Shares in Elders (ASX:ELD) have had a volatile run over the past ~12 months. Earnings volatility driven by external conditions (weather and crop input values) and elevated gearing levels have weighed on investment sentiment. We recently researched the Company in The Dynamic Investor to assess current levels present an entry opportunity.

About Elders

Elders is one of Australia’s leading agribusinesses, with a national distribution network with over 450 points of presence throughout Australia. Livestock prices and volumes, as well as retail product sales are key earnings drivers and seasonal conditions play a significant role in determining the trend of these drivers.

The Company implemented a new divisional model effective from 1 October 2025 to position the business for future growth and operational efficiency. The structure consists of six distinct divisions and is designed to enhance focus in high growth areas including Real Estate and Financial Services: The six divisions include: Crop Protection, Australian Independent Rural Retailers (AIRR), Rural Services, Delta Agribusiness, Real Estate and Feed & Processing (to be sold).

Key Fundamental Drivers

Return on Capital Improving Towards Target

ELD has a Return on Capital (ROC) target of >15%. ROC has been below this level in recent years, largely due to fall in AgChem prices over the last 24 months. In addition, with dry conditions across key rural areas impacting rural product sales & margins. The ROC of 11.3% reported for the 12 months to 30 September 2025 (FY25) was flat compared to FY24 and impacted by dry seasonal conditions, as well as spend on the Systems Modernisation program. The latter had a 130 basis points adverse impact on ROC with lagged benefits expected to flow through in FY26. The Company has a ROC target of >15% from Systems Modernisation spend.

ROC is expected to lift significantly in FY26, towards the >15% target, on the back of several factors, including:

• Synergies from the acquisition of Delta Agribusiness.
• Improved earnings – A cyclical recovery across Rural Products is expected in FY26, supported by a return to average seasonal conditions across much of Australia. Further, high ROC earnings streams such as Real Estate/Financial Services are becoming a larger part of group EBIT.
• The sale of Killara Feedlot, which reduces capital intensity for the overall business.

Does Elders Pursue Acquisitions or Organic Growth?

The Killara sale has the potential to push gearing (2.9x) below the target range of 1.5-2.0x. In turn, this provides ELD with the opportunity to more effectively utilise its balance sheet after several years of below-target ROC. In addition, the CAPEX profile is declining post FY26, as the majority of Systems Modernisation projects are completed.

To this end, the Company may continue to pursue bolt-on acquisition opportunities. However, this may prove difficult to pursue. In particular, changes to the ACCC merger scheme (effective 1 January 2026) that is likely to target an overlap in markets that ELD operates & the acquisition target. As such, the Company is likely focus more on organic growth, which also allows for higher dividend payments and/or capital management.

Fundamental View

ELD has a highly attractive EPS growth profile of +13% over FY25-28 on a CAGR basis. This is underpinned by several factors, including: i) A more normal selling pattern in FY26 that supports a cyclical recovery across Rural Products, ii) Cost savings/efficiencies from Systems Modernisation projects and the Delta acquisition and iii) Expansion into high ROC earnings streams such as Real Estate/Financial Services.

That said, we take a cautious view on the shares given that:

i. Seasonal conditions are mixed – while cattle priced remain elevated, the 3-month rainfall outlook has deteriorated. Historically, ELD shares have performed well when seasonal conditions are, on balance, positive.

ii. Valuation metrics are unappealing, with the shares currently trading on a 1-year forward P/E multiple of ~12x, which is broadly in line with the average over the last five years. We also note the volatility in the shares over the last ~6 months, where the shares have presented better value on dips towards the bottom end of the trading range over the same period.

iii. We consider the key catalysts for the shares from current levels to be: i) An improvement in ROC, which remains well below target and ii) Utilising a lower-geared balance sheet following receipt of proceeds from the Killara sale. However, progress on both fronts appear to be a medium-term proposition.

Charting View

After peaking in September, ELD then failed to make any progress and has traded sideways since then. The range is tightening up but the swings are still quite large. It has just recently bounced off support. However, a break of support would be a negative. For the chart to look positive, we would need to see a strong close above $7.50.

 

Michael Gable is managing director of Fairmont Equities.

 

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