Ignoring one-offs such as profits on the sale of surplus land and its Dry Creek salt field in South Australia, animal feed and nutrition supplier Ridley Corporation reported a flat 2016 result (see Table 1).
More than half the company's total sales still come from its Barastoc poultry feeds (tagline: ‘Hens aren’t just pecky, they’re picky too’). The company is benefitting from increasing demand for white meat, helped by Australia’s growing population.
|Year to June||2016||2015|| /(–)
|U'lying EBITDA ($m)||53.5||51.0||5|
|U'lying EBIT ($m)||42.1||38.8||9|
|U'lying NPAT ($m)||24.1||24.1||-|
|U'lying EPS (c)||7.8||7.8||-|
|* 2.5c final div (up 25%), fully franked, ex date 25 Oct|
Elsewhere, its dairy feeds performed well in 2016. However, sales slowed towards the end of the year as reductions in milk prices paid by milk processors such as Murray Goulburn (as shareholders in MG Unit Trust could painfully attest) and expectations of lower prices created uncertainty over the winter calving season.
The company’s strategy of selling surplus property (such as the recently disposed Dry Creek and Dandenong properties) and investing the proceeds into the higher yielding animal nutrition segments makes sense.
However, we note that Ridley has increased earnings before interest and tax (EBIT) from its Agriproducts segment by 93%, from $28m to $54m, over the past three years.
This is an impressive achievement for what is a cyclical, highly competitive and low margin industry. The stock is priced on a multiple of 16 times 2016 earnings per share and we see little margin of safety at current prices. CEASE COVERAGE.