The Elders Ltd (ASX: ELD) share price has sunk 10% today after reporting its FY23 half-year result.
Elders works with primary producers to provide products, marketing options and specialist technical advice across rural, wholesale, agency and financial product and service categories. It’s also a leading Australian rural and residential property agency and management network.
FY23 half-year result
These are some of the financial highlights from the first half of the company’s 2023 financial year:
- Sales grew 9% to $1.66 billion
- Underlying EBIT (EBIT explained) fell 38% to $82.8 million
- Underlying net profit after tax dropped 45% to $50.6 million
- Statutory net profit declined 47% to $48.8 million
- Operating cashflow down 57% to a loss of $86.9 million
- Dividend per share down 18% to $0.23
Elders pointed to a volatile agricultural industry backdrop, impacted by softening “livestock trading conditions, weaker crop input prices and unseasonably wet weather.”
In the prior year, the business was experiencing exceptionally favourable trading conditions in HY22, where all of the conditions were beneficial for the company, including firm livestock prices and a strong real estate market.
Elders said that agency services experienced a 22.1% decline in earnings, driven by lower prices for cattle and sheep, and also hurt by a “challenging market and unseasonal conditions.”
It reported lower margins in its retail products and wholesale products from weaker crop input prices.
Real estate services saw higher property management earnings, offset by lower broadacre turnover.
But, financial services continues to see revenue growth, driven by increased demand for insurance products and rising premiums.
Outlook for the Elders share price
Elders said that it’s expecting FY23 underlying EBIT to be between $180 million to $200 million. If it achieved $190 million, this would be 18.1% lower than FY22 but up 13.8% on FY21.
The agribusiness’ leader, Mark Allison, said:
Demand for food and fibre remains strong globally and Elders’ long-term earning potential persists with equal strength.
We remain confident in the strategic foundations and principles set for Elders under its eight point plan and its ability to deliver expected earnings and shareholder value at full year.
The business’ eight point plan refers to factors such as targeting 5% to 10% growth in EBIT as well as profit / earnings per share (EPS) through the agricultural cycles whilst maintaining strong financial discipline to generate a return on capital (ROC) of at least 15%.
In this result it achieved a ROC for HY23 of 16.9%.
Elders has proven over the last five years that it is a cyclical business. It makes sense to buy near the bottom of the cycle (and possibly sell near the top).
I don’t think the Elders share price is going to turn around quickly, and it may keep dropping – there could be further profit hits ahead. However, I think we’re getting closer to the bottom for the Elders share price, so it could be a contrarian 3-year turnaround story.
