DuPont Focuses on Africa - Analyst Blog

Chemical company, DuPont (DD) through Pioneer Hi-Bred, its Lowa-based subsidiary is buying a majority interest in Pannar Seed Limited, the South African seed company. Pioneer is a part of DuPont's Agricultural and Nutrition segment which forms about 30% of the company's total revenue. Pioneer trades in genetically modified corn and soybean seeds in the region.

Pannar runs seed businesses in nine countries in Africa, including South Africa. The company also conducts research and commercial activities in the U.S. and Argentina and has a genetics licensing business in Europe as well.  The deal is scheduled to be closed in the beginning of 2011. Financial terms of the transaction were not disclosed.

DuPont aims to expand its African operation through this acquisition. The company believes that this integration would boost African crop yield helping meet the needs of growing population. Pannar on the other hand would get access to Pioneer's genetics library and its maize breeding and biotechnology techniques, which will benefit its African operations and its businesses in the US and Argentina.  

DuPont ranks sixth in crop protection chemicals and second in seeds. The company expects strong sales and earnings in the Agricultural & Nutrition segment primarily driven by its crop protection products like Rynaxypyr® insecticide as well as new products including AcreMax® 1 and AcreMax® RW for seeds, Plainview™ herbicide should bolster revenue growth. DuPont expects new product sales in the crop protection business to enjoy a greater than 35% compound annual growth rate (CAGR) from 2010 to 2012.

Overall, the Agriculture & Nutrition segment is about to deliver 10% revenue growth from 2010 to 2012. The company aims to increase its North American corn and soy market share and realize over $2 billion of incremental revenues by 2013.

Besides, DuPont has focused on aggressive cost-cutting and plans to capture $1 billion each by way of fixed cost and working capital productivity gains during 2010−2012. We are optimistic on DuPont's focus on emerging markets and a strong performance in the Agriculture & Nutrition segment. Currently, DuPont is short-term Zacks #1 Rank (“Strong Buy”).