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Date : 06/03/2023

Rural Funds Group



Market Cap : $829.39 Million

Dividend Per Share : $0.11

Dividend Yield : 5.09 %


52 Week Range : $2.15 - $3.13

Share Price : $2.16

RFF has very predictable and growing revenue with high and stable dividends while backed by significant tangible assets. So a "Buy" from us.

Company Analysis

Many Shares in Value members are familiar with Rural Funds Group (ASX: RFF). The stock has been part of our dividend portfolio since September 2020 and has never failed to deliver what we recommended it for, paying out decent-sized and growing dividends 4 times a year, and we expect it to continue this performance.

Owning a portfolio of high-quality assets with largely predictable revenues

RFF is an ASX-listed diversified agricultural Real Estate Investment Trust (REIT). It owns 67 properties in Australia across five agricultural sectors of almonds, cattle, cropping, vineyards and macadamias. It generates revenue by leasing its properties to counterparties, with 81% of its forecast FY23 lease revenue coming from large corporate agricultural operators. The rental fees are structured to grow by using mechanisms such as CPI and fixed indexation, and market rent review. As of 31 December 2022, RFF had a 12.3-year-long weighted average lease expiry. This underpins largely predictable revenues for many years into the future.

RFF also tries to grow its earnings by productivity improvements and conversion to higher and better use developments of its properties. These developments will generally allow the operators to make more profits through increased productivity or production of a more valuable commodity, thus increasing the value of the properties and the rent charged by RFF.

The following map shows the sector and climatic diversification of RFF’s properties across Australia. This diversification limits the company’s exposure to any individual commodity price fluctuations or adverse weather conditions in a certain region of the country.

The company’s property revenue in 1HY23 increased by 7% compared to the prior period by lease indexation and rent reviews, as well as the effect of new leases. RFF’s earnings in the period, however, jumped by a substantial 50%, largely driven by revaluations in the cattle sector, macadamia sector and development capex of $31 million.

During the period, RFF expanded its debt facility to provide ongoing funding for higher and better property use and productivity developments. As a result, gearing increased to end the period at 31.5%, still at the lower end of the target range of 30-35%. The company’s interest-bearing liabilities stood at $504m by the end of 1HY23. RFF has forward-dated interest rate hedges of $189m in FY23, increasing to $402m in FY24, with a weighted average hedge duration of 6.8 years at a weighted average hedge rate of 2.71%, significantly lower than the current market rates.

Investment thesis: Largely predictable revenue and distributions

In the guidance provided in the company’s 1HY23 report, RFF reduced its FY23 forecast AFFO (Adjusted Funds from operations) by 0.6 cents per share to 10.7 cents per share. The revision was a result of reduced revenue on macadamia operational assets held for leasing, flood mitigation costs and revised interest rate assumptions. AFFO is a preferred financial measure used by REITs to define the cash flow from their operations after deducting the capital expenditures necessary to maintain those operations and excludes gains or losses from property revaluations.

The company maintained FY23 forecast distributions per share of 11.73 cents plus 0.47 cents franking credit, which is in line with the company’s determination to increase its dividend payouts by 4% per year. This gives RFF an FY23 gross dividend yield of 5.6%. The company pays its next quarterly dividend of 2.93 cents on 28 April 2023 to shareholders on the record date of 31 March 2023.

As of 31 December 2022, RFF had net tangible assets per share of $2.08, and adjusted net asset value per share including water entitlements held at market value of $2.78. So with a dividend yield of 5.6% that is expected to grow by 4% annually, RFF’s current share price of $2.18 looks cheap while backed up by a substantial tangible asset per share.

RFF’s managing director, Mr David Anthony Bryant, made an on-market purchase of 230,000 shares at $2.19 per share on 2 March 2023. We think this is another indication of the stock’s attractiveness at the current prices.


RFF has a diversified portfolio of high-quality properties with a revenue model that is largely predictable and grows with inflation and market rates. We have recommended Rural Funds several times in the past two years as we saw RFF as a stable business with consistent cash flows and growing dividends. We also like that RFF distributes its dividends 4 times a year. We have identified three drivers that will continue to support our thesis. The first one is business diversification across various types of farming sectors and geographical locations. The second one is RFF’s long weighted average lease expiry (WALE) of 12+ years, which is one of the longest in the REIT industry. And finally, the third driver is a consistent and improved portfolio through diligent acquisitions, divestments, developments and improvements. The financial multiples of the company also indicate that the stock is undervalued at the current prices. Therefore, we retain our “BUY” recommendation on RFF.

Since the beginning of 2022, RFF’s share price has been retracing with the increasing interest rates. From a technical analysis perspective, the next support level for RFF is at $2.07 (The green line on the chart), which also coincides with the Fibonacci retracement level of 61.8%, potentially adding to its importance and strength. So also considering the strong fundamentals of the stock, we think prices near the support level of$2.07 are very attractive for investors who are looking for a low-risk stock with attractive and frequent dividend payouts.

Rural Funds Group, Weekly Chart in Semi-log Scale (Source: Metastock)


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