We need to eat less meat, less CO2 and nitrogen, and preferably halve livestock numbers to meet those climate targets. Just go for it, as a farmer in this time. Or as an animal feed company, such as ForFarmers from Lochem. Once originated from local farmers’ cooperatives, it has now been a listed company for five years with a market value of almost 500 million. The share touched almost 12 euros in mid-2018, but then it went downhill. Since mid-2019, the value of the share has fluctuated between 4 and 6 euros.
“The low valuation actually makes a ForFarmers share very attractive,” says Fernand de Boer, analyst at DeGroof Petercam. Because there is little wrong with the company’s balance sheet: a good cash flow, hardly any debt. “But because of the growth prospects, it’s not that easy. The markets in which ForFarmers operates are under enormous pressure.”
‘Farmer unfriendly’, analyst Eric Wilmer of ABN Amro-Oddo BHF calls the European regulations at the moment. And that is unfavorable if, like ForFarmers, you operate exclusively in the Netherlands, Belgium, Germany, the United Kingdom and Poland. The largest competitors, animal feed companies De Heus and Agrifirm, are also located in countries outside Europe, for example in Asia. That is a much more attractive market, because of the population growth and increasing meat consumption. “Expansion outside of Europe is a strategy that ForFarmers also wants to focus on,” says Wilmer, “but that has not been possible for the time being.”
The corona pandemic also affected ForFarmers’ results, especially in the Polish branch, which largely revolves around the supply of chicken feed. “Poland is an important chicken supplier to Europe, and ForFarmers is one of the major food manufacturers for those chicken farmers,” says De Boer. Due to lockdowns, part of the demand for food has disappeared – for example from the catering industry. “With chickens, the cycle is quite short, so the loss of demand was quickly felt throughout the chain.”
But there is more. Two years ago, the company incurred a loss of millions due to a purchase failure. Anticipating expected price increases, ForFarmers concluded contracts for the purchase of grain for a longer period. Contrary to expectations, raw material prices suddenly fell sharply. Competitors were able to respond to this, as a result of which ForFarmers was forced to supply at low yields and to bear the losses itself.
ForFarmers adjusted its purchasing policy. Despite this, when it presented its quarterly results this spring, it again made a statement about adverse contracts in Germany “that will have a temporary impact” on results in the coming months. Although it is ‘only’ 4 million, it is not a situation that makes investors happy. The fall in the share price after the announcement “clearly showed the frustration of shareholders, after another quarter with a negative surprise,” Wilmer wrote on behalf of ABN Amro-Oddo BHF in a stock exchange report.
What are the opportunities for ForFarmers? In addition to expanding into growth markets outside Europe, De Boer sees potential in the field of so-called ‘nutritional solutions’. Animal feed can play an important role in optimizing dairy farms, for example. Nowadays, a balanced diet for cows can ensure that the animals are healthy and at the same time give as much milk as possible. New technology will enable ForFarmers to provide increasingly better advice and provide tailor-made solutions to farmers, instead of just selling a product.
On Friday, ForFarmers will present the half-year figures. The analysts are unanimous: they do not expect spectacular results.
A version of this article also appeared in NRC in the morning of August 9, 2021