Agritech

Elders guides to major FY22 earnings beat: Further upgrades likely

Mon 14 Mar 22, 5:32pm (AEST)
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Key Points

  • Elders shares up around 11% at the close today
  • Macquarie is confident Elders will continue to benefit from seasonal conditions
  • Elders is expanding its market share across most of the segments in which it operates

Shares in Elders (ASX: ELD) were up around 11% going into the close today after the agribusiness group disclosed that  trading conditions were sufficiently strong during the first half FY22 to guide to FY22 underlying earnings (EBIT) around 20% - 30% above FY21.

As a result, Elders believes the company will exceed analysts’ consensus for the full year to 30 September 2022. Some analysts had pegged Elders to achieve growth for its year ended September at 11.4% to 12.5%.

Due to increased sales and favourable seasonal conditions in most parts of Australia, Elders CEO Mark Allison told investors the company is witnessing improvement in Retail and Wholesale segments compared with the same time last financial year.

While Elders’ guidance is subject to numerous risks including, potential supply chain disruptions, un-forecast changes to seasonal conditions, severe weather events, and un-forecast changes in commodity prices, Allison noted that the company is winning market share at a time when rural conditions are strong. 

Market share

Elders is expanding its market share across most of the segments in which it operates at a time when cattle and sheep prices remain robust and demand for fertiliser and farm chemicals is on the rise.

While the Agency business continues to perform strongly on the back of high prices in both sheep and cattle, Real Estate is also exceeding expectations due to increased turnover and high demand.

Allison attributes increased activity to market and seasonal factors, plus both acquisition growth and organic growth. Beyond an uptick in broader conditions in the rural sector, Allison also flagged the contribution from a series of bolt-on acquisitions the company had made over the past few years were hitting their straps.

As a case in point, Allison noted the private label strategy in its herbicides and insecticides business was also paying off, after buying the Titan Ag brand after in 2018.

Fundamentals

Mid-November the company announced a 22% rise in net profit after tax (NPAT) to $149.8m for the 12 months ended September 30 last year, and a lift in final dividend to 22¢ from 13¢ in the previous year.

While some sales were forward purchased by primary producers seeking to mitigate the risk of instability in supply chains, management attributed most of the uptick to increased overall demand.

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Elders share price over three months.

What brokers think

Based on the brokers that cover Elders (as reported on by FN Arena) the stock is currently trading on a 3% upside to the current price.

As one of Macquarie's key agricultural sector picks, the broker is confident Elders will continue to benefit from seasonal conditions, and retains an Outperform rating, while the target price increases to $14.77. (17/12/21).

Morgans upgraded forecasts after Elders delivered a material beat for FY21 results, ahead of consensus forecasts. Ahead of the Elders latest guidance, the broker had lifted FY22-24 earnings estimates by 8.7%, 9.3% and 9.3%, respectively and raised the target to $12.55 from $12.10. (17/11/21).

Given that Morgans Hold rating - due to concerns over earnings growth moderating from the 2H22 and an easing of cattle prices – predates today’s announcement, an upgraded recommendation may follow.

Based on Morningstar’s value of $11.80, the stock appears to be fairly valued.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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