SHARES in the Australian Agricultural Co – the nation’s only publicly-listed cattle and beef producer – have surged to four-and-a-half year highs this week.
AA Co stock was trading as high as $1.63 on the Australian Stock Exchange this morning, up 18c in the past month and a 43pc rise in value over where the stock sat this time last year ($1.04).
This morning’s price was the highest seen since early August 2017.
As the graph shows, the AA Co stock started its current consistent surge around early June. The year-to-date return has been 44.55pc.
Underpinned by a booming grazing property market, continued strong international demand for beef and record high cattle price levels for store and slaughter stock, AA Co is riding a wave of optimism and confidence more broadly in beef industry prospects for the immediate future.
At the same time, the Bureau of Meteorology is predicting above-average rain for all major cattle regions through until the end of February. It is also forecasting that Australia will experience a mild La Niña this summer.
This increased rainfall in northern Australia should translate to increased pasture growth, which will continue to strengthen the national herd rebuild into 2022, Meat & Livestock Australia says in its latest industry update.
Volume of trade of AA Co shares has remained consistently low for most of this year, typically around two million shares a day, since a flurry of activity back in March when daily trades peaked briefly at around 12 million.
Speculation in metropolitan financial media circles in August focussed on prospects that AA Co’s major shareholder Joe Lewis might sell his 49pc stake in the business, as a result of the share price rise, and at a time when Australian cattle and pastoral land prices are at an all-time high.
Reporting its full-year results in May, AA Co said its net profit was up 45 percent from the previous financial year at $45.5m.The result came despite headwinds related to red meat production on the back of the pandemic and reduced herd sizes due to recent droughts.
But the price of beef had increased 14pc for the 2020 financial year in North America, a region accounting for 19pc of sales compared to 7pc in the previous corresponding period, while prices increased 5pc in Asia and Australia.
Speaking at a Bell Potter ‘Home-Grown Agriculture’ conference in October, AA Co managing director Hugh Killen highlighted the turnaround in performance of the company over the past three years, recovering from the impact of COVID and some of the ‘worst droughts and floods ever seen.’
He pointed to the current robust global consumer demand for healthy and premium beef protein, which was favourable for AA Co’s premium branded products.
The company’s branded beef strategy centred on high quality Wagyu continued to gain traction and was driving results, he said.
The company was continuing down a path of being a ‘simpler and more efficient AA Co’ announced at last year’s annual meeting, with operating expenditure declining 20pc in the past two years, from $215m in the 2019 financial year to $164.8m in the year ended June 30.
Underlying operating profit had remained positive despite the challenging operating environment over the past three years, Mr Killen said. Underlying operating profit had reached $23.7m in the 2019 financial year, before falling to $15.2m in 2020 and lifting again to $24.4m in the most recent 2020-21 year.
Value in the company was underpinned by a strong asset base, he said. Total assets were this year valued at $1.6 billion, with pastoral property assets worth $915.8 million and livestock, $537.4m.
Sources of future value growth for the AA Co business would come from a combination of the strong asset base, robust global beef consumer demand, a continued roll-out of the company’s branded beef and premiumisation strategy, and leveraging global distribution arrangement sand customer relationships.
Stock broker Andrew Look, from Morgans, told Beef Central that clients increasingly sought to examine at stocks like AA Co and Elders, in order to get a piece of the Australian beef industry’s rising fortunes in their portfolio.
“There’s always a contingent in the market that’s interested in that kind of stock,” he said.
“People tend to invest in businesses they understand, and we particularly see people from west of the Great Divide now keen to have a stake in a business like AA Co, given the changing fortunes of the beef industry.”
Mr Look said there was often a significant lag before stocks started to respond to changing market and operating conditions.
“The drought lasted several years in many areas, and up to five or six in some. But the lesson for me is that investors do not necessarily need to ‘go’ (buy into the stock) early. When the pendulum swings, it does not stop in the middle, and goes too far, inevitably, both ways.”
The drought recovery in many areas had well and truly started before the AA Co share price started to take off this year.
“At the same time, ag stocks like Elders and AA Co were completely out of favour with some investors during the drought, given what they were seeing on TV.”
“But people (potential investors, mostly city-based) now are seeing the tide turn, with the current weather patterns, extremely high beef prices in the supermarket, and reports of high cattle prices – so they want to invest.”
“The fast money might get there more quickly, but it often takes investors longer than you think, and that’s perhaps being reflected in recent price movements.”
Geez looks like when it rains operating costs come down hence profits increases !!
Are management claiming their good management made it rain ? I agree with Bob get some competent administrators in.
How can a company of over 100 years longevity not pay any dividends to investors for over 10 years.
It’s time to break up AAC and sell the properties to private agricultural companies who DO know how to make good money in the beef industry
Not sure why there is a comparison with Elders. Chalk and cheese! Back Elders every day.
When was the last time AA Co paid a dividend?
Certainly not as recently as Elders!
AA Co share price may have risen in very recent months but is barely half what it was in 2006