The Elders Ltd (ASX: ELD) is defying the market gloom today as it’s one of the few handful of stocks to be gaining ground.
The Elders share price jumped 2% to $12.29 in after lunch trade when the S&P/ASX 200 Index (Index:^AXJO) slumped 0.7%.
Nearly every sector is trading lower as US stocks fell overnight. But shares in the agribusiness zoomed ahead after Goldman Sachs reiterated its conviction “buy” recommendation on the ASX share.
Bumper harvests for the Elders share price
“Market conditions have strengthened across Australian Agricultural markets in the last 3 months led by a bumper winter crop harvest and strong cattle prices,” said the broker.
“Increasing grower optimism and strengthened balance sheets should support strong demand for ELD’s agribusiness products and services.”
What’s more, the broker believes Elders’ profit margins are set to expand and that it will win market share.
These factors are behind Goldman’s prediction that the company’s earnings before interest and tax will grow by 13% compound annual growth rate (CAGR) from FY21 to FY23.
“The Rural Products segment (42% of FY21 group gross margin) is performing well, in our view, aided by a recovery in the summer crop and strong demand for pre-emergent chemicals as we approach the 2021 winter crop planting window,” added Goldman.
“We expect a solid performance in the Livestock Agency Services segment (28% of FY21 gross margin). Weaker volumes are more than being offset by higher livestock prices and market share gains.”
You might not think it, but Elders is also a beneficiary of the structural online shift that is being accelerated by COVID-19.
Not too old for the online revolution
The company owns 50% of the Auctions Plus platform for livestock and is well placed to facilitate the move to online livestock auctions.
Elders is on Goldman’s conviction list and the broker’s 12-month price target is $15 a share.
While agriculture is a tough space on the ASX to invest in, the 2021 outlook for the sector is bright.
Another buy idea in the sector
Favourable weather, reasonably strong commodity prices and the global economic recovery from COVID are some of the factors behind this upbeat view.
Another ASX-listed agribusinesses that are likely to benefit from these tailwinds include the Ridley Corporation Ltd (ASX: RIC) share price.
Credit Suisse upgraded the ASX share to “outperform” from “neutral” this week as the broker has greater conviction in its medium-term growth profile.