Sector financial performance:

This company, who primarily breeds and produces alfalfa seeds varieties for alfalfa hays growers, has been grouped into alfalfa seeds sector in crop production industry.

While we do not have direct data about growth in demand for alfalfa seeds, considering the uncertainty of dairy industry such as the decreasing demand for dairy products, we think the demand from the market for alfalfa seeds, which are used to grow alfalfa hay, the forge for dairy cattle, will probably weak. In fact, it seems, based on performance for some of typical companies in this sector, that international and domestic demand have not been increasing in the past several years.

A typical gross margin of companies comes between 19-22% and operating margin between 0-2%.

According our analysis, companies’ enterprise price/sales ratio is around 1.4.

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Company performance:

It seems that the fast increase in demand from DuPont pioneer for alfalfa seeds of this company as a result of acquisition has been slowing down in 2017/18. This company lost significant portion of sales from its international market this year as well.

For first three months of fiscal 2019 compared with 2018(ended 20180930)

The sales (excluding acquisition impacts) of this company increased 145% primarily due to increase in sales to DuPont pioneers as a part of agreement after acquisition.

For fiscal 2018 compared with 2017(ended 20180630)

The organic sales (excluding acquisition impacts) of this company decreased 15% primarily due to decrease in sales to Saudi Arabia market due to uncertain regulatory.

The organic sales (excluding acquisition impacts) of this company decreased 22% in fiscal year ended June 30, 2017 compared with the same period of 2016, primarily due to decrease in sales to Saudi Arabia market due to uncertain regulatory.

The sales of this company increased 18% in fiscal year ended June 30, 2016 compared with 2015, primarily due to increase in sales to DuPont pioneers as a part of agreement after acquisition.

The sales of this company increased 57% in fiscal year ended June 30, 2015 compared with 2014, primarily due to increase in sales to DuPont pioneers as a part of agreement of acquisition.

It seems that the increased sales to DuPont pioneer have been helping this company improve its gross margin that was dragged down by the fast expansion by acquisition in fiscal 2013 and 2014. In addition, due to the significant decrease in sales its SG&A as percentage of sales went up to 20% in fiscal 2017, which push its operating margin down to ( -2.5%) while it had continuingly improved gross margin. The gross margin went down a little to 22.5% in 2018. However, due to leverage of increased sales in 2018 its SG&A% was down and improved its operating margin back up to about 0%. The expected increase in net income and the saving from synergies from acquired business seem not strong enough to offset the significantly increased interest expenses resulted from borrowing for acquisitions, which is the reason that the growth in cash inflow of this company has been negative in the past three years. However, increased sales in 2018 helped bring back a positive cash flow growth due to improved SG&A as percentage of sales.

Stock price

This stock currently has an enterprise price/sales ratio of 1.38($2.8/share), which we think, is relatively overvalued considering its unsuccessful acquisitions in the past several years, which did not bring expected return compared with acquisition costs and also uncertainty in Saudi Arab sales.