GrainCorp Records $246M Half-Year Profit In Favourable Wheat Market

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GrainCorp Records $246M Half-Year Profit In Favourable Wheat Market

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  • Russian wheat export constraints and drought conditions in North and South America have tightened global supply
  • 24 cents fully franked dividend includes 12 cents special dividend payable in July
  • $50 M on-market share buy-back to commence shortly
  • FY22 guidance confirmed at $310- $370 million
  • Favourable planting conditions supporting 2022-23 winter crop
  • Extensive supply chain infrastructure assets to drive GrainCorp’s long-term earnings growth.

GrainCorp Limited (GrainCorp or the Company) is an Australian based agribusiness that connects growers with domestic and international customers. GrainCorp’s core business is to receive and store grain and related commodities and provide the logistics necessary to market these commodities through a team of marketers in China, India and Singapore. Outside of Australia, GrainCorp sources from producers in the UK and Ukraine as well as through a joint venture in Canada.

The Company manages a wide range of grains, pulses and oilseeds and produces edible oils, biofuel components and animal feeds, as well as oils and shortenings for the food production industry.

GrainCorp’s interests extend from developing infant formula products, shipping woodchips, collecting Used Cooking Oil to make biofuel components to investing in the development of an eco-friendly new animal feed from Australian seaweed.

GrainCorp’s earnings are leveraged to crop volume, grain prices and Australia’s pricing competitiveness, compared to global pricing.

 Record Half-year Result

 A 25 percent increase in grain handling and elevated grain prices, backed-up by resilient export supply chain infrastructure, has delivered a record half-year Net Profit After Tax (NPAT) of $246 million, for the 6 months to 31 March 2022. This is equivalent to Earnings Per Share (EPS) of $1.07. The NPAT for the previous corresponding period was $74.4 million, and EPS was 22 cents.

Cashflow from operating activities was an impressive $312 million, up from $76 million in the March 2021 half-year. Cash on hand at 31 March 2022 was $311 million, up from $130.8 million at March 2021. Inventory and working capital financing increased to $2,158 million, up from $576 million at March 2021. This increase in short-term debt reflects the substantial increase in grain accumulation from increased volumes and higher values, following 2 consecutive bumper crops during a period of tight global supply. Importantly, this high amount of short-term debt financing reflects efficient asset utilisation, which supports high margins and enhances productivity. Term Debt remained at $150 million, leaving GrainCorp with a core cash position of $129 million at 31 March 2022.

Special Dividend and On-market Share Buy-back

Shareholders have been rewarded with an interim ordinary dividend of 12 cents, fully franked, up from 8 cents for the first half-year of 2021 and a special dividend of 12 cents, fully franked. The special dividend reflects the outstanding half-year result and strong cash flow performance. Both dividends will be paid on 21 July 2022.

Again, supported by the strong cash flow from operations, the planned $50 million on-market share buy-back first announced in November 2021, will commence shortly.

Outlook

Not surprisingly, GrainCorp has confirmed the 2022 financial year guidance announced on 8 April at an Underlying NPAT of $310- $370 million. This estimate may prove conservative. The war on Ukraine has created considerable uncertainty over Ukraine and Russia’s ability to grow and export wheat, at a time when global wheat stocks are at historically low levels, given drought conditions in North and South America. The war has also disrupted supply, given Black Sea trade disruptions that have prompted buyers to seek alternative sources of supply.

GrainCorp enjoys the benefit of resilient supply chain infrastructure assets that underpin the Company’s dominant market position and operating performance. The Company’s extensive grain handling and grain storage infrastructure enables it to carry over grain from previous bumper crops, setting the Company up for the following financial year. This is currently the case where opening grain inventories (‘carry-in’) have increased from 0.7 mmt in the first half-year of 2021, to 4.3 mmt in the first half-year of 2022. Significantly, the recent wet weather patterns have provided excellent planting conditions for the 2022-23 winter crop. This is building confidence in grain supplies from the East Coast of Australia and further supporting export sales and margins in the period ahead.

While the duration and extent of global trade disruptions are providing favourable business conditions for GrainCorp, it is the resilient nature of the company’s supply chain assets and Australia’s capacity to deliver bumper wheat crops following favourable weather conditions, that drive GrainCorp’s long-term earnings growth.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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