Macadamia Orchard Projects Will Fortify Long Term Agribusiness Value

Key Takeaways

• Completion of major macadamia projects and capital recycling into higher-yield assets will drive rent growth, improve portfolio quality, and boost future earnings.
  
• Long-term, index-linked leases with strong agribusiness tenants ensure stable, inflation-resistant income, with global food demand and water asset focus supporting ongoing revenue growth.
  
• Weak earnings momentum, high financial leverage, limited asset revaluation upside, interest rate exposure, and concentrated sector risks threaten long-term growth and balance sheet resilience.

Catalysts

An agricultural Real Estate Investment Trust (REIT) listed on the ASX under the code RFF.

• The completion of large-scale macadamia orchard developments, now leased to a global institutional investor, is set to generate significant rent growth (forecasting $20 million revenue in FY26, +18% YoY) and incremental earnings as further CapEx and lease indexation mechanisms are rolled in, supporting long-term revenue and cash flow growth.
  
• Ongoing capital recycling-through divestment of lower-performing or non-core assets and reinvestment in higher-yielding development projects (e.g., irrigated cotton at Kaiuroo and additional macadamia orchards)-is expected to enhance overall portfolio quality, improving rental income, asset value, and future earnings.
  
• RFF's long average lease term (WALE of 13.9 years) with predominantly blue-chip agribusiness tenants ensures predictable, inflation-resistant rental income due to index-linked lease structures, stabilizing cash flows and supporting earnings visibility even in volatile markets.
  
• Increasing global demand for food, particularly in Asia, combined with rising agricultural commodity prices for key products like macadamias, cattle, and cotton, underpins both tenant stability and long-term rent growth, benefiting revenue and reducing vacancy risk.
  
• The strategic focus on irrigation and water infrastructure, along with the growing value of high-quality, well-irrigated agricultural assets amid climate change and water scarcity, positions RFF's property portfolio for long-term appreciation and higher net margins through enhanced tenant demand and lease rates.

Rural Funds Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rural Funds Group's revenue will decrease by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.8% today to 42.5% in 3 years time.
• Analysts expect earnings to reach A$50.9 million (and earnings per share of A$0.13) by about September 2028, up from A$31.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.3x on those 2028 earnings, down from 23.7x today. This future PE is greater than the current PE for the AU Specialized REITs industry at 19.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.98%, as per the Simply Wall St company report.

Rural Funds Group Future Earnings Per Share Growth

Risks

• Ongoing slow growth in adjusted funds from operations (AFFO), with just 2% increase forecasted for FY '26 and management acknowledging that recent years' low FFO growth is unsatisfactory, indicates a risk of continued weak earnings momentum, impacting long-term earnings and share price recovery.
  
• The ability to fund substantial CapEx hinges on successful execution of planned asset divestments; if asset sales fall through or are delayed, management would need to either significantly increase gearing (already elevated at 46%) or curtail development expenditure, putting pressure on balance sheet strength, revenue growth, and capital flexibility.
  
• Management highlights that agricultural property values have appreciated substantially over the past several years and anticipates limited further land value appreciation near-term due to already elevated prices, suggesting little upside for net asset value (NAV) growth and potential risk of negative revaluations if market conditions worsen.
  
• Interest rate risk remains material despite hedging: only 69% of debt is fixed; if rates remain higher for longer or hedges roll off into a less favorable environment, net interest costs could rise, depressing net margins and reducing distributable earnings.
  
• Heavy exposure to the success of macadamia and cattle developments and to agricultural commodity prices introduces concentration and market risk; a significant portion of future revenue growth depends on securing tenancies for newly developed orchards, while any downturn in commodity prices or rental market for these specific assets could lead to underperforming revenue, asset writedowns, or increased vacancy.

Valuation

• The analysts have a consensus price target of A$2.216 for Rural Funds Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.45, and the most bearish reporting a price target of just A$1.93.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$119.8 million, earnings will come to A$50.9 million, and it would be trading on a PE ratio of 21.3x, assuming you use a discount rate of 8.0%.
• Given the current share price of A$1.91, the analyst price target of A$2.22 is 13.8% higher.
• 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.