Elders Limited (ASX: ELD)

ELD Details

Lift in Profit but decrease in Return on Capital: Elders released its half year results for the six months to 31 March 2018, delivering improved statutory and underlying profit, while maintaining above target return on capital. It reported a Statutory net profit after tax of $41.4 million as compared to $38.3 million of profit in the prior corresponding period. Underlying net profit has improved by $4.5 million on the prior corresponding period and amounted to $39.7 million.

The group benefitted from its bolt-on acquisitions. Thus, its underlying earnings before interest and tax (EBIT) were reported to be $45.7 million driven by acquisitions along with continued strong performance in the Retail business. Elders expanded the Agency business footprint with the acquisition of Kerr & Co Livestock in December 2017, the largest privately owned independent livestock business in south west Victoria. Earlier, Elders confirmed that it had entered into a conditional sale contract to divest its feedlot and processing assets from its Indonesian subsidiary, PT Elders Indonesia (PTEI), following a comprehensive performance review of its feed and processing business units in line with the Eight Point Plan.


Return on Capital Employed (Source: Company Reports)

It is focussed on improving its service offering for clients and delivering value to shareholders. It now has a solid and stable platform to capitalise on the many opportunities that lie ahead for Elders and Australian agribusiness. Strong wool performance and additional sheep earnings from Agency acquisitions were offset by declining cattle prices and volumes, but still resulted in a $0.7 million of uplift in Agency margins. Cattle prices are expected to ease in the second half of FY18 due to strong international competition. This will be however, managed by national footprint expansion and acquisition growth. Retail earnings are expected to increase in the second half of FY18 following the Titan Ag acquisition. Otherwise, Real Estate gross margin increased by $0.7 million, with margins from acquisitions largely offset by a decline in farmland property earnings, resulting from the limited supply of property stock. Increased competition for young cattle at the Killara feedlot resulted in a slight reduction in margins in the Feed and Processing business.

Average net debt over the six months period was $143 million, broadly in line with the prior corresponding period that reflected the strong conversion of profit to cash. The Company’s balance sheet reflects continued improvement across leverage, interest cover and gearing ratios. However, it was observed that Underlying return on capital at March 2018 was 28.2%, which is above the targeted 20% benchmark, but lower compared to 31.8% in March 2017.

Costs are also expected to continue to increase in the second half in line with footprint growth and continued Eight Point Plan investment. In the last one year, the share price was up by 83.9 per cent and was up by 18.25 per cent in the past three months. The stock was down by 1.34 per cent in the last five days, but witnessed a recovery of 3.7 per cent on 14 May 2018. The stock is trading at a higher level and is inching towards its 52-week highest level. The stock looks ‘Expensive’ at the current market price of $8.4.
 
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