Challenging Near-Term Conditions Continue to Dent GrainCorp, but Our Long-Run Forecasts Unchanged

Ongoing east-coast Australian drought and crop-marketing challenges has led no-moat GrainCorp to lower its fiscal 2019 earnings outlook, trailing our near-term projection. Although the long-term is more impactful for valuation than recent weather-hampered years, this greater earnings loss slightly reduces our fair value estimate to AUD 9.00 from AUD 9.20. Shares screen as undervalued, with the market likely focused on these challenges, though we also caution that risk on planned divestitures and potential pressure from lenders remains.