Agribusiness Elders (ASX:ELD) shocked the market on 8th April 2024 with an earnings update that was ~28% below analyst expectations for 1H24. ELD reports out of the traditional reporting cycle with a March interim period, hence the timing of this announcement.
At its Investor Day in November 2023, ELD management were positive on the outlook for inorganic growth (acquisitions). However, with today’s trading update, the level of gearing on the balance sheet is unlikely to support any material acquisition opportunities which in our view, is cascading negative sentiment for the stock.
What You Need to Know: FY24 Earnings Downgrade?
Management called out domestic weather patterns as a major driver of the downgrade, as an El Nino forecast saw more conservative crop planting and activity from Australian farmers. This has a flow on impact to ELD’s Rural Products business segment which accounts for ~60% of the company’s gross profits and includes the sale of chemical formulations for crop protection, seeds and fertiliser.
Persistently low livestock prices appears to be impacting its Agency Services business also.
Source: Company filings
What Lies Beneath: Understanding ELD’s Financial Health
Stock Doctor’s quantitative Financial Health model has assessed ELD as being in Early Warning for multiple periods, meaning that we do not have enough confidence in the company’s financial statements to warrant an investment in the stock – despite its optically cheap price to earnings (P/E) ratio and historical dividend yield.
Agriculture businesses are highly cyclical and are often exposed to demand shocks seen as today’s announcement, which is why Stock Doctor often considers them “Value Traps”.
Source: Stock Doctor
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