At first glance, it’s surprising to see a 5.3% gain in the share price in trading this morning. GrainCorp [ASX:GNC] posted a 34% decrease in net profits after tax (NPAT) and signalled a drier season ahead.
But looking at the FY23 report, we can see solid results from the East Coast growers. The company improved their balance sheet and returned high margins and volumes.
These results still fell below FY22 as demand for Australian commodities rose after the invasion of Ukraine.
Ukraine is one of the world’s largest exporters of corn, wheat, and sunflower oil. The shock invasion brought exports to an overnight standstill, favouring Australian growers. Investors looked beyond the comparison to last year and bought today, pushing the market cap to $1.72 billion.
Shares of the company are currently up by 4.2%, trading at $7.71 per share. That sees the company outperform the sector for the year but fall -1.53% for the past 12 months.
Source: TradingView
GrainCorp’s FY23 results
GrainCorp’s NPAT landed on analyst expectations at $250 million for the 12 months to September, while revenues rose 4.6% to $8.23 billion.
While these paled to the record NPAT of $380 million in FY22, they remained well above the company’s averages.
GrainCrop reported EBITDA from its agribusiness segment of $401 million, down from $624 million.
This was due to lower volumes of grain handled at 37.4 million metric tonnes (mmt) in the year, down from a record 41.1mmt last year.
Almost all company performances were down from FY22, including margins and return on capital, but still above norms.
GrainCorp’s Managing Director & CEO, Robert Spurway, commented:
‘GrainCorp delivered another outstanding result in FY23, with both Agribusiness and Processing business segments contributing positively to our performance. The result clearly reflects our disciplined focus on operational performance, the capability of our people and the momentum we continue to build.’
Oilseed crush volumes were the main result that improved in FY23. GrainCorp hit a record of almost 500,000 tonnes of seeds processed in the year.
The company has increased throughput volume for the fifth consecutive year with heavy investment. GrainCrop is planning a new oilseed crush plant in WA with a capacity of 750kmt–1mmt.
GrainCorp also announced plans to acquire Performance Feeds and Nutrition Service as part of its sustainability strategy.
‘Agricultural feedstocks will play a critical role in the country’s transition to renewable fuels and a lower carbon economy,’ Mr Spurway said.
GrainCorp will pay a fully franked special dividend of 16 cents and a final dividend of 14 cents. Ending the year with 54 cents per share.
Outlook for GrainCorp
GrainCorp finishes the fiscal year in a strong position. With a core cash balance of AU$349 million at the end of FY23, the company cut debt by 31% over the year to AU$373 million.
This will allow the company to explore growth opportunities to drive better returns.
GrainCorp may face some challenges with the El Niño conditions in the northern half of Australia’s East Coast this season. GrainCorp said the harvest started early due to the drier start but is going well with ‘excellent quality across all commodities’.
GrainCorp is confident in their forecasts and withstanding the conditions and even unveiled a $50 million share buyback.
‘We expect crush volumes to remain high, whilst margins are anticipated to moderate,’ Mr Spurway said
For Australian growers like GrainCorp, the Chinese barley tariffs forced many to pivot. China lifted the tariffs in August this year, but many farmers had already switched crops.
In 2020, many farmers favoured canola crops. The timing couldn’t have been better, with surging demand and prices. Even those who stuck to barley saw bumper crops and demand elsewhere.
Source: TradingEconomics
Canola oil is in food products, biofuel and protein-rich foods for animal feed.
For GrainCorp, the investment in oilseed has paid off and is now a clear direction moving forward.
‘The assessment of new crush capacity is an ongoing priority, as we continue our positive engagement with both upstream and downstream partners,’ Mr Spurway said.
The acquisition and new WA plant will see them strategically shift towards agri-energy and animal feedstock. These are part of its sustainability goals but make financial sense as demand for oilseeds remains strong.
We expect GrainCorp to continue its push into the WA market and join the young biofuels market.
Are biofuels worth pursuing?
The total value of biofuel production is $100 billion globally. This production has grown by 55% over the last decade and is forecast to double by 2030.
The US is the biggest exporter of ethanol biofuels, with a market share of over 35%. However, sugar prices — which are used to produce ethanol — have doubled since 2021.
This is just one of the issues facing this young market, with other products like canola oil leading to sharp rises in farm input costs. This adds to our food security concerns.
60% of canola oil in Europe is for biofuel production. Due to recent food price increases, there is now pressure on the European Parliament to ban food crops in biofuels.
Of course, it’s never as simple as that. Lowered emissions could help in other parts of the economy, but the transition will never be easy.
That’s what Editor Greg Canavan has been looking at recently. He thinks the push towards Net Zero has gotten out of hand and has put us on a path of ruin.
Looking at cost overruns and failed renewable targets, he thinks we will soon return to ‘traditional’ energy sources.
He’s written a report outlining why things will have to change and five stocks that could benefit which aren’t oil and gas companies.
Click here to learn how to access the free report.
Regards,
Charlie Ormond
For Fat Tail Daily
