Rural Funds share price flat as it mounts defence of asset valuations & dividend cover

Rural Funds Group (ASX: RFF) can't shake off some investors' worries.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Rural Funds Group (ASX: RFF) share price is flat at $1.77 today even after the agricultural REIT launched a defence of its asset (farmland) valuation methods and calculation of the funds from operations it earns to pay dividends. 

Rural Funds has recently been the target of two short seller reports from Bonitas Research and Bucephalus that both accused it of inflating asset valuations to boost fees earned by its related management company RFM.

The short sellers also alleged the remuneration structure was conflicted or dubious being on the basis of asset valuations rather than net income for example. 

However, today RFF provided a granular rebuttal of the allegations including the below chart that shows how it reached the valuations of its assets as at June 30 2019. 

Source: Rural Funds presentation, October 9, 2019.

Bucephalus also alleged its research showed that Rural Funds' free cash flows or adjusted funds from operations (AFFO) were lower than its total dividend payouts and in effect being subsided by debt and capital raisings in a Ponzi-scheme type operation. 

Rural Funds has repeatedly dismissed these allegations and provided the below chart showing how its AFFO more than covered dividend payments for the 12 months to June 30 2019. 

Source: Rural Funds presentation, October 9, 2019.

For now Rural Funds remains in a a public relations battle with two short sellers who are not backing down.

As can be seen from the middling stock price different investors are also drawing different conclusions over the business structure.

Other businesses facing down heavy short seller interest include NextDc Ltd (ASX: NXT) and Metcash Limited (ASX: MTS).

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »