The S&P/ASX All Ordinaries Index (ASX: XAO) has tumbled 9% over the year to date. In contrast, the Lindsay Australia share price has risen 17.7% to 46.5 cents at the market close on Wednesday.
In a new note released this week, broker Ord Minnett says the integrated logistics and rural supply company has "historically performed consistently in a weakening economy".
The broker's analysts maintain a buy recommendation on the ASX All Ords share. They've also raised their valuation to 55 cents per share, implying a potential upside of 18%.
Who is Lindsay Australia?
Lindsay Australia transports fresh produce and provides farming equipment to rural growers.
Ord Minnett points out that it "operates predominately in the consumer staples category". This is a market sector that has traditionally withstood rising inflation better than other ASX All Ords shares.
Founded in 1953, Lindsay listed on the ASX in 2001. The company says it is "a pioneer in the refrigerated fruit and vegetable transport industry". It was one of the first to use refrigerated trailers in Australia.
According to Ord Minnett, Lindsay operates 19 logistics terminals, 18 rural stores, and an import/export hub at the Brisbane produce markets.
About 85% of the goods it transports are perishable foods, mostly fruit and vegetables. These products are delivered to more than 3,000 customers across Australia.
Lindsay Rural supplies and transports farming equipment, fertiliser, nutrients, and packaging materials to about 1,500 customers.
Headquartered in Brisbane, the company employs more than 1,500 staff. The founding Lindsay family holds an estimated 13% of issued shares.
Why buy?
Ord Minnett explains why it likes this ASX All Ords share in a note released this week.
The broker says:
Positive results and outlook commentary from Elders Ltd (ASX: ELD) and Silk Logistics Holdings Ltd (ASX: SLH) during the past quarter reinforces our thesis that transport and agri conditions remain favourable, supported by upward pricing of freight contracts to reflect cost pressures and tightness of supply.
Specific to the horticulture sector, ABARE has issued bullish output forecasts for FY22e and FY23e, rising by 6% and 7% respectively. Momentum from LAU's first half result is likely to accelerate into the second half, given a higher forecast number of rail containers in operation and improving returns from the 18-store rural network.
Growth in these areas is supportive of group margins, ROE and free cash flows.
We are attracted to the market position of Lindsay Australia … and the consistency of revenue generation from grower and corporate customers. Competitive advantage is found in the synergies and customer value-add leveraged through the combined transport and rural store network.
Refrigerated transport holds high barriers to entry and the acceleration of rural and rail services is proving to be a major positive catalyst for returns. The company has more than doubled the number of rail containers to approximately 400 by 30 June 2022.
We expect LAU to increase the share of group EBITDA generated by rail services to approximately 25% in the medium term, improving free cash flow generation and adding to the ESG credentials of the business. Returns on equity have increased materially to approximately 15% in FY22e and with lower financial leverage we see higher rates of earnings per share growth into future periods.
What's next for this ASX All Ords micro-cap?
Lindsay Australia is expected to release its full-year FY22 earnings during this month's earnings season.
Ord Minnett is expecting FY22 EBITDA of $57.1 million, up 27%. It projects an adjusted EPS of 4.95 cents per share, up 54%.
The broker says the ASX All Ords share trades on a price-to-earnings (P/E) ratio discount to its peers.
It notes forecasts of horticulture production in FY22e and FY23e to be approximately 8% above the long-term average. This will benefit Lindsay Australia given 70% of its group revenue comes from the horticulture sector.
The broker said: "With scale as Australia's largest stand-alone horticulture logistics specialist and national operations, we see upside risk to earnings forecasts and have raised our estimates in FY23e and FY24e".
Lindsay Australia has a market capitalisation of $140.42 million.
