ADM Final Ppt

8/3/2019 ADM Final Ppt

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TIMOTHY KHOO | JACK CHONG FU | LEONG WEILING | CHARISSA CHANG | MRIGANK KANOI


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Company Information

Sources:One Source, Thomson One Banker, Credit Suisse, Chartnexus and Jefferies & Co.

Agricultural products andagribusiness company

Corn processing

Oilseed crushing and refining(Biodiesel)

Agricultural servicesTransportation dry bulk

carriersOther business segments

Cocoa processing


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Archer Daniels Midland Co.Commodity Futures Indexes

Effect of Commodity Prices on ADM


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Cotton futures surged to a record on mounting supplyconcerns after flooding in Pakistan and Australia slashedcrops. Cotton futures for March delivery rose 2.3 percent, to$1.7622 a pound.Corn and soybeans rose to 30-month highs in Chicago as astrike by port workers in Argentina disrupted crop shipments.Rice climbed to the highest price in 13 months .

Rise in Commodity Prices Greater Demand for Agricultural StocksMarket for Agricultural Stocks dominated by buyers

BUY Archer Daniels Midland Co.

Surge in Agricultural Commodity Prices


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S&P GSCI Index (January)5.89%

Agricultural Sector Performance


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Huge winter storm threatens U.S.wheat, cattle

Impact on agriculturaloperations

Robust global demandSupply from Russia andAustralia decreased due todrought and floodingDemand shifts to US

Rising grain prices

Future industry prospects


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TECHNICAL ANALYSIS


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Patterns: Inverted Head & Shoulders


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Patterns: Support & Resistance



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Pattern: Flag



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FLAG

ADM Acquires Alimenta (USA), Inc.:

ADM now controls 100 percent of GoldenPeanut Company.

With well -positioned assets, strongcustomer relationships and an experiencedmanagement team, we believe Golden

Peanut Company will realize profitablegrowth in the future. In addition togenerating solid financial returns, thisacquisition will also create synergies withcurrent ADM operations.

Patterns: Three White Soldiers



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Sellingpressure

Buyingpressure ADM Reports Poor Operating Results for

Q1:

ADM reported net earnings of $ 345 millionand segment operating profit of $ 765 millionfor the quarter ended Sept. 30, down $ 151

million and $ 9 million, respectively, from thesame period one year earlier.

ADM earned $ 0.54 diluted EPS for the first quarter, versus last year's $ 0.77 first quarter.

Effects of changing commodity prices onLIFO inventory valuations resulted in a

charge of $123 million compared to a credit of $76 million for the prior year quarter.

Corporate unallocated interest expenseincreased $55 million

Accumulation/Distribution


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Higher Low

Lower Low

Resistance line

Sell Signal ?

Overbought

Pullback Support Break

ADM Profit Tops Estimates onHigher U.S. Grain Exports

Relative Strength Index


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Resistance line

Bollinger Bands


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MACDcrossesSignal line

Base SMAas support line

Gap

Bollinger Bands


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Conversionprice movesabove base line

Prices

tradingabove cloud Green

cloudcreated

Prices tradingabove the baseline

Ichimoku Kinko Hyo


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FUNDAMENTAL ANALYSIS


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Strengths Strong Research and Development

Activity Diversity of end-use customer base Strategic location of manufacturing

facilities Broad spectrum of supporting services Efficient resource management

Weaknesses Poor financial performance Decline in performance of key business

segments Litigation and legal proceedings

Opportunities

Strategic acquisitions Increase in foodservice sales Growing veterinary market Focus on China and India New expansion plans Rising demand for biofuels

Threats

Increasing biofuel players in Europe Regulatory obligations Energy price fluctuations Competitive landscape

SWOT Analysis


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Valuation ratios

Company Industry Sector S&P 500

P/E Excluding Extraordinary (TTM) 11.85 21.55 18.04 19.68

P/E High Excluding Extraordinary - Last 5 Yrs 20.65 30.50 31.70 32.79

P/E Low Excluding Extraordinary - Last 5 Yrs 8.62 13.50 13.50 10.71

Beta 0.21 0.55 0.66 1.00

Price/Revenue (TTM) 0.33 1.70 2.38 2.57

Price/Book (MRQ) 1.36 4.07 6.62 3.67

Price to Tangible Book (MRQ) 1.41 7.67 7.14 5.21

Price to Cash Flow Per Share (TTM) 7.66 15.25 13.96 14.22

Price to Free Cash Flow Per Share (TTM) - 39.77 35.43 26.26

Attractive Valuations


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Growth rates


Revenue (MRQ) vs Qtr 1 Yr Ago 12.59% 11.20% 9.73% 15.58%

Revenue (TTM) vs TTM 1 Yr Ago 0.94% 10.00% 20.06% 17.69%

Revenue 5 Yr Growth 11.41% 6.97% 6.14% 8.97%

EPS (MRQ) vs Qtr 1 Yr Ago -30.12% -4.50% 6.69% 19.49%

EPS (TTM) vs TTM 1 Yr Ago 56.67% 13.03% 27.67% 32.55%

EPS 5 Yr Growth 13.49% 7.70% 7.73% 9.86%

Capital Spending 5 Yr Growth 20.83% 7.52% 3.06% -2.04%

Robust Growth Rates


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Profitability ratiosCompany Industry Sector S&P 500

Gross Margin (TTM) 5.79% 33.20% 44.52% 45.21%

Gross Margin - 5 Yr Avg 6.39% 31.81% 44.52% 44.91%

EBITD Margin (TTM) 4.95% 14.25% 20.28% 24.43%

EBITD Margin - 5 Yr Avg 5.35% 13.52% 19.53% 22.84%

Operating Margin (TTM) 3.43% 11.94% 17.97% 20.63%

Operating Margin - 5 Yr Avg 4.00% 11.15% 17.19% 18.28%

Pretax Margin (TTM) 3.67% 10.29% 16.99% 17.95%

Pretax Margin - 5 Yr Avg 4.51% 9.62% 17.19% 17.10%Net Profit Margin (TTM) 2.78% 7.06% 13.74% 13.65%

Net Profit Margin - 5 Yr Avg 3.15% 6.55% 12.87% 12.10%

Effective Tax Rate (TTM) 24.29% 30.47% 27.02% 28.45%

Effective Tax rate - 5 Yr Avg 30.12% 32.51% 28.54% 29.92%

Poor Profitability


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Financial ratios


Quick Ratio (MRQ) 1.07 0.78 0.77 1.24

Current Ratio (MRQ) 1.81 1.53 1.40 1.79

LT Debt/Equity (MRQ) 0.44 0.94 0.98 0.64

Total Debt/Equity (MRQ) 0.58 1.14 1.25 0.73

Interest Coverage (TTM) - 12.42 16.43 13.80

Low Debt High Liquidity


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Management Ratios


Return on Assets (TTM) 5.20% 7.05% 11.53% 8.54%

Return on Assets - 5 Yr Avg 6.33% 7.12% 11.74% 8.40%

Return on Investment (TTM) 7.50% 4.72% 8.43% 7.90%

Return on Investment - 5 Yr Avg 9.28% 5.31% 9.81% 8.27%

Return on Equity (TTM) 12.03% 21.45% 29.23% 19.72%

Return on Equity - 5 Yr Avg 14.85% 21.78% 31.40% 20.06%

Mixed Bags Returns


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Valuations at a glance


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Technical AnalysisBuy

Fundamental AnalysisBuy


Strong upward trendexpected to continue

Bullish momentum withno noticeabledivergencesNo expected flags tomanifest

Stock undervalued due topoor performance

previous quarter (post dated Jan 2011)Future revenuesexpected to rise

Low debt levelsAbove average levels of liquidity

Our Recommendations


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Money Flow Multiplier = [(Close - Low) - (High - Close)]/(High - Low)Money Flow Volume = Money Flow Multiplier x Volume for thePeriodADL = Previous ADL + Current Period's Money Flow VolumeIncreasing ADM signals buying pressureDecreasing ADM signals selling pressure

Support Slides:Accumulation/Distribution


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RSI = 100 - 100/ (1+ RSI)

RS = Average Gain / Average Loss

RSI>70%, Overbought => Bearish pullback RSI Bullish Pullback

Support Slides:Relative Strength Index


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Formulae Middle Band = 20-day simple moving average (SMA) Upper Band = 20-day SMA + (20-day standard deviation of

price x 2) Lower Band = 20-day SMA - (20-day standard deviation of

price x 2)Used in conjunction with other tools and not meant to be a

stand alone tool

Support Slides:Bollinger Bands


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FormulaeMACD: (12-day EMA - 26-day EMA)Signal Line: 9-day EMA of MACD

MACD crosses above signal line: Bullish signalMACD crosses below signal line: Bearish signal

Support Slides:MACD


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4 indicatorsConversion lineBase lineCloud

Lagging line

Support Slides:Ichimoku Kinko Hyo


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Support Slides:ADM Records lower profits

Sources:

The Farm Products sector is closely tied to the overall health of the agriculture market.Generally speaking, the market has been strong with this year's U.S. farm exports reaching arecord $126.5 billion up from $108.7 billion last year. Wheat, soy bean, and corn futures are allup 15% so far this year.

U.S. wheat prices were motivated by a Russian drought while soy bean prices are up becausesupply has been pressured by an increased demand from China. Corn prices have reached $6per bushel on the back of increased demand from ethanol producers as the EPA increasedethanol ratio standards for new vehicles from 10% to 15%.

Higher corn prices have actually hurt companies within the Farm Products sector that produceethanol. The ethanol segment has further cause for concern as the U.S. government isconsidering a non-renewal of the $0.45 per gallon tax credit currently aimed at subsidizing theproduct. The downturn for the segment could be further exacerbated if Congress chooses torepeal the tariffs on Brazilian sugar-based ethanol which is much cheaper to produce. The

government wants to repeal the credit because it cost $6 billion last year.Looking at earnings posted by some of the players in this industry, Archer-Daniels-Midland Co.saw lower profits this quarter hurt by inventory charges and inferior earnings in its agriculturalbusiness segment. Revenue was up to $16.8 billion.

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