Ruralco: Time to grab a bargain?

RELATED QUOTES

SymbolPriceChange
ELD.AX0.1050.0000
GNC.AX8.96+0.070
RHL.AX3.39-0.010

Ruralco Holdings (RHL.AX) released its half-year results yesterday, and despite some figures plunging into the red, it closed higher.

The company announced that reported NPAT for the half year ended 31 March 2013 showed a loss of $0.5 million compared to a profit of $10 million a year earlier. However, this year the company has faced irregular market conditions caused by hot weather and little rain but also increased investment.

In September 2012, the company upped its stake in Elders (ELD.AX) to over 12%, which more than doubled the company’s exposure to the rural services and automotive company. This, together with a 7.3% decline in sales, thinned the company’s profit margins and pushed it into a loss.

Chairman Richard England said that “although the cost of the Elders investment write-down, together with expenses associated with the stakeholding, have impacted our profitability for the interim reporting period, Ruralco’s core business had been resilient in its management of industry wide adverse seasonal conditions”.

In addition Mr England reaffirmed directors’ intention to give shareholders an interim 10 cent dividend fully franked, holding the full-year dividend on track at 7% fully-franked based on current prices.

Managing Director John Maher said “while livestock gross profit and rural supplies sales had been seriously affected by unusually dry and hot conditions, several positives can be noted when compared with the pcp”. Some of the “positives” include gross profits to the following divisions (based on the pcp): rural supplies (6%), farm and general insurance (12%), water solutions (14%) and wool (11%).

The group’s grain business, Agfarm, also cemented its position as a leading provider of managed grain pools by achieving increased gross profit (up 3%) despite the market favouring competing cash products during the year.

Foolish takeaway

Graincorp’s (GNC.AX) recent takeover bid by Canadian firm Archer Daniels Midland will reduce the domestic share market’s exposure to the agricultural industry. However, Ruralco offers diversified coverage of the sector across its many divisions.

Ruralco’s results are not bad by any means. In the current stock market environment, prices have risen dramatically, making quality stocks harder to find. Ruralco’s share price has dropped 11% since the start of April this year. The company has been through a rough patch in which it faced reduced sales caused by extremely rare weather, made huge improvements to its staff and information systems and has reduced costs which it hopes will save in advance of $8 million by March 2014 and after all that has delivered some positive results. Perhaps it’s time to grab a bargain?

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz owns shares in Ruralco.

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