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Elders share price races higher on solid full year result

The Elders Ltd (ASX: ELD) share price is racing higher this morning following the release of its full year results.

At the time of writing the agribusiness company’s shares are up 5% to $6.35.

How did Elders perform in FY 2019?

For the 12 months ended September 30, Elders delivered a statutory profit after tax of $68.9 million. This is a decline of 3.8% on the $71.6 million achieved in the previous year.

Elders’ underlying net profit after tax came in at $63.6 million, which is consistent with the prior corresponding period.

Management believes this highlights the resilience of its business model in the face of difficult trading conditions that many of its customers are facing.

The company finished the period with an underlying return on capital of 18.2%. Whilst this was under its target of 20%, it was almost twice its weighted average cost of capital.

Elders generated operating cash flow of $11.2 million during the 12 months. This supported a final fully franked dividend of 9 cents per share, bringing its full year dividend to 18 cents per share. This was flat on the prior corresponding period.

Elders’ chief executive officer and managing director, Mark Allison, believes the result highlights the benefits of its multifaceted diversification.

He said: “Our results in FY19 showed the benefits of pursuing acquisitions that meet our strict investment criteria. Both TitanAg and our Livestock in Transit products are generating increased earnings, helping offset lower margins in our retail business from reduced summer cropping, and the impact of lower wool volumes on our agency business.”

Outlook.

Mr Allison appears optimistic on the year ahead, especially given the acquisition of Australian Independent Rural Retailers (AIRR).

He said: “AIRR is an excellent strategic fit, providing Elders with additional growth channels through entry into the wholesale rural services market and the produce and hobby farmer services market. The AIRR acquisition has the potential to add 20-25% growth to Elders at the EBIT level on a full-year basis.”

“The opportunities presented by our investment in AIRR, together with the ongoing consolidation occurring in the rural services industry, position Elders well to grow earnings in FY20 and beyond, and deliver increased value to our shareholders,” he added.

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Motley Fool contributor James Mickleboro 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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