Animal nutrition heavyweight on watchlist

Punter: Animal nutrition heavyweight on watchlist

Agribusiness
A cyclical drop in the pig and poultry businesses, of which Ridley Corporation produces feed for, is expected to pick up again this year.

A cyclical drop in the pig and poultry businesses, of which Ridley Corporation produces feed for, is expected to pick up again this year.

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Ridley joined the Punter's watchlist when its shares dipped below a dollar to a new low for the year last week.

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The Punter doesn't normally buy into substantial, well-established profitable companies.

Not enough excitement.

Of course if they have fallen on hard times, can no longer pay dividends and perhaps even have trouble persuading their auditors they are still a going concern, it's a different story.

If they do survive, investors who buy their bombed-out shares in the hope of a recovery can be rewarded handsomely.

Elders was a classic example (the Punter still regrets selling them too soon).

Ridley Corporation (ASX code RIC) is no basket case.

Not only is it still paying a decent dividend, it expects to increase it over the next couple of years.

That's perhaps a bold prediction, given analysts expect earnings to be flat or down perhaps 1 per cent over the same period.

Ridley joined the Punter's watchlist, however, when its shares dipped below a dollar to a new low for the year last week.

The shares have fallen by a third over the past 12-months.

That is perhaps because its earnings before interest and tax slipped from $38 million to $34.5m last financial year, or because net debt virtually doubled to $101m.

Or perhaps because it burned through $49m in cash and had less than $18m in the bank at the end of the year.

On the other hand, the jump in debt and the drop in cash was largely due to $60m being invested in new plant and equipment, which should pay off in the future.

The company remains confident the long-term outlook for all its major divisions is positive, apart from supplements, which should be fairly steady.

However, the Punter is not rushing to buy Ridley shares at this stage.

He will probably wait for the AGM, and perhaps any forecast or comment from the new CEO, Quinton Hildebrand, who took over at the end of August.

In the meantime, he is happy to keep nearly a third of his portfolio in cash.

  • The Punter has no financial qualifications and no links to the financial services industry. He owns shares in a number of companies featured in this column.
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