Leading Australian fund manager, Prime Value, recently released an update on the fund's portfolio for May 2021. In addition to highlighting companies that have outperformed in its portfolio, the fund also notes ASX companies that have underperformed.
Among the fund's underperformers for the period was Elders Ltd (ASX: ELD).
Let's find out more about the way Prime Value selects its holdings and why the fund is backing the Elders share price.
Why Prime Value is backing the Elders share price
Prime Value uses a number of criteria when selecting investments. These principles include selecting companies with strong management and good business models that offer compounding growth over time.
According to the fund, the track record of Elders in creating shareholder value of time espouses these factors.
The fund noted that Elders is well-positioned to benefit from its integration strategy to drive gross margin improvements. The company's strategy should also result in savings across a broader range of products that Elders can distribute to the agriculture sector.
In addition, Prime Value noted that the strategy implemented by Elders will reduce the company's reliance on the volatile agricultural environment.
Snapshot of the Elders share price
Elders is a leading supplier of fertiliser, agricultural chemicals and animal health products to rural and regional Australia. The agribusiness company also has strong positions in livestock, wool and real estate.
Overall, the Edlers share price has performed relatively strongly in 2021. Shares in the agribusiness are up more than 9% since the start of the year.
However, for the month of May, the Elders share price tanked more than 7%. This explains why Prime Value labelled the company as an underperformer for the month.
The Elders share price tumbled in May after the company released its half-year results for the 6 months ending 31 March 2021.
Elders reported a 31% increase in underlying profit after tax of $68.2 million. In addition, total sales for the period were 22% higher at $1.1 billion. Underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) also increased 28% to $94.3 million.
Elders also flagged a $16.5 million increase in costs. The company attributed rising costs to acquisitions, higher insurance costs and investment in strategic areas.
In addition, Elders rewarded shareholders with a sharp increase in interim dividends. The company declared a 20-cent interim dividend per share, compared to 9 cents in the first half of FY20.
