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Things looking up for Elders: analyst

AAP logoAAP 22/07/2016 Trevor Chappell

Recent rain and rising livestock prices are set to boost agribusiness Elders but its live export business could be under pressure.

Morgans agribusiness analyst Belinda Moore says higher-than-average rainfall in May and June for most of Australia and strong prices for cattle, sheep and wool should help Elders in the second half of its 2016 fiscal year and help it reach its 2017 earnings targets.

The Bureau of Meteorology's three-monthly outlook is for above-average rainfall, and there is a 50 per cent chance of a La Nina weather event (often associated with wetter conditions over much of Australia) later this year.

"This would be positive for the next summer cropping season. These conditions are positive for Elders' retail business," Ms Moore said in a research note.

Ms Moore said livestock prices continue to rise, and rainfall had boosted confidence amongst farmers looking to restock, which was positive for Elders' agency business.

Also, there was strong interest in rural properties, which would boost Elders' real estate operations.

But things looked tougher for Elders' much smaller live export business, which was feeling the impact of high livestock costs, adverse currency movements and stronger competition.

"As a result, the outlook remains tough in the short term with management expecting a loss in FY16 (the 2016 full-year)," Ms Moore said.

But Elders was restructuring the live exports business.

Elders would also benefit from China ratifying the Australia Health Protocol that will enable exports of feeder and slaughter cattle to China.

Ms Moore also said Elders' recent buyback of more than 70 per cent of its hybrid securities through a $102 million capital raising had simplified the group's capital structure, giveng it the opportunity to fund growth opportunities and pay fully franked dividends from the 2017 full year..

Elders shares gained eight cents to $3.77.

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