ArborGen Holdings Limited Analysis

Overview

The shares were listed in March 2001 as part of a recapitalisation of Fletcher Challenge Forests, and to acquire certain assets from Fletcher Challenge Energy. These included 594,000 ordinary shares in NASDAQ listed Capstone Turbine Corporation and the Challenge retail service station network in NZ. All of these interests were later sold. Remaining assets were acquired from Fletcher Challenge Forests following its recapitalisation. These included a 50% interest in FTSA, an Argentinean joint venture and interests in established biotechnology businesses - ArborGen, Trees & Technology and listed Genesis Research & Development. The company also held a 19.9% stake in Fletcher Challenge Forests.

In March 2004 RBC and Carter Holt Harvey agreed to merge their forestry biotechnology and propagation operations into a new venture - Horizon2. In June 2004 it acquired 50.01% of listed wood products company Tenon.

Performance

The following information was extracted from ArborGen Holdings Limited's half year results, released 26 November 2024:

Sales revenue for the half year was down 3% to $12.8m, following a record 78% year on year increase in the corresponding prior half year period (pcp 1H24), but remains significantly ahead of 1H23. Revenue is predominantly from Brazil, with the majority of US sales recognised in the second half of the year.

Cost of sales increased 15% compared to pcp, due to higher US seed cost as a result of the freeze event in late 2022, as well as inventory losses from earlier flooding after planting; and following operational adjustments in Brazil. Cost mitigation efforts remain a priority across both regions, with significant operational savings being seen in the US from the sale of the in vitro business, the closure of the Taylor Nursery and lease of the Ridgeville building.

The company has reported a net loss after tax of $(2.1)m (1H24: $(0.1)m). Excluding one-off and unusual items of $2.0m, Adjusted US GAAP EBITDA* was $(2.7)m (1H24: $(0.5)m).

The sale of the in vitro business for $4.1m in July 2024 aided the reduction of debt, providing increased headroom for investment in productivity and growth opportunities. This includes investments in container capacity in the US, and the purchase of a further nursery in Brazil for $2.5m which settled on 1 November 2024 and will be earnings accretive in FY25. Cash was $4.3m at 30 September 2024, with net debt of $19.9m compared to $14.4m as at 31 March 2024 (1H24: $16.7m), with the increase mainly due to working capital timing and strategic capex projects.

The company commenced an on-market share buyback of up to US$500,000 in September 2024. This was active for several weeks before being paused for the black out period prior to the release of the half year results, and will recommence on 2 December 2024. The buyback reflects the Board’s confidence in the long-term strategy and opportunities for the business. As at 30 September 2024, 286,029 shares had been purchased at an average price of $0.147 per share.