On the face of it the strong full year results and higher dividend should be an indication that rural services group Elders enjoyed a very rewarding 2021-22.
And yet, despite the solid annual result for the year – thanks to a second year of good rains and then the surge in rural commodities in the wake of the Russian invasion of Ukraine – the shares sold off yesterday as directors warned that a third year of rain and floods could damage prospects in the new financial year.
In fact it was that caution, plus news the long-time CEO was retiring in the next 12 months, that saw the shares slump by more than 22% at the close on Monday to close at the day’s low of $10.21 – not the most encouraging way to finish a rough session.
The bare bones of the 2021-22 report were good – Elders reported an underlying profit before tax of $223.5 million for the year to September 30, up 42% on 2020-21.
That was struck on an equally solid 35% increase in sales to $3.445 billion for the year.
And that in turn saw directors boost the final dividend to 28 cents a share, taking the total for the year to 56 cents partially franked (30%), up a third from the 20% franked 42 cents a share the previous year.
And yet the shares fell out of bed, took a breather and then resumed falling.
But the shares took a hit from management’s outlook commentary for 2023, with fears that the continuing wet weather and flood may hurt some parts of the rural sector and Elders, plus the news that long time CEO, Mark Allison will be going some time in the next year.
Looking at 2021-22 Elders said its Rural Products business outperformed expectations, with gross profit growing 35% to $383.1 million.
This result was driven by the continued focus on the backward integration strategy, whilst capturing the benefits of strong seasonal conditions. Growth through strategic acquisitions continued, adding value and presence across the network.
The Agency services profit contribution grew due to strong livestock prices despite reduced volumes from limited domestic supply. It reported a gross profit of $147.0 million, up 4% on 2021
Finally, Elders’ Real Estate Services gross profit was $61.6 million, up 21% on 2021, thanks to continuing network expansion and very high demand for both residential and farmland assets despite a fourth quarter market easing.
Elders outlook commentary though suggested that 2022-23 could be a much tougher year.
“High demand for agricultural commodities is expected to create favourable trading conditions in the first half of FY23, however recent extreme rainfall events across the eastern states have created some uncertainty in affected cropping regions and concern about reaching full harvest potential for both summer and winter crops,” directors cautioned.
“The Rural Products outlook remains positive, with high demand particularly for agricultural chemicals, fertiliser and seed. However, the agricultural industry will await assessment of the full impact of the extreme wet conditions and flood events to realign expectations for the FY23 season.
“Cattle and sheep prices are expected to soften in the medium term, driven by falls in domestic re-stocker demand, with volumes also balancing out in the short term.
“The wool market is expected to remain strong, driven by increased demand in China and Europe, pending production conditions improving following recent wet conditions and flood events in Eastern Australia.
“Strong demand for broadacre properties is expected to continue in the short to medium term, supported by commodity demand and high livestock prices. Elders has an encouraging pipeline of acquisition prospects in strategically relevant locations and is also pursuing new greenfield opportunities to expand its service offering to clients,” the company said.
And then there was the surprise news that CEO Mark Allison will retire by this time next year. In his 10 years at Elders, he has survived a near bust, drought and then steered the company through the latest boom years.
“This will complete ten years of outstanding leadership at Elders as Chair, Executive Chair and, since May 2014, as Managing Director and CEO for Mr Allison.
“This timing will also see the completion of the third of three successful Eight Point Plans.”
Mr Allison added, “The timing is right, and will allow for a smooth transition and leadership refresh for Elders’ next phase of growth.”
Investors seem to be crossing their fingers and toes and hoping the new person can fill his shoes.
