Ag sector performing well in Australian stock markets, with Elders share price riding high
There are plenty of positive signals for the Australian agriculture sector and this a driver behind Elders’ strong share price.
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Agribusiness Elders appears well-placed to ride out the coronavirus crisis, with its share price lifting almost 10 per cent since February.
On February 21, before COVID-19 pressure hit worldwide stockmarkets, Elders was trading at $8.14. Shares closed nearly 4 per cent higher at $8.80 today.
The lift follows a broader trend of confidence in the agricultural sector, with other agribusiness share prices including Bega and The a2 Milk Company also rising in recent weeks.
Elders chief executive Mark Allison believes the innovation being shown by the agricultural industry makes it an attractive class to invest in. This innovation includes a growing use by farmers of online selling platforms such as AuctionsPlus and Clear Grain.
“A characteristic of Australian agriculture is its ability to innovate and be responsive and flexible,” he said.
All of Elders branches remain open to service the company’s rural clients through the COVID-19 crisis, particularly as the farming sector enters into one of its busiest periods with the 2020 crop going into the ground across Australia.
And it’s a crop that Mr Allison, who previously worked as an agronomist on the Darling Downs in Queensland, believes could be a record this year.
He expects farmers, especially those on the east coast, will go “fence-to-fence” with their cropping programs this season, after good opening rains and positive rainfall outlooks.
It had been a big 12 months for Elders, including the acquisition of Australian Independent Rural Retailers, which gave the company a national wholesale platform.
Unley Morgans senior investment adviser Henry McQuinn said the company had experienced a remarkable turnaround in the past seven years. “Elders is one of the oldest companies in Australia and a household name, but in 2013 it was on the brink of collapse as a series of disastrous acquisitions and a mountain of debt,” he said.
“It was in March 2013 that Elders was almost acquired by listed competitor RuralCo. When RuralCo was itself taken over last year it was valued at $380 million while Elders today has a market capitalisation of almost $1.3 billion.”
Mr McQuinn said Mr Allison’s management, and his deep industry experience, had been instrumental to the turnaround, which had been executed in a deliberate and methodical fashion with remarkable success.
“It has not been without its challenges as the company has also had to endure some very tough conditions during the turnaround with recent agricultural conditions among the worst in memory for some parts of Australia,” he said.
“The resumption in dividends in late 2017 was a welcome reward for patient shareholders and a sign of the return to financial strength for the company after many troubled years. It was the first dividend since 2008.”
Mr McQuinn said in more recent times the company had embarked on a strategy of building scale and diversification through acquisitions.
“Shareholders would be well forgiven for unease at a return to an acquisitive strategy, but the discipline shown has been admirable,” he said. “Mark Allison’s careful, measured approach has proven a winning combination.
“Shrewd, disciplined management of the acquisition process will prove critical given the company’s objective is to generate 50 per cent of its earnings growth through acquisitions.”
Mr McQuinn said Elders’ decision not to contest the acquisition of RuralCo by ag services market leader Landmark (owned by Canada’s Nutrien Ag) was testament to company’s level of discipline.
“Elders should be a beneficiary from the takeover as it results in some rationalisation of the Landmark and RuralCo presence and should see Elders attract quality people unsatisfied with the new structure,” he said.
Mr McQuinn said while Elders would always remain vulnerable to agricultural conditions, a quality management team and a prudently managed balance sheet would see much of the long-term risk for shareholders mitigated.
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“The company is today very well placed to capitalise on the growth in the agricultural industries push to become the food bowl of Asia,” he said.
Ophir Asset Management senior portfolio manager Andrew Mitchell said under Mr Allison’s stewardship, Elders had become a much stronger and higher performing business.
“By focusing on higher return segments of the market the business has grown strongly despite the drought,” he said.
“Recent rainfall particularly in northern New South Wales is providing much more favourable conditions heading into the current cropping season. We believe Elders is well placed for further growth as the rural economy recovers. Furthermore we expect earnings outlook to continue to be supplemented by additional bolt-on acquisitions.”