Ridley Corporation Limited: Hold Rating Amidst Market Headwinds...

Ridley Corporation Limited: Hold Rating Amidst Market Headwinds and Strategic Shifts

TipRanks May. 22, 2024, 02:35 AM

Max Andrews, an analyst from PAC Partners, maintained the Hold rating on Ridley Corporation Limited (RIDYF – Research Report). The associated price target is A$2.21.

Max Andrews has given his Hold rating due to a combination of factors impacting Ridley Corporation Limited. The recent trading update from the company signaled a challenging second half of the fiscal year, without providing specific guidance but indicating tougher conditions ahead. Ridley benefited from dry conditions requiring supplementary feeding in the first half, but the shift to wetter conditions in the second and third quarters eliminated this advantage. Additionally, weak tallow prices and a softening of protein meal prices, influenced by lower soybean meal prices, have contributed to the less favorable outlook. A decline in fertility rates in a key poultry breed has also constrained growth in poultry volumes, despite upgrades to certain facilities.

Despite not expecting a restructure in Ridley’s aquafeed business, Andrews notes a shift towards pet food production, which offers higher margins, could partially offset the decision to exit a significant portion of aquafeed sales. The financial forecast for the company has been adjusted, with a reduction in EBITDA expectations from $96 million to $92 million, factoring in these market dynamics. Furthermore, the recent outbreak of Avian influenza poses a high risk should it spread, considering Ridley’s significant exposure to poultry volumes. Andrews highlights that while the current situation and commodity headwinds warrant caution, a change in U.S. biodiesel blending mandates could positively influence his outlook. The revised price target reflects these risks and uncertainties, with a consideration for potential bullish sentiment if mitigated.