Graincorp Ltd

GNC Details
·         Australian grain harvest and better export volumes drove the stock:Graincorp Ltd (ASX: GNC) stock rallied over 8.3% on May 11, 2017 given their better than expected performance. The group delivered an EBITDA of $236 million in the first half of 2017 as compared to $134 million in the prior corresponding period (pcp) and consequently the underlying NPAT rose to $100 million from $32 million pcp. The group expects to reach their full year EBITDA estimate of $385 million-$425 million and underlying NPAT of $130 million-$160 million. Growing Australian grain harvest and better export volumes, coupled with the group’s network efficiency efforts and managing costs have contributed to the decent result during the period. The group reported that average receivals per site rose to 70,000 tonnes from 40,000 tonnes of last harvest, driven by their developing a modern, efficient network through Project Regeneration. Management reported that their malt plant expansion in Pocatello, Idaho would become online in July this year, leading to more than double available capacity at the site. GNC is also enhancing their sales mix with a better focus on higher margin products. Better canola supply drove their oil supply with lower procurement costs. The group reported an interim dividend of 15 cents per share (cps) as compared to 7.5 cps in the pcp and intends their full year dividend to be in the range of 40-60% of underlying NPAT.

·         Recommendation: Despite today’s decent results, the group continued to face pressure on margins in GrainCorp Foods and unfavorable foreign exchange impact. Moreover, the industry continues to face supply chain disruptions given the industrial dispute affecting the Victorian rail provider and earlier bad weather. GNC stock is trading at a very high level and we give an “Expensive” recommendation on the stock at the current price of $ 9.88

Australian Agricultural Company Ltd

AAC Details
·         Growth based on strategic benefits: Australian Agricultural Company Ltd (ASX: AAC) stock rose over 5.7% on May 11, 2017 post their positive FY17 update. The group reported that their strategic efforts have started showing results. For FY17, operating EBITDA reached $45.0m while operating EBITDA margin reached 10% against 3% in pcp. The group is focusing on their luxury branded beef business on Branding & Marketing, Integrated Supply Chain and Innovation & Technology. The group launched Westholme and Wylarah luxury brands in Singapore in October 2016. The group also controlled production costs by 27%. Wagyu and Shortfed average meat sale price improved 12% during the year. The group is also investing in cattle inventory, to ensure continuous supply through each of AAC’s three supply chains.The group is also getting efficiency benefits at Livingstone wherein a 30% increase in kg’s processed has been reported with a 30% decrease in the cost of conversion.

·         Recommendation:AAC stock rose over 17.6% in the last three months (as of May 10, 2017) and still trading at a reasonable level. Given further benefits from the on-going strategies, we give a “Buy” on the stock at the current price of $ 1.84
 

Strategy (Source: Company reports)

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