Ridley Corp Ltd (ASX:RIC): A Deep Dive into FY25 Earnings and Strategic Resilience

Ridley Corporation Limited (ASX:RIC) has emerged as a standout performer in the agribusiness sector, delivering robust FY25 earnings despite a challenging macroeconomic environment. With EBITDA rising 8.6% to $97.8 million and net profit after tax up 8.7% to $43.3 million, the company has demonstrated its ability to navigate headwinds while maintaining growth. But does this performance justify its current valuation, and can its strategic positioning make it a compelling long-term buy for income and growth-focused investors?

Financial Performance: Strong EBITDA and Segment Growth

Ridley's FY25 results were driven by its Bulk Stockfeeds segment, which saw an 8% EBITDA increase due to 11% volume growth in ruminant sales. This was fueled by supplementary feeding in Victoria and Tasmania, where dry conditions and high milk prices boosted dairy and sheep feedlotting demand. The Packaged Feed and Ingredients segment also contributed, with a 5% EBITDA rise, albeit amid challenges like lower tallow and meal prices and export restrictions on poultry products.

The newly acquired Fertiliser segment—purchased for $300 million from Incitec Pivot—has yet to contribute meaningfully to FY25 results but is positioned to drive growth in FY26. Ridley's management has emphasized its potential to diversify revenue streams and enhance margins, particularly in the packaged and ingredients segment.

Valuation Metrics: A Premium with Justification?

Ridley's trailing P/E ratio of 24.12 and forward P/E of 18.17 place it in the upper range of its industry peers. Its EV/EBITDA of 15.83 is higher than Bunge Ltd (6.5) and Ingredion Inc (7.0) but lower than K Kuala Lumpur Kepong Bhd (10.3). While these multiples may seem elevated, they are offset by strong cash generation and a net cash position of $64.7 million.

A key argument for the valuation lies in the 32% undervaluation implied by its base case relative value of $4.30 per share versus the current price of $2.91. This discount reflects short-term challenges in the Packaged segment, such as poultry meal inventory backlogs and tallow price volatility. However, the company's 50-70% dividend payout ratio and a final dividend of 5 cents per share (9.75 cents full-year) underscore its commitment to shareholder returns.

Operational Resilience and Diversification: A Strategic Edge

Ridley's operational resilience is anchored in its geographic and product diversification. The company has expanded into Southeast Asia and New Zealand, reducing reliance on any single market. Its recent acquisitions—such as the Carrick Feedmill in Tasmania and the Incitec Pivot Fertiliser business—add scale and diversify revenue sources.

The FY25 1H investor presentation highlighted Ridley's supply chain optimization and digital transformation efforts, which enhance efficiency and reduce costs. For example, the Clifton Feedmill debottlenecking project increased capacity, while improved logistics networks mitigate disruptions. These initiatives align with the company's four Sustainability Pathway pillars: Smarter Ingredients, Optimised Production, Effective Solutions, and Meaningful Partnerships.

Risk Management and Long-Term Outlook

Ridley's risk management framework is robust, addressing supply chain volatility, regulatory changes, and ESG pressures. The company's ESG risk rating (ranked 457 out of 540 in its industry) highlights areas for improvement, but its 2030 Sustainability Commitments—aligned with seven UN SDGs—signal a proactive approach to environmental and social governance.

Looking ahead, Ridley's management anticipates margin improvements in the Packaged segment and volume growth in Bulk Stockfeeds, supported by the integration of the Fertiliser business. The CFO noted that tallow prices have risen to $1,750 per ton from $1,350, offering upside potential for FY26.

Investment Thesis: A Buy for Income and Growth

For income-focused investors, Ridley's dividend yield of ~5.5% (based on a $2.91 share price and 9.75 cents full-year dividend) is attractive, especially with a payout ratio within its 50-70% target range. Growth investors should focus on the Fertiliser segment's potential and the company's ability to leverage its balance sheet for strategic acquisitions.

While short-term headwinds in the Packaged segment persist, the long-term outlook is positive. Ridley's operational resilience, diversification, and disciplined capital allocation make it a compelling buy for those with a 3-5 year horizon. The key risks include prolonged tallow price declines and integration challenges with the Fertiliser business, but these appear manageable given the company's track record.

Conclusion

Ridley Corporation's FY25 earnings underscore its ability to generate strong cash flows and adapt to market pressures. While its valuation multiples are elevated, the company's strategic positioning—through diversification, operational efficiency, and a robust balance sheet—justifies the premium. For investors seeking a blend of income and growth, Ridley offers a compelling opportunity, provided they are willing to navigate near-term volatility for long-term value creation.