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Thursday, 02/13/2014 1:15:34 PM

Thursday, February 13, 2014 1:15:34 PM

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>>> DAVOS: Novozymes Plants Seeds for the Future.


By Jonathan Buck

January 23, 2014



http://blogs.barrons.com/stockstowatchtoday/2014/01/23/davos-novozymes-plants-seeds-for-the-future/?mod=yahoobarrons&ru=yahoo


Novozymes (NVZMY) looks set to deliver a steadier performance for shareholders in 2014.

The company’s stock has jumped about 37% in the past 12 months, a performance it seems unlikely to replicate this year. Its American depository receipts closed Wednesday at $43.74, just off their 52-week high of $44.05. But the company, which produces industrial enzymes and micro-organisms that are used in everything from food to biopharmaceuticals, can still generate healthy returns for shareholders – as much as 10% or more in the next 12 months.

At Wednesday’s close, the stock trades at more than 30 times forecast 2014 earnings of $1.40 per share. It looks pricey, but Novozymes has traded at similar levels for long periods in the past. On forecast 2015 earnings, it trades at a multiple of 28.

But analysts aren’t convinced. Many are neutral on the stock and a consensus price target compiled from analysts’ estimates of $40.51 suggests it can fall about 10%. The more optimistic have price targets approaching $50, suggesting upside of roughly 14%.

The Bagsvaerd, Denmark-based company, which has a market value approaching $14 billion, predicts juicier profit margins in 2014 and cites an alliance with Monsanto (MON) for the optimism. It reported its profit margin will grow to between 25% and 26% this year from 24.7% in 2013.

Profits rose 6% in 2013, in line with expectations, on sales that increased 5% to 11.75 billion Danish krone ($2.15 billion), but Novozymes expects stronger earnings in coming years. It predicts growth of 6% to 9% in 2014 and it is aiming for 10% or more in 2015 and beyond.
Part of its optimism comes from the deal with Monsanto. The two companies in December agreed to develop bioagricultural products that allow farmers to increase crop yields. Under the terms of the deal, Novozymes receives $300 million from Monsanto in recognition of its ongoing business and microbial capabilities.

As soon as regulators clear the deal – and Novozymes CEO Peder Holk Nielsen expects no stumbling blocks – the company will hit the ground running. Timing is still uncertain, but the alliance could have products ready to market in time for the spring planting season in the northern hemisphere, Nielsen said in an interview on the sidelines of the World Economic Forum in Davos.

Nielsen sees potential for the venture with Monsanto to market bioagricultural products to countries outside North America and to target seeds not just to regions or farms but to individual fields. The technology can produce good results in rich soils but outstanding results in “distressed soils or lighter soils” such as those found in emerging markets, Nielsen said.
He expects the venture will have an impact on revenue from 2015 onward. “The bigger bet is on the other side of 2020,” he said.

“Farmers from now until 2050 are going to produce more food than farmers have for the last 10,000 years,” he adds.

Bioagriculture and cellulosic ethanol have the potential to transform Novozymes, but Nielsen cautions that both also could fall flat if scientists don’t understand the science of bio-ag products or if the take-up of biofuel fails to live up to expectations.

But right now the future looks encouraging. In the absence of acquisitions, the company also plans to buy back up to about $365 million of shares.

Shareholders could bring in a bumper harvest in the medium term.

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