Today, Rural Funds Group (ASX: RFF), one of the popular ASX dividend shares, reported its FY24 results.
The Rural Funds unit price is down more than 30% from its peak of $3.18 in January 2022. More recently, the unit price has recovered approximately 7% in the past year.
As a result, Rural Funds units are trading at a historical discount to the company's net asset value (NAV).
Could this discount narrow from here?
Let's find out what the ASX agriculture company posted today.
Steady growth in its book value
Key takeaways from the company's full-year results include:
- Property revenue increased 8% to $88.4 million, led by additional rental income from macadamia developments
- Net profit after tax (NPAT) of $80.4 million, down from $94.5 million in FY23
- Total comprehensive earnings of $117.2 million, including independent property valuations
- Earnings per unit, based on total comprehensive earnings, was 30.28 cents, similar to 30.10 cents in FY23
- Adjusted funds from operations (AFFO) of $42.4 million, up slightly from $41.1 million in FY23
- AFFO per unit was 11 cents, up from 10.7 cents a year ago
- Rural Funds declared the total FY24 distribution of 11.73 cents per unit, the same as in FY23
- Adjusted NAV, including the market value of its water entitlement rights, was $3.14 per unit in June 2024, up 8% year-on-year. This NAV was higher than $3.07 per unit in December 2023
In FY24, the company engaged independent valuations on approximately 69% of its portfolio assets, leading to a net valuation gain of $97.3 million.
Portfolio updates
The highlight of the FY24 results was the company's ongoing development of a large macadamia project spanning 3,000 hectares. The second phase of the macadamia development lease, valued at $133.9 million, commenced during FY24.
Rural Funds Group expects the development, which began in 2021, will be mostly finished by the end of 2024.
Management estimates the macadamia project, which has a 40-year lease, to contribute approximately 18% of its revenue in FY25. In addition, the company sees potential for further growth as more capital expenditure is invested.
To support the macadamia project, the company invested $217 million in capital expenditures in FY24 and budgeted for an additional $70.2 million in FY25.
Rural Funds Group increased the facility limit to $867.4 million from $794.5 million in FY23. This was to provide funding for FY25 capital expenditures, including the macadamia project.
In June 2024, the company announced a lease and 50% sale of its Mayneland and Baamba Plains cropping properties for $75.7 million.
Focused on agricultural properties, Rural Funds highlighted its inflationary hedge characteristics, long leasing terms averaging 13.5 years (weighted-average lease expiry), and structural rental growth.
What's next for Rural Funds Group?
Looking forward to FY25, the company forecast a slight increase in AFFO to 11.4 cents from 11 cents in FY24. Distributions per unit are expected to be the same as in FY24 at 11.73 cents.
The company aims to continue to develop other assets within its group. For this, management is actively seeking leases and partial sales to enhance earnings, operational exposure, and financial leverage.
Valuation comment
Rural Funds units are valued at a price-to-book ratio of 0.67x against the adjusted NAV of $3.14 per unit.
The company offers a distribution yield of 5.6%, while management guided the distribution per unit will remain unchanged for FY25.
The Rural Funds unit price is up slightly by 0.5% to $2.1 this morning.
