The Elders Ltd (ASX: ELD) share price has suffered in the last several months. In 2023 to date it's down 40%, and it's down over 50% since November 2022.
For readers who don't know what the business does, it describes itself as an agribusiness. In Australia, Elders says it works closely with primary producers to provide products, marketing options and specialist technical advice across rural, wholesale, agency and financial product and service categories.
Elders also said that it's a leading Australian rural and residential property agency and management network. Its feed and processing business operates a "top-tier" beef cattle feedlot in NSW.
What's hurting the Elders share price?
The business said last month that it's expecting underlying earnings before interest and tax (EBIT) to be between $165 million to $175 million, down from the previous guidance range of between $180 million to $200 million.
There were three main reasons for the downgrade of expectations. First, lower than forecast rural product sales in recent weeks. Second, greater than forecast pressure on the rural product gross profit margin, especially in crop protection products. Finally, further weakness in the prices of cattle and sheep with a lower-than-forecast offset from volumes.
It also said that it's experiencing "cautious customer sentiment" due to "uncertain seasonal conditions in some farm regions, compared to forecast assumptions." The Bureau of Meteorology's long-range forecast for September to November predicts a heightened probability of warmer and drier-than-average conditions in eastern and western parts of Australia.
What to make of this
I'm certainly not a meteorologist or an expert farmer, so I can't say for certain what's going to happen with the weather or even Elders' profitability.
The outlook is worsening and there's no certainty of when conditions will start to improve, so it's no wonder the Elders share price is suffering. It is currently close to its 52-week low.
However, investing is a long-term endeavour and I think investors and the market are getting too fixated about the next year or two. Elders seems like a very cyclical business to me, and I believe it's now staring at another period of weak trading conditions. But I don't think the difficulties will last forever either. Yet the market is kind of treating it as a long-term problem.
As Warren Buffett once said: "be fearful when others are greedy and greedy when others are fearful."
According to Commsec, earnings are expected to start recovering in FY25. It might generate 69.1 cents of earnings per share (EPS) and pay an annual dividend per share of 39 cents, putting it at under 9 times FY25's estimated earnings with a possible partially franked dividend yield of 6.5%. Those are attractive statistics to me, at a low point in the cycle.
It's not one of the highest quality stocks out there in my opinion, and it's not one I'd usually look at, but I think in four or so years, today's price could prove cheap because of the widespread pessimism.
