Cattle prices and Delta Ag did the heavy lifting while leverage at 3.8x still needs fixing
Elders Limited (ASX:ELD) delivered its 2026 half-year result today, with underlying EBIT of A$76.6 million, a 33% lift on the prior corresponding half. Strong livestock prices, a firm cattle market and the first five months of Delta Agribusiness earnings did most of the work.
On the surface the numbers look clean. Sales jumped 32% to A$1.77 billion, gross margin rose 27% to A$396.6 million, and cash conversion came in at a striking 177%, well ahead of the 93% recorded in the prior half.
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Look under the hood and the picture is messier. Return on capital slipped from 12.6% to 10.7%, leverage almost doubled to 3.8 times, and net debt now sits at A$621.6 million after the Delta Ag acquisition.
Management’s pitch is that the second half fixes most of this. Delta Ag earnings skew to H2, the Killara feedlot divestment brings A$195.8 million of proceeds, and working capital unwinds after the winter crop peak.
Why the headline EBIT number flatters the underlying business
The 33% EBIT lift is genuine, but it is heavily skewed by two factors that investors should price carefully. The first is cattle prices, which rose roughly 32% year-on-year and pushed agency services gross margin up A$11.2 million. That is a market tailwind, not a structural improvement.
The second is the inclusion of five months of Delta Ag, contributing A$10.4 million of EBIT off A$348 million of sales. Strip those out and the rest of the business is broadly tracking, with Elders Real Estate the other genuine bright spot thanks to a 21% lift in residential turnover.
Our concern is that gross margin percentage actually fell from 23.4% to 22.4%. Mix shift toward lower-margin wholesale via AIRR and Delta Ag explains part of it, but it means the next leg of earnings growth must come from cost and capital efficiency, not just price.
The leverage problem is real but the path back to target is credible
Net debt of A$621.6 million and leverage of 3.8 times sits well above the company’s 1.5 to 2.0 times target band. Banking covenants still have meaningful headroom at 2.5 times, so this is not a covenant story, but it does limit strategic flexibility.
Three things are supposed to fix it by year-end. The Killara sale proceeds land subject to regulatory approval, working capital unwinds from the A$803.6 million winter-crop peak, and a full second half of Delta Ag earnings drops into the EBITDA denominator.
Management’s normalised leverage of 2.6 times once Killara completes looks achievable. Getting under 2.0 times requires the working capital unwind to actually arrive, and that depends on weather and on client lending shifting to third party lenders.
Systems Modernisation is finally near the finish line
The SysMod program has been a multi-year capex drag on returns. Wave 3 went live during the half, Wave 4 design completed in May, and the legacy AS400 platform is targeted for retirement in 2027.
That matters because corporate costs rose sharply this half partly due to running dual platforms. Once Wave 4 implements and the AS400 sunsets, those duplicated IT costs come out and the ROC normalisation Elders has been promising starts showing up in reported numbers.
The Investors Takeaway for Elders Limited
The first half result is messy in exactly the way you would expect when a company is digesting a major acquisition and divesting a non-core asset at the same time. The underlying read is reasonable, the strategic logic of the Delta Ag deal is intact, and the A$8 million FY26 synergy target looks on track.
What investors should watch in the August result is leverage actually moving toward 2.0 times, Delta Ag’s seasonally weighted H2 earnings landing as guided, and any sign that gross margin percentage is stabilising. The 18 cent fully franked interim dividend signals board confidence, but the payout ratio sitting above target tells you the company knows the second half needs to do real work.
Investors looking for more coverage of ASX-listed agribusiness names can find ongoing analysis at stocksdownunder.
