Investment talk often centres around the potential for a Dining Boom to post big profits on the back of global demand for Australian foodstuffs, although few public companies have delivered on this potential so far.
Agribusiness Elders Ltd (ASX: ELD) is a good example of the problems in the sector although after a restructure, asset sales and $57 million capital raising to reduce debt it's now exhibiting some turnaround potential.
Today the company swung to a $15.9 million profit for the six months ending March 31 2015, compared to a $10.2 million loss in the prior corresponding period (pcp). The company also reduced its net debt 63% compared to the pcp.
The stock lifted 18 cents or 5.6% to $3.36 on the news and has been caught in an updraft for much of the past year.
One of Australia's oldest businesses, Elders provides agency services for farmers looking to bring foodstuffs and livestock to the market, while also selling farm supplies and fertiliser products.
The business benefited from an uplift in livestock prices in the first half of its financial year, with prices expected to remain strong amidst a forecast for positive operating conditions.
The group forecast a moderate outlook for sugarcane, grain, oilseed and cotton prices in the years ahead, although Australian fruit and nuts are expected to see solid price rises. Livestock and wool prices are expected to remain strong primarily due to surging global demand in particular from Asia's growing middle class.
Another tailwind for the agricultural sector is government support through budgetary reforms and free trade agreements with China and Japan. The real kicker though is the falling Australian dollar, which is a phenomenon that could provide further support given the soft outlook for the local economy.
Elders then appears to have potential based on the prospect of strong international growth as an exporter, but that potential will mean little unless it is able to deliver on its ambition to transform its operational performance.
Other businesses in the fertiliser and agriculture space include Incitec Pivot Ltd (ASX: IPL) and Australian Agricultural Company Ltd (ASX: AAC). Both of which have also been fingered by analysts recently for their turnaround potential thanks to strong beef prices among other things.
There's no need for smart investors to go chasing turnaround stocks though, especially when they could buy a gangbusters growth stock on an attractive valuation.
