Australian Agricultural Company Limited

AAC Details

This report is the full version of the report published on 24 May 2022 at 3:55 PM GMT.

Australian Agricultural Company Limited (ASX: AAC) is engaged in the production of grain-fed beef and Wagyu beef. It also provides breeding, backgrounding, and feed lotting. It operates feedlots and farms located in Queensland and the Northern Territory.

FY22 Performance Highlights:

• Rise in Average Sales Price: AAC witnessed a 21% hike in average meal sales price per kilogram. This was partly offset by a 14% dip in volumes on account of floods and droughts and herd rebuild activity. Overall meat sales edged up 4% YoY to $208.5 million.
• A Surge in Operating Profit: Uptick in cattle market prices and increasing branded meat sales resulted in a 105% surge in operating profit to $49.9 million in FY22.
• An Uptick in Cash Flows: Operating cash flows surged $5.8 million to reach $24.2 million in FY22, owing to rise in customer receipts and fovorable working capital movements.
• Rise in NTA: Property values surged with an increase in the value of herd to $198.8 million, driving net asset per share to $2.27 in FY22 vs. $1.75 in FY21.

Upward Trending FY22 Results (Analysis by Kalkine Group)

Key Risks: Extreme weather events such as floods and drought influence calving activity which reduces the sales volume. AAC is exposed to geopolitical risks and foreign exchange movements as it realises sales from international markets.

Outlook: Strong rebound in food services post-COVID recovery continues in major target markets. Increasing brand building and herd rebuilding activities to post positive sales momentum going forward.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of AAC has delivered gains of ~29.19% in the past three months. The stock of AAC is approaching a 52-week high price of $2.130. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high single-digit (in % terms). The company can trade at a slight discount to its peers, considering the rising inflation and supply chain concerns to influence the demand. For the purpose of valuation, peers such as Select Harvests Ltd. (ASX: SHV), Murray Cod Australia Ltd. (ASX: MCA), and Wide Open Agriculture Ltd. (ASX: WOA) have been considered. Considering the recent rally in share price, increasing geopolitical risk, and global supply chain concern limiting margin expansion, the downside as indicated by the valuation, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell rating on the stock at the current price of AUD 2.120 as of May 24, 2022, at 11:08 AM (GMT+10), Sydney, Eastern Australia.

AAC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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