15.2

12.7

5.9

12.5

Receivables

12.2

10.8

14.0

14.4

15.8

Inventories

34.5

27.3

31.6

43.0

45.0

Current Liabilities

 

(15.9)

(10.5)

(20.2)

(23.6)

(24.4)

Trade and other payables

(13.1)

(8.7)

(10.8)

(14.7)

(15.5)

Current Debt

(1.0)

(1.0)

(8.1)

(8.1)

(8.1)

Lease liabilities

(0.8)

(0.8)

(0.8)

(0.8)

(0.8)

Other

(1.0)

-

(0.5)

-

-

Long Term Liabilities

 

(39.2)

(30.2)

(30.3)

(28.9)

(28.8)

Long term debt

(32.6)

(25.7)

(17.6)

(16.6)

(15.6)

Lease liabilities

(5.1)

(4.2)

(4.1)

(3.7)

(4.6)

Other

(1.5)

(0.3)

(8.6)

(8.6)

(8.6)

Shareholder's Equity

 

148.2

151.4

149.3

147.8

153.0

CASH FLOW

Operating Cash Flow (before interest, tax, etc.)

8.1

10.8

2.2

3.2

11.0

Financing expense

2.0

1.7

1.3

1.1

1.0

Tax

(0.6)

(4.7)

3.4

-

2.0

FX

0.4

(0.3)

(0.4)

-

-

Capex

(1.0)

(1.5)

(2.2)

(4.4)

(2.2)

Investment in Intellectual Property

(3.7)

(3.1)

(3.4)

(4.1)

(4.1)

Acquisitions/disposals

-

15.2

-

-

-

Lease payments and warrant purchase

(1.3)

(0.9)

(1.1)

(0.5)

09

Interest paid

(2.0)

(1.7)

(1.3)

(1.1)

(1.0)

Change in net cash

1.9

15.5

(1.5)

(5.8)

7.6

Opening net debt/(cash), not incl. leases

 

29.6

27.4

11.5

13.0

18.8

Exchange rate movements

0.3

0.4

-

-

-

Closing net debt/(cash), not incl. leases

 

27.4

11.5

13.0

18.8

11.2

Closing net debt/(cash), incl. leases

 

33.3

16.5

17.9

23.3

16.5

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by ArborGen Holdings and prepared and issued by Edison, in consideration of a fee payable by ArborGen Holdings. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by ArborGen Holdings and prepared and issued by Edison, in consideration of a fee payable by ArborGen Holdings. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on ArborGen Holdings

View All

Latest from the Industrials sector

View All Industrials content

Research: Industrials

Severfield — FY24 expectations unchanged, order book robust

Severfield’s H124 results highlighted profit growth despite declining revenue, and management continues to expect full-year results to be in line with previous guidance. The total order book has also remained at elevated levels despite the loss of a large studio contract, highlighting the quality of future work in the UK and Europe, and that it is a key indicator of future earnings visibility. The FY24e P/E rating of 7.0x is comfortably below the long-term average of c 10x, implying some risk is discounted in the rating. The stock yields nearly 6%, which is an added attraction.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free