GrainCorp in focus as Ellerston buys up

Influential fund manager Ellerston Capital raised its stake in GrainCorp this week ahead of the company’s lower interim earnings report and the looming appointment of a new chief executive that could be a catalyst for Archer Daniels Midland to clarify its plans for the company.

Ellerston, which provided ADM with part of its 20 per cent stake ahead of a $3.4 billion bid and then lashed the board for failing to ensure the takeover was completed, moved from 6.5 per cent to 7.6 per cent on Tuesday.

GrainCorp yesterday said its half-year net profit plunged 43.3 per cent to $50 million because of drought in Queensland and northern NSW and sharper competition for handling and marketing in the south of NSW and Victoria, where farmers enjoyed better conditions.

The interim dividend was cut by 5c to 15c, which it averaged for three years before the bumper results of 2012-13.

Ellerston, run by former Packer family executive Ashok Jacob, re-emerged as a substantial shareholder on April 15 and has been building its stake ever since. Investment bank Goldman Sachs also increased its holding last month by 1.5 per cent to 11.7 per cent. Shares of GrainCorp jumped back to $9 yesterday for the first time since December, when they were on their way to a two-year low of $7.52 following Joe Hockey’s decision to block the $13.20-a-share ADM bid on national interest grounds.

The Treasurer left open the option for ADM to increase its holding by 5 per cent and GrainCorp chairman and acting chief executive Don Taylor said yesterday that the company had indicated it would wait for the appointment of a new CEO before deciding on its next move.

Mr Taylor, who has been acting CEO since Alison Watkins left to run Coca-Cola Amatil when the ADM bid was blocked in December, said both the future intentions of ADM and the company’s diversification had been important elements of discussions with candidates for the chief executive role.

The prospect of further corporate activity — with ADM still interested in buying more GrainCorp — would be an important feature in the structure of the contract for the chief executive.

“No one wants to sign up for a job and feel they are out of pocket ,” Mr Taylor said.

Interviews have been completed and Mr Taylor said the appointment was still likely to be made around the middle of the year. The successful candidate would also have scope to consider further acquisitions that fitted with GrainCorp’s core competency in grain handling, storage and marketing, oils processing and malt production.

Mr Taylor said the company’s earnings highlighted the benefits of the diversification strategy run by Ms Watkins, who expanded the malting business and added an oil seed processing business from Goodman Fielder and Gardner Smith in 2012, before the ADM bid.

Those additions cushioned a sharp fall in grain handling and marketing earnings following a weak east coast grains harvest.

Group revenue fell 13 per cent to $2.06bn thanks to a 27 per cent fall in grain storage and logistics revenue and a 20 per cent drop in marketing revenue that also nearly halved earnings before interest, tax, depreciation and amortisation.

Revenue and earnings from the malt and oils businesses that make up the remaining third of the business were marginally higher.

Belinda Moore, an analyst with broker Morgans, said the result was slightly better than expected but that the share price rose on the potential for corporate activity.

“Based on GrainCorp’s commentary, we don’t expect to make any material change to our forecast,’’ Ms Moore told clients.

year. The successful candidate would also have scope to consider further acquisitions that fitted with GrainCorp’s core competency in grain handling, storage and marketing, oils processing and malt production.

Mr Taylor said the company’s earnings highlighted the benefits of the diversification strategy run by Ms Watkins, who expanded the malting business and added an oil seed processing business from Goodman Fielder and Gardner Smith in 2012, before the ADM bid.

Those additions cushioned a sharp fall in grain handling and marketing earnings following a weak east coast grains harvest.

Group revenue fell 13 per cent to $2.06bn thanks to a 27 per cent fall in grain storage and logistics revenue and a 20 per cent drop in marketing revenue that also nearly halved earnings before interest, tax, depreciation and amortisation.

Revenue and earnings from the malt and oils businesses that make up the remaining third of the business were marginally higher.

Belinda Moore, an analyst with broker Morgans, said the result was slightly better than expected but that the share price rose on the potential for corporate activity.

“Based on GrainCorp’s commentary, we don’t expect to make any material change to our forecast,’’ Ms Moore told clients.