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North American Chemicals 11 February 2019Seeds/Pesticides update w/ Phillips McDougall
Figure 1 compares valuations for Corteva (UBS SOTP estimate), new FMC
(consensus, excl. lithium), and Monsanto & Syngenta prior to their receiving
acquisition bids. FMC is pure pesticides, while Corteva sales are 60% seeds, and
Monsanto & Syngenta had the majority of their sales from seeds. Seeds are higher
value relative to pesticides. And the lower valuation on FMC may reflect concerns
about nearing patent expirations on its largest pesticides, its smaller market cap,
and that FMC has only very recently become focused on pesticides (lithium split
expected 03/01/19, food ingredients/pesticides deals completed late 2017).
Figure 1: Corteva vs FMC vs Monsanto vs Syngenta
Corteva FMC PF MonsantoSyngenta$ Bil. UBSe 2020 Cons. 2020 FYAug17 FYDec16
Market cap. (last) ~$32B $9.8B $57B $43B
Sales $14.9B $4.7B $14.6B $12.3B
Sales mix (Seeds/Pesticides) 55% / 45% 0% / 100% 75% / 25% 22% / 78%
R&D-to-sales ~10% 7% 11% 10%
EBITDA $3.0B $1.4B $4.1B $2.7B
EBITDA Margin ~20% ~30% ~28% ~22%
Earnings (EPS) $0.65 $6.70 $5.53 $17.03
EV/EBITDA ~10.0x ~9.0x ~15.4x ~17.0x
Notes: (1) Corteva figures based on UBSe; (2) FMC figures are pro-forma for excl. of LTHM; (3) Monsanto and
Syngenta figures are prior to acquisition by Bayer and Chem. China respectively.
Source:Company reports, FactSet, UBS
FMC (all pesticides) spends 7% of sales on R&D, while Corteva spends 10%.
Corteva doesn’t disclose R&D by seeds vs pesticides, using 7% for pesticides would
imply 12% for seed R&D as a percentage of seed sales. We believe that the seed
industry replaces ~15% of sales each year with new hybrids & varieties (all
containing improved germplasm, and many with new/improved GM traits). So new
products as a percentage of sales is much higher for seeds than for pesticides.
Figure 2 shows the leading global producers of seeds & pesticides. The former Big-
6 have now become the Big-4 with the combinations of Bayer-Monsanto and
DowDuPont (now Corteva Ag). Syngenta was also acquired by ChemChina (which
previously acquired Adama). ChemChina is already the second largest seeds &
pesticides producer, which could grow further from a potential merger with
Sinochem (link). Corteva Ag. (large cap), FMC (SMID-cap) & American Vanguard
(small-cap), will be the 3 public U.S. companies focused on specialty ag. products.
North American Chemicals 11 February 2019Figure 2: Leading global producers of seeds & pesticides ($bil, 2017 PF)
Producers Total Pesticides Seeds
Total 95.5 56.4 39.2
“Big Four”
Bayer (incl. MON)* 24.6 13.6 10.9
ChemChina (a) 15.8 13.0 2.8
Corteva Ag (DWDP)* 14.2 6.1 8.1
BASF* 8.4 6.9 1.5
Other larger firms (home)
UPL/Utd.Phos.+Arysta (India)* 4.1 4.1
FMC (U.S.)* 3.9 3.9
Nufarm (Australia) 2.5 2.5
Sumitomo Chem (Japan) 2.0 2.0
Vilmorin (France) 1.51.5
Albaugh (U.S.) 1.3 1.3
KWS (Germany) 1.21.2
American Vanguard 0.4 0.4
All others 15.6 2.6 13.1
*data is presented as proforma for products transferred as part of merger/acquisition approvals, (a) ChemChina
is consolidation of Syngenta and Adama
Source:AgbioInvestor, PhillipsMcDougall, UBS
Figure 3 shows the estimated sales for the “Big Four” by region, and split by seeds
vs. pesticides. The geopolitical risks vary significantly by region. Europe has taken a
much less favourable view on both pesticides (e.g., glyphosate reviews) & seeds
(no GM, and gene edited viewed more like GM). The U.S. regulations are viewed
more favourably, and gene edited seeds will be viewed as non-GM. LatAm
continues to be the highest growth market, and is a current beneficiary of the U.S.
trade dispute with China. Asia Pacific is the largest market by acreage, but
generally 10% or less of sales for western firms.
Figure 3: Global seed and pesticide sales ($ Bil, 2017 PF)
Corteva Bayer ChemChina BASF
Seed Pesticides Total Seed Pesticides Total Seed Pesticides Total Seed Pesticides Total
NAFTA 5.1 2.5 7.6 7.4 3.3 10.7 1.0 3.6 4.7 0.9 2.6 3.5
LATAM 1.1 1.5 2.6 1.9 2.8 4.7 0.5 3.2 3.7 0.2 1.2 1.4
EMEA 1.6 1.3 2.9 1.1 5.3 6.4 1.0 4.1 5.0 0.3 2.4 2.6
AP 0.4 0.8 1.1 0.5 2.2 2.8 0.3 2.1 2.4 0.1 0.8 0.8
Total 8.4 6.1 14.3 10.9 13.6 24.6 2.8 13.0 15.8 1.5 6.9 8.4
Note: subtotals may not add due to rounding
Source: PhillipsMcDougall, UBS
Lots of Growth Opportunities Left
Figure 4 shows why this industry is more normally in growth mode. Rising per
capita incomes in the emerging markets significantly affects spending on food
(upper right). The effect is multiplicative, as emerging market consumers eat more
meat than grains (lower right), and only a fraction of the animal feed protein is
converted to meat protein. At the same time, available land for increasing
North American Chemicals 11 February 2019production is limited (lower left). So about 80% of the growth in future food
production is expected to come from yield increase, of which higher yielding seeds
& protecting crops from pests play key roles.
Figure 4: Long-term agriculture fundamentals
Source:Platform presentation 9/12/16, UNFAO, OECD
Figure 5 illustrates some of the opportunities for seed & pesticide companies to
grow the pie for themselves and their farmer customers. The figure shows 7 of the
largest factors contributing to corn yields. Weather is the largest for all crops, but
other factors can vary by crop (i.e., nitrogen isn’t used on soybeans, etc.). Making
a corn more resistant to drought, frost, etc. – could increase yields substantially.
Applying ideal nitrogen amounts could as well. The analysis ignored yield variation
from pest/weed control, levels of P and K (mineral nutrients with soil residuals),
improper soil pH or drainage. But those are all also potentially large sources of
yield variation, and therefore potential improvement.
Figure 5: Factors Driving Corn Yield
Source:University of Illinois, Monsanto presentation 8/17/16。。。