On Jan 22, 2015, we issued an updated research report on the premium agricultural chemical company, Syngenta AG (SYT). The company’s business involves manufacturing, marketing and researching for seeds and pesticides, in order to enhance crop yields and food quality. Syngenta, with a high brand value in the market, conducts its trade in more than 90 countries around the world. However, the company’s business is currently exposed to threats of certain market externalities.
Existing Business Issues
Premature launching of the Viptera-modified corn trait by Syngenta remarkably lowered the market demand for U.S. corn in China, ultimately diminishing its global price. As a result, this caused significant monetary damages for numerous corn exporters in the U.S. Following this event, Scott+Scott LLP, a law firm of U.S. filed a case against Syngenta on grounds of contaminating the U.S. corn supply by commercializing its genetically tailored corn trait. Expenses involved with such lawsuits might lower the company’s margins in the upcoming quarters, as a major chunk of its revenues comes from the crop-protection business.
Rising costs has been a major issue for Syngenta as well. Current growth investments and research and development projects of the company are likely to strain its margins further. The company anticipates its growth investments to be approximately $170 million in 2014, whereas research and development expenses are projected to come in at 9–10% of revenues.
Scopes for Improvement
Syngenta conducts its trade in the global energy-intensive agricultural sector. Recent decline in oil prices have generated positive externalities for numerous agricultural stocks such as Monsanto Company (MON), Wilmar International Limited (WLMIY) and Cosan Ltd. (CZZ). Lower oil prices are expected to reduce the expenses of agricultural product marketing and eventually lower the market prices of food items. Under such circumstances, agricultural companies such as Syngenta would experience greater demand for its products, and thus, generate higher revenues and earnings in the upcoming quarters.
Moreover, Syngenta is focused on launching products to gain a significant market share in the coming quarters. For instance, it aims to launch Solatenol in France by 2016. The company has also entered into collaboration with Anheuser-Busch InBev in order to procure high-quality malting barley, a major raw material for the manufacturing of beer.
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