While some observers are uneasy Elders may risk eroding the diversity of its agribusiness portfolio by taking a short-term opportunity to exit live export shipping, the share market is happy.
The 176-year-old business was one of the few companies to enjoy a share price rally on the Australian Securities Exchange (ASX) early this week, jumping from $3.50 on Monday to $3.78 by mid-week.
Stockbroking analyst with Morgans, Belinda Moore, said even after that rise, Elders shares looked undervalued.
Morgans upgraded Elders’ price target to $4.65 a share.
“We view the exit of its live export business as a smart move which will remove a loss making business and release $25 million in working capital to be deployed to higher returning growth areas,” Ms Moore said.
She said by removing the risk associated with its export activities Elders pre-tax earnings target of $60 million for 2016-17 appeared conservative.
Northern Territory Livestock Exporters Association chief executive officer, Stuart Kemp, was disappointed to see a “significant and capable” participant in the trade pulling out of a direct involvement, but not entirely surprised.
“Companies reporting back to shareholders have to make decisions based on the dynamics they are dealing with,” Mr Kemp said.
He would not be surprised if others cut back their shipping capacity, too.
“The market will probably struggle to find the numbers it needs and prices will be more difficult to pay when the wet season hits,” he said.
Last financial year 600,000 cattle were shipped from the Port of Darwin, but that figure fell 30pc in 2015-16 and Mr Kemp said improved seasonal conditions were now further limiting the numbers available for sale as herd numbers were re-built.
“But live exporting has had plenty of cycles in the past 20 years and it’s a pretty robust trade which will be busy again, relatively soon,” he said.
“This is an unusual period of high prices and tight supplies after the drought, but it’s a very resilient industry.”