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The Elders Ltd (ASX:ELD) share price surges on profit upgrade

Elders Ltd (ASX: ELD) was one of the biggest movers on the local market in Monday morning’s trade, with shares up 6% to $8.60 after the agribusiness company released a positive FY18 interim result.

Here are the key financial metrics, compared to the first half of FY17:

  • Underlying profit after tax up 13% to $40 million
  • Underlying EBIT up 10% to $46 million
  • Operating cash inflow of $26 million, up from a cash outflow of $5 million.

The main contributor to the strong performance was the retail business, thanks to higher product margins and the acquisition of New South Wales horticulture supplier Ace Ohlsson.

The combination of organic and acquisitive growth, together with cost control, are the pillars of the company’s second eight point plan, aiming at a balanced increase in earnings through to FY20.

The first three-year eight-point plan was the backbone of Elders’ impressive turnaround: the price of the stock increased 1,200% since the plan was launched in July 2014.

For the second half of FY2018, the company expects challenging conditions, with a decline in livestock prices and dry weather curbing demand for cropping inputs.

However, retail earnings are poised to increase following the recent acquisition of agricultural chemical company Titan Ag Pty Ltd, expected to generate around $7 million additional EBIT in the first year of ownership. Elders’ financial services segment is also expected to grow, thanks to continued momentum in the company’s banking and livestock funding products.

Elders will resume interim distributions, paying a fully franked dividend of 9 cents per share to shareholders of record as of May 22.

Foolish takeaway

I would recommend Elders to those interested in an investment in agribusiness. Unlike Nufarm Limited (ASX: NUF) and Graincorp Ltd (ASX: GNC), Elders seems only marginally affected by the dry season that is plaguing Australian crops.

While industry peer Australian Agricultural Company Ltd (ASX: AAC) struggles to find an effective growth strategy, Elders’ management appears to  know exactly how to improve shareholder returns, as demonstrated by the price run of the stock in the past few years.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited. 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 Scott Phillips.

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