THE Elders roller-coaster is in the midst of an upswing, with 20 per cent of the company changing hands in frenetic trading that led shares to close up 9.5¢, at 71.5¢, yesterday.
That's quite a turnaround from the dark days of June, when a massive profit downgrade fuelled concerns that the rural operation could be in breach of bank debt covenants before long. It seems the company's stars have become slightly less misaligned in recent weeks.
While there is sure to be a day-trader element at play, investor appetite has been partially restored by the expectation that skyrocketing global grain prices will go some way towards solving the Elders profit woes as many farmers will soon be better placed to spend up on agricultural supplies.
And while the company's unwieldy collection of businesses and poor recent performance render takeover interest unlikely, Agrium's enthusiasm for AWB's rural merchandising operations has put the listed farming sector into play.
More immediately, it seems the catalyst for yesterday's rally was the emergence of Mathews Capital, a Sydney-based hedge fund, as an 8.15 per cent shareholder.
Run by Phil Mathews, Mathews Capital is no ordinary investor. The group made headlines in 2008 when Mathews booked a billion-dollar profit in a single month after punting on 2013 delivery oil futures.
With a pedigree in energy speculation, Mathews looks to be developing an increasing interest in out of favour agribusiness. His fund recently bobbed up with a 13.3 per cent shareholding in Gunns.
One motivation for Mathews's recent buying could be a strong profit result released by Rural Bank a fortnight ago. Forty per cent owned by Elders, Rural Bank's profit was up 23 per cent at $55.4 million.
Following the strong result, Elders watchers are increasingly hopeful that the Rural Bank interest might be saleable on good terms to majority shareholder Bendigo and Adelaide Bank.
There is no doubting the quality of the old-fashioned Rural Bank operation, where retail banking deposits represent more than 98 per cent of the funding base, and Bendigo and Adelaide Bank has flagged that it is ready to consider strategic acquisitions.
Of course, with only one buyer, any sale would be a test of Elders boss Malcolm Jackman's negotiation skills. The last time Elders sold part of the Rural Bank interest was when markets were at their depths in May 2009.
That deal was struck on 7.5 times earnings, which should provide a floor for any future sale. With optimists suggesting a sale multiple of 10 times might be achieved, a sale of the Rural Bank interest could free up as much as $220 million. With net debt at the end of May of $394 million, a sale on those terms would resolve concerns over the ability of Elders to manage its debt pile.
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