What a horrible 2HFY25 – it truly demonstrated the impact of natural weather events on companies like LAU with its heavy emphasis on horticulture, agriculture and a big need to use the road system where costs pressures exist big time in fuel and labour. 

1HFY25 NPAT of $14.655m or $0.047 eps versus @H of just $2.735m or $0.01 eps! Ironically on much the same Revenue ($422m in 2H and $427m in 1H).

No question about the culprits – cost blow outs (as a % of revenue) have occurred in materials/transport and labour (including subcontractors)- these being the major costs. As a group, these costs as a % of revenue have increased from 78% in 1H23 to now 83.1% in 2HFY25. That 5% ‘nosebleed’ accounts for some $42m in lost NPBT in FY25!

 I don’t doubt for a minute the right of the company to blame competition for an inability to pass on cost increases & natural weather events. Bring on their diversification plan and greater use of intermodal freight, particularly rail.

The only kind thing that can be said about 2H was their ability to bring in the cash (Cash Ops 2H were $46m v just $24m in 1H). Overall, the company is good at capital allocation with net debt to equity at just 3% and this after a massive $76m debt build.

Overall, FY25 for mine, costs LAU the title of a consistently good earner as demonstrated by ROE which has dropped from 18% to just 11% and ROA from a paltry 5% to a very, very underwhelming 2.8%. Maybe LAU is just another agricultural style business reliant on 1 fabulous year out of 7.

That said, LAU do have some things going for them.

Their #1 position in refrigeration and their scale and diversity of usage (road, rail and sea) gives them some competitive distinction and a small moat.

Equally their push into ‘value add’ via packaging & rural wholesaling/retailing via WB Hunter gives them an edge.

Plus, I like their push across the continent to WA and their intermodal use of rail. So I’m hoping FY26 will bring more sunshine, fewer cyclones and rain forced road closures. Also, I’ll be super keen to see them roll out their diversification plan and specifically the bedding down of the SRT acquisition as well as getting costs (materials, transport and labour costs) under control – hopefully less than 82% of revenue!

The key metric for mine is the FY26 improvement in underlying ROIC from FY25 of 14% back up to 20%+  

Overall, I can see LAU (with the benefit of SRT for a full year) churning out an FY26 eps of between 9.5c and 12c – but watch the clouds.