Elders Ltd (ASX: ELD) has reported its FY20 result showing large growth of profit over the year. What will the Elders share price do?
Elders is an agribusiness that offers a variety of services for the agricultural sector. It provides access to products, marketing options and specialist technical advice across retail, agency (wool, livestock and grain), real estate and financial product (principally finance and insurance products) categories.
FY20 result from Elders
It reported that sales revenue grew by 29% to $2.09 billion.
Elders then reported a number of profit measures before the effects of the accounting changes related to AASB 16.
Underlying EBIT (EBIT explained) rose by 62% to $119.4 million and underlying profit after tax grew by 71% to $109 million. Underlying earnings per share (EPS) grew by 35% to 70.7 cents.
Elders said that the result was driven by gross profit margin improvement across all state geographies and products, combined with continued cost control and capital allocation discipline.
The statutory profit after tax (before AASB 16) grew by 80%. Including AASB 16, statutory net profit was $122.9 million.
Its operating cash flow dramatically improved, rising by 887% to $110.5 million.
Segment commentary
Elders said that the performance of its rural products division was a highlight. The acquisition and integration of leading rural supplies wholesaler AIRR added $44 million in wholesale gross margin, well in excess of acquisition business case projections. It sold more of its own branded products at higher margins.
Within the agency services, higher livestock prices provided a boost and more than offset the soft wool market. Its real estate business achieved strong growth in both broadacre and residential property turnover. Financial services delivered above acquisition case growth for the livestock in transit delivery warranty product.
Elders dividend
Elders’ total FY20 dividend declared by the board was 22 cents per share, up 22% compared to FY19.
Management comments
Elders CEO and Managing Director Mark Allison said: “Our solid business foundations and strict financial discipline, together with a commitment to ensuring the safety and prosperity of clients, communities and staff across Australia allowed us to succeed despite challenging operating conditions in FY20.”
Outlook
Elders said that the area planted to summer crop is expected to rebound from historically low levels last year, which should mean a recovery in demand for crop protection and fertiliser.
Cattle prices are expected to soften and wool prices are expected to remain low in the short term. Demand for farmland is expected to remain high.
Elders said that significant growth opportunities exist to gain market share by serving new customers in new geographies, with multiple product and service portfolios.
It’s a business that has done really well over the past year and past four or so years. However, as an agribusiness there’s likely to be a bit of cyclicality, so it may be best to wait for a period of disruption.
There are other ASX growth shares I’d rather buy first like Pushpay Holdings Ltd (ASX: PPH). If you want something related to food then I’ve got my eyes on A2 Milk Company Ltd (ASX: A2M) at this level. I think both of these businesses offer more consistent growth potential.
