Ruralco Holdings expects half-year earnings to jump as much as 35 per cent to $22.1 million as Ruralco diversifies its operations and drought conditions abate.
The rural services and agribusiness wholesaler on Thursday said that earnings before interest, tax, depreciation and amortisation for the six months ended March 31, 2014 is expected to rise between 25 per cent and 35 per cent on the $16.4 million reported in the same period last year.
Half-year net profit after tax is forecast at $4.5 million to $5 million compared with a $500,000 net loss last year.
Ruralco managing director John Maher attributed the “solid result” to geographic and revenue diversification.
“Whereas the start up costs of our new live export business have been greater than expected, most other activities have performed well in the half year,” he said in a statement.
Morgans analyst Belinda Moore said the trading update looked solid given the mixed seasonal conditions facing the agribusiness sector.
Drought has pummeled beef producers in northern Australia and is threatening grain growers in Northern NSW and Queensland.
Crop protection group Nufarm’s full-year earnings have been battered the past two year’s by the dry weather, which has eroded demand for agricultural chemicals.
But Ruralco has been taking steps to mitigate the impact of weather and agricultural events.
In February, Ruralco forked out $57.4 million to acquire water solutions business Total Eden Holdings from private equity firm Anchorage Capital Partners.
By broadening its service regions and operations, which include real estate, insurance and supplying rural customers with products like fertiliser, seed, livestock and wool, the company hopes to smooth out volatility in its earnings.
Another new business venture is its new live export trading operation, which has caused significant anguish over at rival rural services group Elders.
Ruralco, long considered Elders’ ‘little brother’, poached seven key executives including general manager Hamish Browning from Elders in September last year to start its live export trading business.
Then Elders chief executive Malcolm Jackman - who left Elders in November - was furious at the defection, which came just as the iconic company was embroiled in a $25 million accounting fraud scandal relating to its live cattle trading business.
While Elders battled for survival against its ballooning debt after the 2008 global financial crisis, Ruralco has been steadily growing and now has more market share than Elders.
In a symbol of how the much the competitive landscape had changed, Ruralco made an unsuccessful $250 million bid for Elders’ rural services business last year.
Ruralco shares closed 1¢ higher at $3.40 on Thursday.
The company reports half-year earnings on May 20.
