Fertilizer Distribution And Global Feed Demand Will Strengthen Supply Chains

Key Takeaways

• Diversification through fertilizer and premium pet food, plus portfolio streamlining, strengthens revenue stability, margin growth, and operational efficiency.
  
• Strategic focus on innovation, regulatory compliance, and international expansion positions Ridley for sustained market share gains and elevated earnings.
  
• Expansion into fertilizers and volatile agribusiness markets heightens operational complexity, supply risk, and margin pressure, while persistent industry headwinds challenge sustained earnings growth.

Catalysts

Engages in the provision of animal nutrition solutions in Australia the United States, New Zealand, and Thailand.

• Ridley's expansion into fertilizer distribution through the acquisition of Incitec Pivot Fertilisers and its integration plans will further diversify revenue streams, strengthen supply chain resilience, and increase exposure to domestic food security initiatives, supporting long-term revenue growth and margin stability.
  
• Structural growth in protein demand from rising middle classes in Asia and Africa, combined with Ridley's focus on value-added feed products (including recent innovations and international market expansion, such as new pet food opportunities in Asia), is likely to drive sustained volume and margin growth across key segments.
  
• The company's deliberate portfolio reset-exiting lower-return operations, streamlining costs, and reinvesting in modernization (including a new OMP facility and supply chain efficiencies)-will enhance operating leverage and net margins in future periods.
  
• Ongoing momentum towards premiumization in pet food, combined with capacity repurposing at Narangba and the launch of Oceania Petfood Solutions, will shift more sales to higher-margin products, supporting margin expansion and top-line growth.
  
• Sector-wide trends favoring established players with compliance records-such as rising regulatory standards in feed safety and increasing ESG scrutiny-position Ridley to consolidate share and secure premium pricing, benefitting long-term earnings and net margins.

Ridley Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ridley's revenue will grow by 25.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.3% today to 2.8% in 3 years time.
• Analysts expect earnings to reach A$72.2 million (and earnings per share of A$0.2) by about August 2028, up from A$43.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$62.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, down from 26.1x today. This future PE is greater than the current PE for the AU Food industry at 16.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

Ridley Future Earnings Per Share Growth

Risks

• The integration of Incitec Pivot Fertilisers entails significant supply chain complexity and longer commodity shipping cycles compared to Ridley's core feed business; this exposes the company to elevated price and supply volatility in global fertilizer markets, which could negatively affect long-term revenue stability and net margins.
  
• Ongoing depressed prices for poultry meal and meat and bone meal due to export restrictions and domestic oversupply are creating earnings headwinds-there is no clear timeline for market normalization, suggesting that ingredient recovery margins and Packaged and Ingredients segment earnings remain under pressure in the medium term.
  
• Revenue growth in Bulk Stockfeeds during FY '25 was heavily aided by supplementary feeding demand driven by drought conditions in southern Australia-this supplementary demand is highly variable and not a reliable long-term earnings driver, increasing the risk of revenue and EBITDA decline if weather returns to more typical conditions.
  
• Company-acknowledged operational constraints, such as limited processing capacity following volume gains from partners like A.J. Bush and the need for ongoing debottlenecking investments, introduce risks of underutilised assets and operational inefficiencies, which can weigh on net margins if not fully resolved.
  
• The business model's expansion into fertilizer distribution increases Ridley's exposure to geopolitical, macroeconomic, and regulatory risks affecting global fertilizer trade (e.g., import disruptions, compliance costs, environmental regulation changes), potentially leading to input cost inflation, higher working capital demands, and reduced overall earnings predictability.

Valuation

• The analysts have a consensus price target of A$3.21 for Ridley based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$2.6 billion, earnings will come to A$72.2 million, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of A$3.02, the analyst price target of A$3.21 is 5.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.