Shares in rural services giant Elders dropped yesterday despite the company rewarding shareholders with a sharp increase in interim dividend.
The company reported a statutory net profit after tax of $68.2 million and underlying earnings before interest and tax (EBIT) of $73.8 million, a 40% increase on 1H20.
Directors more than doubled the partially franked (20%) interim dividend to 20 cents a share, up from 9c (fully franked) for the previous half year.
And yet the shares dipped 4% to $11.56 in a market that was solid without surging for most of the session before closing down 3.4% at $11.81.
And though the company warned of higher costs in the second half from the continuing revamp of costs and structures as well the continued growth in its businesses, it was upbeat about the overall outlook for coming months thanks to “ongoing favourable rainfall events (and) a positive outlook for the winter crop is forecast.
“Elders expects to see further strong demand for crop inputs, particularly fertiliser and crop protection products, in the second half of the year.
“COVID-19 is expected to continue to disrupt global and domestic markets, however significant financial and operational impacts to Elders are not expected, due to mitigating measures, such as early procurement of inventory.
“Elders has a strong pipeline of bolt-on acquisitions, and we are aiming to fill strategic gaps through acquisition of new clients and expanding our business offering to existing clients,” CEO, Mark Allison said in Monday’s statement.
“Cattle prices are expected to remain strong, although below the record highs seen recently. Sheep prices are expected to fall in the medium term as the global supply of red meat increases, although increased slaughter numbers should maintain earnings.
“Wool prices will remain volatile until containment or vaccination measures to control COVID-19 are in place allowing supply and demand fundamentals to return.
“Demand for farmland real estate is expected to continue to be fuelled by a favourable commodity price outlook, low interest rates and good seasonal conditions.
“Killara Feedlot will continue to target 100% capacity, although it is expected to face difficulty sourcing animals at reasonable prices and volumes to service major export markets,” directors cautioned.
The company told the ASX the higher interim result reflected “growth across all state geographies and product lines.”
The company’s retailing operations “was particularly strong, due to both sales growth and margin improvement as Elders’ own brand share of crop protection and animal health product sales increased largely as a result of the company’s backward integration strategy.”
Elders’ wholesale business continued to deliver above pre-acquisition expectations, generating $29.3 million ($17.4m pcp) gross margin.
Elders said its Agency, Real Estate and Financial Services businesses also delivered solid growth, supported by strong livestock and property prices and positive farmer sentiment. Feed and Processing Services experienced lost margin during the half, “mostly due to pricing pressure on feeder cattle at Killara Feedlot.”
CEO Allison attributed the strong financial results during the period to the achievement of a number of key strategic initiatives.
“Elders’ recent acquisitions, backward integration strategy and customer focus combined with the resilience of our supply chains positioned us well to capitalise on favourable growing conditions and livestock prices,” Mr Allison said.
While the COVID-19 pandemic put some pressure on global fertiliser and chemical supply chains, Elders was able to mitigate this potential risk to ensure no material impact on business performance. Elders did not access any COVID-related government support such as JobKeeper during the half year ended 31 March 2021, directors said in Monday’s statement.
