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Origin Enterprises shares rise, as dairy, sterling lift profits

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Shares in Origin Enterprises rebounded after the group unveiled a bigger-than-expected rise in earnings, helped by the boost takings to its Ireland and UK division from a weaker pound and an improved dairy market.

Shares in the Irish-based group stood 3.9% higher at E6.42 in morning deals in Dublin, extending their recovery from a six-month low set earlier in September.

The gains followed the release of results showing that Origin Enterprises, owner of the Agrii agronomy chain, achieved a 4.8% gain to E58.83m in underlying earnings for the year to the end of July.

The earnings, on revenues up 0.5% at E1.53bn, were equivalent to 46.6 euro cents per share, a little ahead of the guidance of a result of 44-46 cents per share.

The results were termed "solid" by Dublin-based broker Davy, which said that it was raising by 2-3% its forecasts for Origin Enterprises 2018 results, adding that the group "retains ample financial flexibility".

Sterling support

The earnings rise was led by 12.2% growth in operating profits at the Ireland and UK division, despite a "competitive market environment".

Takings at the Agrii chain were helped in the UK by the depreciation in sterling following the June 2016 vote to quit the European Union, which has boosted the value in local terms of farm commodities traded internationally in dollars or euros.

"Higher output prices in local currency," coupled with lower-than-expected growth in input costs, which had been forecast to surge because of the weaker pound, "supported increased agronomy services and input demand" at Agrii, Origin Enterprises said.

Input sales achieved outside the Agrii chain rose too, "as primary producers benefitted from greater certainty in raw material pricing and more favourable farm economics".

Dairy boost

Demand for the group's feed products, meanwhile, achieved "good volume growth", helped by the revival in fortunes for dairy producers, many of whom in the UK are now receiving more than 30p per litre for milk again, following price rises by processors earlier this month.

"Volume improvement largely reflects a more favourable demand backdrop," Origin Enterprises said, noting too the boost to dairy cow numbers from higher production, after the removal by the EU in 2015 of milk output quotas.

Irish milk output rose by 76,000 tonnes, or 9.5%, in the year to July, the highest increase in volume terms of any EU country, with the UK ranked fourth, with a gain of 22,000 tonnes, equivalent to 1.8%, according to European Commission data.

The "favourable year-on-year backdrop to global dairy markets" was one of the key drivers of "an improvement in farm incomes" over the group's financial year.

Outlook for 2018

The group's continental European division achieved a 10.3% rise in underlying operating profits, to E16.2m, helped by a "more favourable financing environment" for farmers in Ukraine, where some economic recovery has prompted some easing in credit conditions.

Romanian operations "delivered a strong performance", backed by growth in sowings of major crops, while the result in Poland was termed "solid" in the face of "largely subdued" demand for inputs and services, thanks to a delayed spring sowing season.

Origin Enterprises added that it was anticipating a "stable operating environment for primary producers" in its new financial year, as began last month.

However, "farm sentiment is expected to remain cautious reflecting general volatility in output markets".

By Mike Verdin

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