Elders dividend on the horizon after 10 years as profit jumps 56 per cent
The chief executive of 177-year-old agribusiness Elders says a resumption of dividend payments later this year after a decade without one is the final step in the re-making of the company into a much more consistent performer which investors can rely on.
Mark Allison, who took over as chief executive in May, 2014 and laid out an eight-point plan to lift Elders out of the mire, said on Monday the likely size of the dividend was still to be determined but the fact shareholders can expect one after a decade-long drought is an important symbol.
"I think that is the final legacy issue," he said.
A strong performance from both the Elders retail arm and the company's traditional agency services service, which benefited from record livestock prices and strong wool prices, helped Elders generate a 56 per cent rise in net profit after tax to $38.3 million for the six months to March 31, 2017.
The company delivered a return on capital of 30.2 per cent for the six months, up from 26.4 per cent in the first half a year ago. The original target in the eight-point plan had been a return on capital of 20 per cent by 2017. No interim dividend will be paid. Revenue for the first half rose 4 per cent to $773.2 million.
The result was ahead of analysts' expectations. Morgans analyst Belinda Moore described it as a "very strong result", with impressive performances from the Australian operations.
The Elders board is expected to declare a final dividend when it announces its full-year results in November this year. Elders shareholders last received a dividend payment in 2008.
Elders shares gained 2 per cent in early trade on Monday to rise to $4.50. It was trading at $3.60 a year ago.
High livestock prices and low interest rates meant the Elders real estate business turned in a solid performance because of increased demand for cattle farms and broadacre cropping properties.
Turnover of farm land real estate was up 15 per cent compared with a year ago. High prices for sheep and cattle are expected to gradually subside later in the year as volumes increased, but off very high levels.
Mr Allison said there had been a specific strategy over the past three years to position Elders for more consistent performance and to escape the wild swings that many agribusiness stocks suffered due to traditional agricultural cycles.
About $30 million in costs have also been taken out over the past few years under the company's strategy where Elders has directed investment into businesses where returns are better. The company had also been disciplined in reviewing potential acquisition opportunities.
"If it doesn't fit, you don't buy it," he said.
Mr Allison said Elders was targeting consistent profit growth of between 5 to 10 per cent annually for the next few years until 2020. The company is now an investment grade entity, a situation reinforced by the upcoming resumption of its dividend.
"The reason people don't invest in agriculture stocks is some of them do swing all over the place," he said.
Elders went through a near-death experience in 2008 in the Global Financial Crisis as it almost buckled under the weight of $1.4 billion of debt. It had expanded aggressively into a range of other sectors into telecommunications, forestry, automotive parts and aquaculture.
Mr Allison stepped in to become chief executive in 2014, in a surprise shift from being chairman of the company.
AAC Price at posting:
$1.87 Sentiment: Buy Disclosure: Held
(20min delay)
