Elders upgrades FY22 guidance: Leveraged to benefit from agriculture demand

Elders (ASX: ELD) has delivered an unsurprisingly strong first-half FY22 result, given the commodity pricing and agriculture demand backdrop. The company's stock is up 9.1% ($14.94) in early trade.

Financials at a glance

• Revenue of $1.51bn, up 38%

• Net profit of $132.8m, up 80%

• Earnings per share of 58.3 cents, up 36%

• Dividend per share of 28 cents, up 40%

Favourable performance across all products

Elders experienced strong growth across all product areas and geographies. Notable segments include:

• Retail products sales of $312.9m, up 47%

  • Strong demand for fertiliser and crop protection chemicals

  • Price inflation passed on to customers

• Wholesale product sales of $46.7m, up 27%

  • Improved seasonal conditions

  • Strong demand amid supply chain concerns

Source: Elders Half Year Results Presentation

Inventory build

Elders hopes to mitigate supply chain challenges by holding higher inventory levels, acknowledging a potential margin squeeze if prices go south.

The inventory build was reflected by weaker cash flows, falling to -$35.1m compared to -$21.2m a year ago.

"Lower cash flow in the first half reflects that we have built an inventory position to allow us to meet anticipated increases in winter cropping demand," said CEO Mark Allison.

Outlook

"The strong first half performance has continued in April and we now expect to deliver full year 2022 Underlying EBIT in the range of 30% to 40% above full year 2021 Underlying EBIT," said Allison.

Positive drivers in the near-term include:

• Elevated cattle and sheep prices benefiting the Agency business

• Settlement volumes and buyer demand indicate that the Real Estate Services business "will continue to outperform"

• Positive winter crop outlook expected to drive strong demand for second-half cropping inputs

Elders 12-month price chart