Stock Thoughts: SYT

As the world population continues to increase, food demand will also increase. This macro-level trend suggests that businesses involved in the agricultural industry may be good long-term investments. My first investment in this area was in Archer Daniels Midland (ADM), a company that buys, transports, stores, processes, and sells various agricultural commodities and products around the world. I started a position in ADM back in January. In my search for other investment candidates I have come across Syngenta (SYT) and I wanted to share some of my thoughts about it.

Company Overview
Syngenta is one of the largest agribusiness companies in the world, employing more than 26,000 people in over 90 countries (the company's headquarters are in Basel, Switzerland). The company was formed in 2000 when the agricultural divisions of Novartis and AstraZeneca were spun off and merged. Syngenta's stated purpose is "bringing plant potential to life," which the company strives to do by conducting biotechnological research and marketing products such as:

• Herbicides, insecticides, and fungicides for crop protection
• Field crops, vegetables, and flower seeds
• Seed care products
• Turf, garden, home care, and public health products

Recent Performance
Syngenta had sales of $13.3 billion in 2011, with 76% from crop protection and 24% from seeds, and considerable geographic diversification: 32% from Europe, Africa, and Middle East; 26% from North America; 27% from Latin America; and 15% from Asia Pacific. Many product lines and geographic regions had double-digit sales growth. Overall, sales increased 14% compared with 2010 and led to record free cash flow of $1.5 billion. The company has recently initiated an integrated business strategy (combining commercial offers for crop protection and seeds) that appears to be doing well. Based on what I've read, I think the company is well-positioned for future growth.

Risks
The biggest risk factors for Syngenta are related to government approval and consumer acceptance of genetically modified (GM) foods. The governments of some countries (e.g., France and Hungary) have banned certain GM foods and there are consumers who avoid GM foods in favor of "organic" foods (even though so-called organic foods are not always what they are claimed to be). Some of these concerns are health-related, although there is not much compelling scientific evidence that consumption of GM food has adverse health effects. There are also questions about whether GM crops yield more than non-GM crops, with various studies producing conflicting results. It is important to be mindful of these risks.

Dividend History
Given that Syngenta was formed in 2000, it does not have a long dividend history. However, management seems to make the dividend a high priority and has generally increased it from year to year (the company pays an annual dividend). Prior to 2007 the dividend was coupled with or replaced by a "par value reduction" which, to the best of my understanding, is a return of capital. However, since 2007 the company has just paid a dividend, making their recent dividend history easier to interpret.

The dividend for the American Depository Shares (ADS) has increased for 6 consecutive years in USD, although it was held constant in the home currency of Swiss francs (CHF) from 2008 to 2009, likely due to the global recession. If one treats the "par value reduction" as equivalent to a dividend, then the streak in USD actually goes back to the company's first dividend for fiscal year 2000/2001. The proposed dividend for fiscal year 2011 (to be paid in 2012) is 8.00 CHF, which is a 14.3% increase over the 7.00 CHF paid for the previous year. The 5-year dividend-growth rate is 16.1% in CHF (even with the dividend being the same in 2008 and 2009); the rate is even higher in USD due to the Swiss franc being a stronger currency. Overall, I think Syngenta has a pretty good dividend history.

Stock Analysis
In the table below I provide some relevant statistics for evaluating SYT. For comparison, I also provide statistics for its closest competitor, Monsanto (MON). PEG ratios are not included because I have seen very different numbers from various sources.

Statistic	SYT	MON
P/E (ttm)	18.92	24.80
5-yr EPS growth rate	22.22	19.47
P/S	2.25	3.42
P/B	3.99	3.85
ROE	21.40	16.58
Debt/Equity	38.93	19.10
Current Ratio	1.73	1.66
Div Yield	2.41	1.52
5-yr DGR	16.1	23.3
Payout ratio	46	36
% below 52-wk high	8.88	6.12

SYT is a bit pricey but not necessarily overvalued. Moreover, it appears to be cheaper than MON and offers a better yield (even after foreign tax withholding).

Conclusion
Overall, I have a favorable view of Syngenta and I think it might be a good long-term investment in the agricultural industry. I know some investors would be turned off by the annual dividend and foreign tax withholding, but those are inconveniences rather than deal-breakers for me. For the time being I plan to continue watching SYT, waiting for a slightly better valuation before initiating a position. Its ex-dividend date is April 26, so it would be nice to see a dip before that date.