ADM published today financial results for Q2 which were below expectations. Share price is down by 2.6% vs market -0.8% so there is no tragedy. Let’s look deeper into financial results.

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First of all we should notice, that results were weaker than in Q2 2015 (expected), but on the other hand on Q/Q basis results were flat. If we combine it with: “The first half of the year was very challenging. However, with improved fundamentals, we anticipate a more favorable second half of the year,” Chief Executive Juan Luciano said in a statement. It shows that a positive change in earnings momentum should be expected.

The interesting question is why processed volumes are lower – is demand for products weaker? Or competitors are getting stronger?

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As it comes to valuation company is traded at:

P/E16 = 17.6

P/E17 = 14.6

EV/EBITDA16 = 10.5

EV/EBITDA17 = 9.2

Dividend yield = 2.8% + buyback (extra low single digit return to shareholders)

Well in my opinion valuation is still acceptable. Obviously it is not a superb offer, but still I see some potential for growth, especially when results momentum will (hopefully) improve.

 

Summing up, market is always (?) right and if shares are going down after results it means results were weak. Nevertheless I see further potential for growth in midterm. Shares are YTD +20%, but I see valuation as rational, which with increasing financial results should bring share price appreciation. Keep going ADM!

 

Disclosure – long ADM