ArborGen Holdings - Mixed trading, but solid long-term growth outlook

ArborGen’s H124 results highlighted contrasting trading conditions with challenges in the US offset by a strong performance from Brazil. However, despite the short-term issues, ArborGen remains in prime position to address increasing demand for its seedlings and to continue investment in genetic improvement to drive the switch to sales of higher-value, higher-margin seedlings in both markets. While this process plays out, underlying EBIT is set to increase fivefold in the next two years as we expect gross margins to return to and then exceed historical levels. However, the recent US weakness has led us to trim our DCF valuation from NZ$0.49/share to NZ$0.44, still implying material upside.