On January 23, 2013, Monsanto reported an agreement with leading grower organizations in Brazil that would allow farmers to secure a new license to purchase Monsanto's soybeans that contain the next generation Intacta RR2 PRO technology; this technology won't be available until the 2013-2014 growing season. To facilitate a smooth transition for farmers who already use first generation soybean technology, Monsanto will waive royalty fees for this season and next season. Monsanto had previously excluded the contribution to the company's first-generation Roundup Ready soybean business in Brazil from its earnings per share and free cash flow guidance, reflecting an estimated historical annual range of $0.20 to $0.25. (Source: PR Newsire)
We see $0.05-10/sh risk to consensus FY2013 following clarity on RR1. In real-terms, we believe Monsanto is offering first season Intacta at $10/acre for growers who decide to convert after a two season abatement. Our sense is the Street was expecting $20/acre in initial value share in nominal terms. Settlement partially alleviates Intacta launch risk, but resistance to agreement apparently remains among Mato Grosso growers. We believe RR1 abatement terms and initial Mato Grosso response confirms our thesis that the Street has become too complacent around the Intacta platform launch, especially regarding potential price concessions required and remaining resistance among growers in Mato Grosso. Brazilian news agencies (also cited in the Chicago Tribune) are reporting that several grower groups (Aprosoja & Famato) within Mato Grosso, which produces 35-37% of Brazil's annual soybean production, are resisting Monsanto's settlement offer.
Using forward 12-month consensus EPS data, Monsanto's P/E ratio has historically traded in a range between 16x-26x since January 2011. For the current and t+8 quarterly periods, the chart below holds price constant at the current level and uses mean consensus forward 12 month data.
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