The Elders Ltd (ASX: ELD) share price may be getting back its mojo after a tough year with the rural services group among the best performers on the market today.
The ELD share price surged 6.3% to $7.01 ahead of the market close, which makes it the fifth best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after the Nine Entertainment Co Holdings Ltd (ASX: NEC) share price, Syrah Resources Ltd (ASX: SYR) share price, IOOF Holdings Limited (ASX: IFL) share price and Emeco Holdings Limited (ASX: EHL) share price.
Elders held its annual general meeting today where it suggested that the drought that had crippled farming communities in some parts of the country may be easing.
Outlook improving
Not only is that good news for investor sentiment towards Elders, but the tough conditions means the group has opportunities to make acquire assets at low prices, even though management told the Australian Financial Review that it was in no rush to make any purchases.
The company posted a pleasing set of full year profit results last month that showed a 9% uplift in underlying net profit to $63.7 million and the news sent the stock surging higher.
Today's commentary at its AGM has reinforced the outlook for the group although the stock continues to trade near the bottom-end of its 52-week trading range.
Potential dark cloud
One area of potential concern is the credit squeeze and property slump. Elders has a real estate division with 300 outlets that sell over $5 billion worth of properties a year.
The company noted that rural property buyers are finding it increasingly difficult to secure bank loans.
Banks are scrutinising the income and expenses of loan applicants a lot more closely following the Hayne Royal Commission. This is significantly limited the availability of credit and is one of the key drivers for the housing market downturn across our major cities.
Better options?
It seems rural properties aren't immune and that poses an earnings risk to Elders if the number of property transactions were to fall as sellers withdraw from the market.
For this reason, I think investors looking to gain exposure from a breaking drought (fingers crossed) would be better off investing in agriculture exposed stocks like Nufarm Limited (ASX: NUF).
The Nufarm share price had taken a big hit after management issued a profit warning due to the drought but there are a few potential catalysts for the stock in 2019 – including the commercialisation milestone for its omega-3 enriched canola seeds.
