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Should you buy Australian Agricultural Company Ltd?

ASX Farm
Credit: Andrew Stawarz

What: Leading beef producer Australian Agricultural Company Ltd (ASX: AAC) has attracted the attention of top performing fund manager Paradice Investment Management who last week lodged a substantial shareholder notice showing a 5.07% holding.

So What: The move up the share register comes after a period of share price weakness which has seen the stock sold down around 17% in the past three months. In comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down just 3% over the same period.

Now What: AACo recently held its annual general meeting (AGM) which provided an opportunity for the company to update investors.

Amongst the highlights was the following news:

  • Boxed sales of beef have grown to comprise 77% of revenues worth $267.6 million in the financial year ending 31 March 2015.
  • 42% of these boxed sales by volume were Wagyu beef; in revenue terms, boxed Wagyu accounted for 52% of sales.
  • Growth was driven by a 42% increase in boxed beef sales which was helped by the $91 million investment in the Livingstone Beef processing facility in Darwin which is now processing around 250 head of cattle per day.
  • Processing costs continue to decline as throughput at the Livingstone facility increases.

The move to a vertically integrated producer appears a timely move for AACo given both the increasing issues facing the live export trade and the rise in demand from Asian customers for high protein foods. Agricultural stocks which have already enjoyed a surge in investor support include Select Harvests Limited (ASX: SHV) and Tandou Limited (ASX: TAN) which have soared 147.5% and 54.6% respectively over the past 12 months. AACo is worth keeping an eye on as it could be next.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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