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Agricultural lender and inputs provider Elders (ASX: ELD) is bringing in the harvest thanks to the return of rain in many parts of eastern Australia, with profits rising 90 per cent to $52 million in the first half.
ELD shares hit a new 10-year high of $10.09 this morning, and as at 10:45am AEST they were trading up 4.57 per cent at $9.84 each.
Underlying earnings before interest and tax (EBIT) were up 55 per cent, driven by recent winter crop confidence boosting margins for rural products, high prices for both cattle and sheep, and steady earnings in the company's real estate and financial services division.
Elders CEO and MD Mark Allison says the group has prospered in a volatile market as a result of rocksolid business foundations, strict financial discipline, and a commitment to keeping the safety and prosperity of clients and communities across Australia.
"The first half of FY20 has been tumultuous, with devastating bushfires across large parts of Australia, the COVID-19 pandemic, and conversely, drought-breaking rain across many parts of Australia," he says.
"Whilst difficult, these events have proved yet again the resilience of our people and our industry, and our ability to rise to the challenge."
The executive reiterates COVID-19 has not had a significant financial impact on demand for Elders' products and services, customers and supply chains for the six months ended 31 March, and this has continued into April and May.
"Successive rainfall events across major cropping areas on the East Coast have had a positive impact on operational performance within the last period, lifting farmer confidence and driving strong demand for crop inputs," he says.
"This has contributed to a significant uplift in rural products, given the 66 per cent decline in summer cropping. The growth in rural products margin has been lifted with the addition of AIRR (Australian Independent Rural Retailers) to our wholesale network, contributing $8.6 million EBIT since 13 November 2019."
Agency services results were up, driven by strong prices in cattle and sheep, limited domestic supply and continued demand from key export markets. However, wool margins declined with lower bales sold due to lower prices deterring growers from trading.
Real estate delivered a higher result with sales turnover up across most service offerings.
Costs are up on last year by $12.0 million due to the AIRR acquisition, geographical footprint growth and additional corporate initiatives, offset by savings from the new Rural Bank distribution agreement.
"Our people have shown remarkable resilience and perseverance in their ability to find alternative ways to service our clients and keep our industry operating safely in spite of restrictions," says Allison.
"We have digital solutions in place to facilitate many transactions and combat disruption to in-person methods for sales," he says.
Outlook
Elders believes it is on track to deliver a full year result in line with the consensus of analyst views of between $96.5 million and $112.9 million EBIT, and $85.8 million to $102.9 million net profit after tax (NPAT).
In terms of the impacts of COVID-19, notes some agricultural chemicals (AgChem) suppliers are experiencing interruptions due to the pandemic - a situation that is being closely monitored - but AgChem supply chains in China have returned to normal.
Wool exports to China are reportedly operationally sound, however the impact of reduced end-market demand in Europe and North America will likely continue to place downward pressure on price and volume.
While government restrictions on gatherings and social distancing measures have had the potential to impact real estate, wool and livestock sales, supply chains are operating with minimal disruptions.
Real estate residential sales and property management activities are expected to decline in line with the wider real estate market due to COVID-19 related restrictions and broader economic impacts.
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