CABB – Bayer profit warning and impact on agrichems

All, 

CABB remains very exposed to volume variations in the agrichem sector, especially for “off contract” products. The Bayer profit warning, which is heavily motivated by its agrichem unit, confirms our view that CABB’s business should be impacted by the weakness of the FX of major agricultural exporters as well as the reduction in fuel consumption, which impacts the key corn crop via the biofuel link. We note that neither the relatively more liquid senior secured bond nor the less liquid unsecured bond, have reacted meaningfully to the news. Following the V-shaped recovery of the bonds over the past few months, we remain neutral but cautious on both bonds.  

Please find our more extensive discussion on CABB’s underlying vulnerability to crop prices, biofuel volumes and EM FX in our unchanged analysis here.  

Bayer issued a major profit warning last week, which impacted its shares last Thursday 1 Oct 20. Bayer is a major client of CABB and one of the most important players in the Agrichemical sector. Bayer notes lower prices for major crops, higher competition in soy, and reduced biofuel consumption. In addition, it notes the weakness of the FX of key agricultural exporters, most notably the Brazilian Real (36% average yoy depreciation), but also the Mexican Peso, Russian Ruble and Turkish Lira.  

 Feel free to reach out if you would like to exchange ideas on the name. 

Juliano 
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Juliano Torii
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London W1T 1AN
E: jtorii@sarria.co.uk
M: +44 794 73 56 163 (preferred)

T: +44 203 744 7055www.sarria.co.uk