Hi Keith,I think the shorts are slowly exiting, not because ELD...

Hi Keith,

I think the shorts are slowly exiting, not because ELD is looking to a great result for FY24, but the outlook for FY25 is likely to be better.

The shorts are dropping off and at the current rate we may drop out of the Shortman top 100 in as little as a couple of weeks.


As we know the first half result for ELD was a shocker. This was largely due to a couple of factors. The first was poor gross margins across the retail and agency arms of the business due to falling commodity prices as a result of the hangover from the Covid/Russia/Ukraine war price spike. The second was a relatively poor take-up of farm inputs such as fertiliser and chemicals due to concerns about El Nino leading to reduced crop planting. In addition to this we have had elevated costs over the last couple of years due to the spend on IT systems upgrade and automated wool handling facilities.

The second half promises to be a different story though. ELD have forecast underlying EBIT of between $120-140M for FY24 which suggests the second half will be more like recent years in 22 & 23, ie around $90M.

Still, this will make for a pretty poor FY result for FY24 overall (I'm bracing for it...) - but the trajectory of commodity prices appears to have at least stabilised for the retail side of things. On the agency side, cattle and sheep prices back to being respectable again with good prospects for the agency arm looking forward due to the USA's insatiable demand for burger mince (Aus beef exec: "excuse me mate, that's grade 7 wagyu!" US beef buyer: "I don't care just put it through the mincer, we want burgers for the people!").

On this basis it's not hard to imagine a more normalised full year for FY25 with underlying EBIT in the range of $180-200M. If costs can remain stable and perhaps even tail off a little then we're looking at an outlook for FY25 that could be significantly higher than FY24 and ELD would rerate accordingly IMO.

The above also ignores the increasing contribution of the profitable bolt-on acquisitions that have been made over the last couple of years. The industry consolidation is good for ELD long term as is the backward integration of own-brand farm inputs.

I've changed my sentiment to buy (long term) but I will wait and see for a bit longer yet before adding any more. FY24 results should be out in about a month.

GLTAH

Trev