Shares of diversified grain company, Graincorp Ltd (ASX: GNC), drifted marginally lower today on the back of the release of its annual report this morning.
In the year ended 30 September 2015, Graincorp reported mostly flat revenue year-over-over, at $4,085 million, but a net profit of just $31.1 million, down 36% from 2014's result.
A final dividend of 2.5 cents per share was declared, taking the full-year payment to 10 cents. Down from a full-year payout of 20 cents per share last year, the final dividend is payable on 15 December 2015. As an aside, in 2012 Graincorp paid total dividends of 65 cents per share.
"Solid performances from our processing operations have reduced the impact of the challenging conditions faced by our grains businesses," CEO Mark Palmquist said. "Our processing businesses contributed approximately 85% of our earnings in a year constrained by a much smaller crop in eastern Australia – a clear demonstration of the importance of our commitment to diversification."
Graincorp's Malt business was the strongest performing line, with earnings before interest, tax, depreciation and amortisation (EBITDA) of $140 million, compared to $125 million last year. "I am pleased to report GrainCorp's Malt business continued to perform strongly, thanks to continued high capacity utilisation and further improvements in underlying performance being delivered through efficiency projects," Mr Palmquist said.
Each of Graincorp's other operating segments saw reductions in profit year-over-year.
Outlook
Mr Palmquist said the coming year would be challenging although he hinted that the Marketing business could return to profitability.
"Conditions are likely to remain challenging next year, with a very low carry-in of 1.6 million tonnes and another smaller crop likely to limit export opportunities from eastern Australia. We do, however, expect a return to more typical grain marketing patterns in Australia due to lower year-on-year levels of export bookings relative to expected production."
Buy, Hold or Sell
Graincorp shares fell 1% to trade around $8 following the release of its annual report. While the result was somewhat expected, today's update is a reminder that it's been a tough couple of years for investors in Australia's leading grains business.
Although the business should be in prime position to capitalise on the rise of Asia's growing middle-class and another takeover offer shouldn't be ruled out, I'd be a little hesitant to invest much of my money in Graincorp shares at this time. With a potential El Niño event looming, holding onto weather-dependent agriculture stocks could be costly unless you're willing to stomach volatility and hold on for the ultra-long-term.
Nevertheless, if you are seeking exposure to agriculture, I think Select Harvests Limited (ASX: SHV), Webster Limited (ASX: WBA) and even A2 Milk Company Ltd (ASX: A2M) could be worthy of closer inspection.
