Contrarian Arguments

Someone pointed out in another thread that most posters were in agreement that today’s price action was in no great way attributable to fundamentals.

I thought I’d start a thread focusing on a contrarian case with what we can perceive to be the risks to this stock, and responses to that.

I see three major hurdles to overcome

- Weather risk to growth forecast
Despite La Niña being forecast to ease, there are major weather events occurring across agricultural lands in the eastern states. The damage to crops and property from what is currently occurring in central west and southern tablelands regions of NSW is still unknown, so too with recent and ongoing events in Victoria.

The risk is that ELD may need to issue a revised down forecast in the next couple of months after this damage becomes apparent, although ultimately this would depend on what action farmers take in response (as re-seeding and the like could actually benefit sales)

- CEO replacement

Mark has been CEO for 10 years, turned the company around and quadrupled the market cap. Obviously, he has shown his value and any replacement will need to do the same to regrow market confidence in the leadership. A 12 month timeframe to replacement should allow a quality candidate to be selected but there will be question marks over this process for at least two years going forward.

and lastly

- Market Irrationality

It could be said this faces every stock on the ASX, but ultimately irrationality is by its nature insidious and unfair and based on trading whims and hard luck. Today’s price crash is the first example in some time of this affecting the stock, but trust me there are plenty on the asx that become undervalued and then, for no rational reason, remain undervalued for years going forward. It should become apparent between tomorrow, next Monday (ex div) if this will become something to be concerned about with this stock, or else we should expect to see an upwards trajectory from here towards a price that more fairly reflects today’s results, which I would think would be in the $12 range.