Elders Limited
ELD Details
Trading Update: Elders Limited (ASX: ELD) is mainly engaged in the provisioning of retail products and associated services to the rural sector. As per the recent trading update, the company expects to report underlying EBIT growth for FY22 in the range of 20% - 30% above FY21.
- The company’s business performance so far in FY22 has been strong and surpassed its performance after the first five months of FY21.
- ELD witnessed improvement in the retail and wholesale segments as compared to the same time last financial year. The said improvement was backed by increased sales and favourable seasonal conditions in most parts of Australia.
Insights into FY21 Results: The company experienced growth in most of the financial metrics and witnessed improvement in financial performance across all geographic and product areas. ELD recorded a return on capital (ROC) of 22.5%, up 3.6% on FY20, which surpassed its 15% hurdle set in the Eight Point Plan strategy.
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company’s operational and financial performance could be impacted by the instability in the demand and supply of products in which it deals. In addition, the business could also be affected by the rising market share of peers in the industry in which it operates.
Outlook: ELD believes that continued favourable seasonal conditions and high demand for agricultural commodities are likely to create excellent trading conditions in 1HFY22. In addition, cattle and sheep prices are likely to be higher in the medium term due to limited supply and strong domestic restocked demand. ELD has scheduled to release 1HFY22 results on 31 March 2022.
Valuation Methodology: P/E 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 ELD is trading near to its 52-week high level of $13.570. The stock has provided returns of ~15.87% in the past three months. The stock has a support and resistance level of $11.80 and $14.20, respectively. The stock has been valued using the P/E 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 premium to its peers’ median P/E multiple, considering the rising sales and expected growth in earnings. For this purpose of valuation, peers such as Costa Group Holdings Ltd (ASX: CGC), Inghams Group Ltd (ASX: ING), and United Malt Group Ltd (ASX: UMG) have been considered. Considering the expected correction, solid rally in the past months, current trading levels, current volatility due to Russia-Ukraine Tension, and key risks associated with the business, we advise investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $13.505 as on 15 March 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.
ELD Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions 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 is subject to the factors discussed above.
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