Syngenta’s weakening crops may dim IPO prospects

View of stalks of wheat at a field in the El-Menoufia governorate, north of Cairo
View of stalks of wheat at a field in the El-Menoufia governorate, north of Cairo, Egypt, February 23, 2023. REUTERS/Mohamed Abd El Ghany

LONDON, March 22 (Reuters Breakingviews) - Syngenta’s earnings hit comes at an unfortunate time. The Chinese-owned pesticides-to-seeds maker, once listed in Zurich, is preparing a stock market comeback in Shanghai this year, hoping to fetch a valuation as high as $60 billion. Yet a 25% fall in fourth-quarter EBITDA may dim owner ChemChina’s hope for a bumper valuation. Chief Executive Erik Fyrwald blamed higher energy and raw materials costs for the hit, which shrank the company’s EBITDA margin to 12% of revenue in the last quarter compared to the nearly 17% it delivered for the year.

If Syngenta can expand sales at around 10% per year, just below its annual average before the war on Ukraine, but keeps its margin depressed at 12%, then the company’s EBITDA would only reach $5.3 billion by 2025, Breakingviews calculations show. Valued on the same 9.2 times multiple as Corteva (CTVA.N), the business may command a valuation of less than $50 billion. That knockdown price may be necessary to entice investors. In 2022, Syngenta reported the lowest EBITDA growth and margin of its three main rivals: Corteva, Bayer (BAYGn.DE) and BASF (BASFn.DE). It’s also still relying on toxic pesticides for the highest proportion of its revenue. Syngenta’s initial public offering may gain regulatory approval as soon as next week. But if the group fails to improve its fortunes, the listing will be planted on shaky ground. (By Aimee Donnellan)

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