A tech overhaul by a leading Australian agribusiness has seen its share price hammered despite the company delivering higher first half profit and revenue.
Elders made $1.77 billion in underlying sales revenue in the six months to March 31, up 32 per cent from a year ago.
Its statutory profit was up 5.9 per cent to $39.5 million, its underlying profit after tax climbed 13 per cent to $37.9 million, and its underlying earnings before interest and tax rose 33 per cent to $76.6 million.
Elders chief executive and managing director Mark Allison said the results were solid but investors seemed to think otherwise, with Elders shares diving 24.4 per cent to $5.44 by midday on Monday, their lowest level since 2019.
Bell Potter analyst Jonathan Snape said on an earnings call that the plunge seemed to be caused by a $15 million jump in Elders' corporate services costs, which totalled $57.8 million in the six months to March 31, compared to $42.5 million a year ago.
"They look like they're out of control," Mr Snape said of the corporate overheads.
Elders said the cost increase was the result of a multi-year project it is engaged in to modernise its computer system, which is currently a custom-built 34-year-old database that runs on IBM mainframes from the late 1980s. The aging computer systems will be replaced by a cloud-based service.
Mr Allison said the project was on track to finish at the end of 2026, but until then the Adelaide-based company was trying to avoid releasing contractors in case it needs them again.
"There are a lot of contractors in this team, as you can imagine, and particularly in Adelaide, there's significant competition with other major IT projects for these specialties," he said.
"It may be best to overrun by three months to keep them on, because once their contract starts to come to an end, they'll be looking for another role, and that may slow the project."
Elders said that while diesel prices had eased from the highs experienced in March, elevated diesel prices remained a risk to the company's cost base in the second half.
Elders expects to complete the $196 million sale of its Killara feedlot in regional NSW to Australian Meat Group in the second half.
