Elders making hay despite a lack of sunshine
The historic agribusiness Elders says it is pushing ahead with its plans to boost its branch network as it revealed healthy growth in its underlying profit after tax, up 13 per cent to $39.7 million for the first half of fiscal 2018.
The company hopes to significantly expand its network of branches by 2020, and to fill key gaps in highly productive farming areas around Australia.
The strong profit increase came despite a number of challenges hitting Australian agriculture over the past year including dry conditions that significantly affected grain crops, particularly in New South Wales and Queensland, and a softer cattle price.
Elders chief executive officer Mark Allison said Elders now had a solid platform to capitalise on the "many opportunities" that existed for both Elders and Australian agribusiness.
“We’re roughly about 15-16 per cent market share (in retail). So at that level there is significant area for growth, if we just use retail as the case study," he said.
“Across many of the blue-chip agricultural areas in Australia, throughout the sugar cane coast, all the way up the Queensland coast and the tropical horticultural areas associated or running in line with that, we have a very low position."
But while it was committed to growth, the company’s expansion plans would be carried out carefully and with financial discipline, he said.
"The result was materially stronger than what the market was expecting."
Belinda Moore, analyst with Morgans
“There is no acquisition fever present in this business. And any transaction would have to be EPS (earnings per share) accretive and have to be for the right reasons, which would be around our shareholder value creation,” he said, during an earnings call on Monday to discuss the company’s results.
The results were well received by the market, with the company’s stock price rising 3.7 per cent (or 30 cents), to close at $8.40. The company’s share price is now almost double what it was this time 12 months ago, given it was trading around the $4.40 mark in the first half of May last year.
Elders reported a statutory net profit after tax of $41.4 million on Monday, up eight per cent on the prior corresponding period.
Total sales revenue was up two per cent, or $15.2 million, to $749.7 million. Revenue was up due to a combination of factors including strong wool prices and higher sheep sale volumes, greater revenue from the retail division thanks to organic growth and acquisitions, and greater revenue from the financial services division.
“It’s the standout result this reporting season (among agribusinesses) so far,” said Belinda Moore, an analyst with Morgans.
“The result was materially stronger than what the market was expecting. To report the strong earnings growth they have is quite an achievement, given it was a more challenging operating period for the group.
“The summer cropping season was nowhere near as good as the previous corresponding period, and the cattle price was materially lower. So Elders has proven that it can still grow earnings strongly, despite facing some headwinds during the period."
The company will pay a fully franked interim dividend of 9 cents per share, to be paid on June 15.