Skip to main content

Oilseeds, basis and crops

In this note we review the most recent indicators for GNC near term and the attractiveness of expanding oilseed crush capacity in the medium term in light of through the cycle canola acreage and production expansion. Key points:

Near term drivers: Soil moisture and three-month rainfall outlooks remain below average. However, the CSIRO wheatcast model continues to project wheat yields in NSW (+10%) and VIC (+14%) above the 15yr average. Wheat basis has contracted, though is still in a stronger position (from a GNC perspective) than in FY18 and oilseed crush margins remain elevated by historical levels and at levels that would imply an FY24e outcome broadly consistent with the FY22-23e average.

Oilseed investments: Recently Cargill announced a A$70-75m investment to add ~100kt of capacity across three sites and GNC announced it has commenced evaluating the case for new crush capacity. When viewed in the context of a +25% uplift in canola acreage over the last decade and +74% growth in canola production (on a R5Y through the cycle basis) resulting in a growing exportable surplus we would expect any investment in new capacity is likely to be reasonably attractive from an earnings stand point.

We have reviewed our forecasts in light of recent movements in grain basis and oilseed crush margins, this results in EPS changes of -3% in FY24e and +4% in FY25e. Our FY25e forecasts have down risked canola crush margins from implied FY25e futures levels. Our target price is unchanged at $9.45ps.

Investment view: Buy the dry

Our Buy rating is unchanged. When we consider the uplift in baseline PBTDA and improved corporate net cash position GNC is already trading at levels consistent with the previous seasonal lows. Trading at 5.5-6.2x through the cycle PBTDA, valuation is undemanding, with multiples likely to contract further as cash is released in lower crop volume years (i.e. unrealised trading cash earnings and lower working capital).

To read the full report click the button below.

View Detailed Report
Authored by Jonathan Snape – Analyst – at Bell Potter Securities, 10 October 2023
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.