WA beef on the menu for ASX-listed ag player

WA beef on the menu for ASX-listed ag player

RURAL Funds Group is set to offload its loss-making poultry operations for $72 million and reinvest in three Western Australian cattle properties.

The ASX-listed agriculture player – whose shares recently took a hit from two short-seller attacks – on Monday said it had agreed to sell its network of 17 poultry farms in southern NSW and Victoria to ProTen Investment Management.

ProTen is a specialist developer and operator of broiler chicken farms with significant industry presence, including in the Griffith region of NSW, where the majority of RFF’s poultry operations are based.

The mooted sale, which also includes 1.43 gigalitres in water entitlements, is just shy of the $74.98 million poultry asset valuation in the company’s FY19 full-year result.

Those documents also show poultry brought in $10.7 million, or 16 per cent, of the company’s $66.4 million revenue for the year.

Rural Funds Group said Monday it will use the proceeds of the sale to pay down debt and shift to what it considers a more lucrative beef cattle market.

“Rural Funds Management has determined that continued investment in (the poultry) sector is better suited to businesses with greater economies of scale,” it said in a release.

Rural Funds has entered into options to acquire three cattle properties north of Perth – Petro, High Hill and Willara – for $22.6 million inclusive of estimated transaction costs.

The properties will be leased to Stone Axe Pastoral.

The leases will be on largely the same terms as existing cattle property leases, including a 10-year term with a rent review in year five.

Settlement is expected to occur April 2020.

“Consistent with other cattle properties acquired by RFF, the WA properties have the potential to improve carrying capacity through grazing area development and additional irrigation,” the company sad.

Upon the anticipated completion of the transactions, RFM will own 19 cattle properties, seven vineyards, two cotton farms, and eight nut operations across Australia.

In a separate note on Monday, Rural Funds Management announced its NSX-listed entity Rural Funds Poultry – which will be wound up on completion of the ProTen deal – would slip to a bigger-than-anticipated loss of $1.83 million in FY20, from a previously forecasted $1.5 million loss.

Rural Funds blamed the wider deficit on increased operating expenses and discounts to grower fees.

This result would follow a $1.97 million loss for RFP in FY19, driven by what the company said was a poor growing performance of older poultry farms, higher maintenance expenses and increased labour costs.

The ongoing cost of upkeep and the looming end of several long-term leases was cited as a driving factor behind RFF’s poultry sector exit, in which controlling entity Rural Funds Management first invested in 2003.

Rural Funds Management on Monday said it had entered into agreements for the early completion of RFP’s leases and growing contracts, and the sale of RFP’s plant and equipment assets.

The agreements are subject to unitholder approval.

The Rural Funds Groups’ ASX-listed shares had climbed by 2.25 per cent to $1.82 by 1315 AEST.

The rise continues a share price rebuild following a report in August by US short-seller Bonitas that wiped $335 million from the company in a single day.

Rural Funds, which is taking Bonitas to court over the allegations of financial impropriety, dropped to as low as $1.36 on the ASX, before copping another hit last month when Hong Kong-based

Bucephalus Research suggested the company was using “creative accounting” to inflate asset values.

Rural Funds has rejected both reports.

Its shares were worth a near historic high of $2.40 in July.