A wise man once said be slow to buy and even slower to sell. I’ve been very patient here. Too patient in hindsight. Today I’ve exited Lindsay Australia.

The original thesis was straightforward. Build scale, diversify earnings, and let operating leverage drive margin expansion.

Revenue is up strongly and the business is larger post SRT and Hunter Acquisitions. But that growth has not translated into better economics. H1 FY26 again showed the same pattern. Revenue up 24.8 percent, EBITDA up 16 percent, and NPAT barely moving once depreciation and interest are accounted for.

That is not just a capital structure issue. It is an execution issue.

The H1 result made it clear. Costs ran ahead of revenue, management did not push hard enough to contain them or price aggressively enough to offset them. In a low margin freight business, that’s a killer. Growth without discipline just dilutes returns.

Looking back, my thesis leaned too heavily on scale leading to pricing power. That has not been proven.

Fuel shock and RTCCO

The recent fuel shock complicates things further.

The Road Transport Contractual Chain Order, or RTCCO, introduced in April 2026, mandates fortnightly fuel cost recovery across road freight contracts. It overrides fixed price agreements and effectively forces customers to absorb fuel increases.

That helps LAU. But it helps everyone else too!

It is defensive, not strategic. It protects margin on road. It does not create pricing power. It also does nothing for rail, which is where LAU has been growing fastest.

Where is the pricing power?

This is the key question, and I have tried to answer it properly.

I have looked for real world signals in industry forums, ag supply chain chatter and freight commentary. If LAU was pushing hard on price, you would expect to see some real noise. I cannot find it. There are no clear leading indicators that LAU is aggressively resetting pricing. Are they wasting a crisis or just with everything going on in Aus jammed between a rock and a hard place?

My uncomfortable conclusion

This is now a business that has grown scale and increased complexity and taken on more debt, but has not proven it can defend margins. I’ve lost my conviction!

At current prices it does not look expensive. But cheap with deteriorating margins, rising interest costs, uneven protection across segments and a management team that has not yet shown a hard commercial edge is not the kind of setup I want to sit in.

So I am out. In exiting, I am crystallising an A$85k loss. Which of course means the share price will almost certainly go up from here….. My loss is very likely your gain. You're welcome.

Cheers

JM

A wise Strawman once said, be slow to buy and even slower to sell… so I’m certainly being patient with Lindsay Australia.

If you’ve followed previous LAU posts here and here, you’ll know myself, @Rick and @PortfolioPlus have ridden LAU through sunshine, cyclones and a fair bit of self-inflicted pain.

HY26 feels like another chapter in the same book.

Revenue is up strongly (thank you SRT), scale is improving, diversification is real. On paper, the strategy makes sense: build national cold-chain dominance, expand rural footprint, push intermodal rail, chase operating leverage.

But the uncomfortable truth, margins are thinner. Statutory earnings are down. Cash conversion is soft. NTA has taken a whack. Leverage has crept above the comfort zone. And the cost lines of materials, subcontractors, labour still looks like they’ve had one too many long lunches. All of that led to Statutory EPS crashing to 3.6cps (presented as 4.3cps underlying).

Now here’s where it gets awkward. As part of my original buy due diligence, I spoke to two close relatives who worked with LAU CEO, Clay McDonald when he was senior at Aurizon. Both said he was a top operator. One told me how during North Queensland floods he went out of his way to look after staff, moving people, supporting families, genuinely decent leadership stuff.

That matters. Culture matters.

But looking at these numbers, I’m starting to wonder whether Clay might just be too nice a bloke.

Freight is a brutal, competitive game. When costs blow out and you can’t pass them through, margins evaporate. You don’t get paid for being well liked, you get paid for controlling cost per kilometre.

To be fair, management is investing for the future. Rail expansion. SRT integration. Rural scale. IF the diversification plan beds down and ROIC lifts back toward 18–20%, this year may look like the messy middle of a good story.

If…. Is a poem by Rudyard Kipling!!

Cheers

JM+Chatty

PS... I'm probably leaning into my patient investor vibe a bit too much here!!

This morning Lindsay Australia posted a decent set of numbers. But the share market does not approve and is currently thumbing it’s nose at my Straw from last Thursday. What I don’t approve from this morning’s release is the use of “underlying” numbers as, for me, it instantly lowers management’s credibility as I assume they are trying to hide something, in this case for absolutely no real reason at all.

The new CEO spoke very well on the call, answered questions well and seems like a decent guy... so why use a fake set of numbers! 

It is impossible to really know why the short term voting machine behaves as it does, but I hold ABB in real life which had a wonderful reaction to it’s earnings release on Friday but not so for LAU today. They are currently similar sized businesses from a Revenue perspective, but the market sees them so dramatically different I’d thought I’d compare the numbers. 

Clearly Mr Market likes the future prospects of ABB a whole lot more than LAU.

Or is it a management credibility issue?

Why on earth would you use a set of underlying numbers when there is F’all difference and in the case of your headline statutory EBITDA number (which I’m not a fan of) is actually $7m higher. 

I’m a long term investor so happy hold while I wipe the egg off my face, in fact if it keeps dropping I’ll buy some more.

I should add the caveat that the comparison with ABB isn't obviously apples for apples with the recent acquisitions for both companies making the comparison hard.

For my first post on Strawman since joining I’m writing about an interesting transport company Lindsay Australia (LAU) which is hopefully about to post a decent result.

Full disclosure, I only recently came across LAU via a standard value stock screener which was simply PE<10, 5Yr PEG>10%, Divi Yield >5%, Debt/Equity <60%. I don't know anyone who works at Lindsay, I've never worked for a customer or supplier, and I haven't attended any of their meetings (yet), rather this analysis has all been online, from Singapore, and a few conversations with people who have delt with the company.

Lindsay will report H1 next Monday (26^th Feb) hence my timing for posting this article. I have purchased LAU in real life and with my Strawmoney.

LAU is a Road and Rail logistics provider leveraging its strong relationships in the agricultural sector via its Rural supplies business. Despite sounding a bit like LinFox, it is not as foxy!

In the twenty years since listing, LAU has managed to grow revenue a respectable 12% CAGR. In the last two years it has averaged 31.5% growth in the higher margin Transport business which accelerated ROCE to 15.9% up from 5.2% 3 years ago. Lindsay doesn’t boast comparative growth metrics, or the unique culture of a competitor like NZ’s Mainfreight but it isn’t priced at 24x forward earnings either. In FY23 Lindsay delivered $676m in Revenue and $81m in PBT and is now trading at ~10x earnings. That multiple is ~50% cheaper than its relative PE multiple over the last decade (excluding the COVID years).

Looking forward, what I think makes Lindsay attractive is two timely acquisitions. In August 2023, Lindsay acquired WB Hunters, a rural supplies business, dramatically expanding Lindsay’s footprint along the NSW - VIC border. That acquisition should add ~$90m in product sales and ~$5m in EBITDA in FY24. More importantly that acquisition grows Lindsay’s network with Horticultural customers in a new geography. Lindsay has been successful at creating one touch point for Farmers to get their product to port. In FY23 farming customers drove 55% of Lindsay’s transport revenue. This acquisition positions LAU to cross sell it’s higher margin transport services into Hunter’s rural customer base. 

With interest rates rising sharply the tide of business is on the way out, luckily, Lindsay has improved its balance sheet over recent years and won’t be caught swimming naked. That is not the case for all logistics players, in March 2023 Lindsay acquired $22m of Road and Rail assets from the disorderly liquidation of Scott’s Refrigerated Logistics. The acquisition included 44 Prime Movers and 350 rail containers, effectively doubling LAU’s presence in Rail. Those two acquisitions should boost FY24 results, particularly the upcoming H1 results.

Unfortunately, there are some unknowns which make this opportunity more speculative that I would otherwise like. After 20 years as CEO, Kim Lindsay retired just before the end of FY23 having delivered a cracking result. LAU isn’t a fan of publishing too many operational metrics like Asset Utilisation, so we will only get a clearer view of the quality and sustainability of recent earnings over time, which is disappointing.

It is also worrying that after 20 years as CEO there wasn’t an internal succession candidate that shareholders could have become familiar with as part of a smooth handover. Clay McDonald was appointed CEO in July. Clay appears to have a good operational background from years at Aurizon and Toll, which bodes well for the Rail business and Australia’s future Inland Rail corridor.

His wealth of experience should help him get on top of Lindsay’s largest cost challenge, which is that Australia’s tight labour market that is skewing the mix of permanent employees and flexible but expensive subcontractors. In FY23 Revenue grew 22% but Subcontractor costs grew 44%.

The biggest risk to me is simply that Clay is an unknown. I’ll tune in for the H1 report on Monday and that should throw light on how the Hunters and Scott’s acquisitions have settled in and how the new CEO is seeing the future.

LAU isn’t covered by many analysts, my feeling is that LAU’s share price has been supressed by economic uncertainty and is lumped in with the consumer discretionary vibe that the sky is about to fall in. Food isn’t that discretionary!

For now, the margin of safety afforded by the current valuation allows for a smallish position, which I have taken up.

BTW, Soul Patts is the largest shareholder, so there is some comfort knowing you’re investing alongside Australia’s best.

My favourite quote from Andrew, you can borrow my idea, but you can’t borrow my conviction. I would appreciate feedback and insights on LAU and the rural / transport industry in general if any of our members deal with them. I’m an Aussie from Darwin but between London and Singapore I haven’t lived in Aus for 20 years so worry I'm not 100% in touch with the vibe.

I’m happy to be proven wrong. It won’t be the first time!

Cheers

JM