Agri stocks set to outperform market in 2008
19 December 2007
Investor confidence in the listed agribusiness sector continues to go from strength to strength, with the consensus outlook for 2008 looking significantly stronger than the broader S&P/ASX 200 market, according to the Commonwealth Bank Agri Indicators Report for December.
The Report shows the sector is expected to reward investors with a fundamental return of 33.1 per cent over the next 12 months – more than double that of the broader market which is forecast to return 16.4 per cent over the same period.
According to Jon Sutton, Executive General Manager, Agribusiness, Commonwealth Bank, the buoyant forecast for 2008 clearly indicates that listed agribusinesses have been well managed in what have been difficult times and are now in an ideal position to take advantage of growing global demands for food and alternative energy produce.
"Confidence in the listed agribusiness sector is soaring. Not only are the fundamental returns forecast to be more than double that of the S&P/ASX 200, but the forecast volatility also remains relatively low at 12.9 per cent, making it the standout sector on a risk-adjusted basis for 2008.
"The sector has also had another knockout performance over the past month recording growth (including dividends) of 7.5 per cent against just 2.3 per cent from the S&P/ASX 200 accumulation index.
"Over the last 12 months the listed agribusiness sector has experienced massive growth of 51.7 per cent, outstripping by almost double the healthy returns of 26.8 per cent in the broader market," said Mr Sutton.
However, Mr Sutton warns that investors be a little cautious in the short term as the December Agri Indicators Report indicates a slight market correction is due.
"Exuberance in the sector is currently sitting at +5.7 per cent, slightly higher than its ‘fair-value’ zone. Investors looking to enter the sector may be best to wait for exuberance to fall a little before buying stocks," said Mr Sutton.
Commonwealth Bank’s Commodities Strategist, Tobin Gorey, said the opportunities for Australia’s agribusiness sector are growing and that this is fuelling the bright outlook for 2008.
"The swing in sentiment is still strong and Australia’s agribusinesses are in an ideal position to take advantage of the growing global demand for food and energy produce.
"On the energy front, the US is moving closer to boosting its use of biofuels and although it produces a third of the world’s feed grain, in 2008 about one third of that will be used to produce ethanol. This means that more grain will be required in future years and Australia, as a key global supplier of grain, is ideally placed to meet the demand.
"The Commonwealth Bank Agri Indicators Report also reflects the continuing growth in demand for food. People in China have more money to spend and are using it to buy more and better food. In the last five years, whole milk powder consumption in China alone has doubled and this has helped prices to more than double over the past 18 months. Australia’s dairy industry is well placed to take advantage of this," said Mr Gorey.
"Overall, the Commonwealth Agri Indicators Report for December highlights the continued optimism that the sector will return to being one of the best performing in the Australian economy," he said.
The Commonwealth Bank Agri Indicators Report monitors the performance and potential return of 16 agribusiness stocks in the All Ordinaries index over time. The Indicators are created by analysing these stocks’ market volatility, exuberance and fundamental shareholder returns.
General Manager, Media and Issues Management
Phone: (02) 9378 2663
Mob: 0414 789 649
Notes to editors:
i. About the Commonwealth Bank Agri Indicator
The Commonwealth Bank Agri Indicators is created around three 12 month forecasting models – Fundamental Return (consensus forecasts of earning and dividends for individual stocks in the sector), Exuberance (proprietary measure of market mis-pricing), and Volatility (derived from proprietary methods of modelling realised volatilities, detecting changes in long-run levels and correcting for switchbacks and other correlation patterns in the data).
The Commonwealth Bank Agri Indicators measures the performance of the Commonwealth Bank defined ‘Agribusiness’ sector over time. The Commonwealth Bank Agri sector is made up of 16 rural-dependent companies: Australian Agricultural Company Limited (AAC), ABB Grain Limited (ABB), Auspine Limited (ANE), AWB Limited (AWB), Futuris Corporation Limited (FCL), Forest Enterprises Australia Limited (FEA), GrainCorp Limited (GNC), GrainCorp Limited (GNS), Great Southern Limited (GTP), Incitec Pivot Limited (IPL), Nufarm Limited (NUF), Ridley Corporation Limited (RIC), Select Harvests Limited (SHV), Tassal Group Limited (TGR), Timbercorp Limited (TIM), Ruralco Holdings Limited (RHL).
The Commonwealth Bank Agri Indicators is a non-float adjusted, market-cap weighted index constructed using the same methodology as the S&P index series. To be considered for inclusion in the index, each stock must be in the All Ordinaries index. The Commonwealth Bank Agribusiness Indicators begins on 3 April 2000 which is the same date as the launch of the S&P/ASX index series in Australia. At inception there were eight stocks included in the index. Currently, there are 16.
The Commonwealth Bank Agri Indicators should be used as a guide only to the performance of the Agribusiness sector, as a way to measure its performance and potential return over the coming months and year.
The Commonwealth Bank Agri Indicators report is attached.
About the Commonwealth Bank
With a market capitalisation in excess of $AUD 70 billion, the Commonwealth Bank (Group) is Australia largest financial institution, providing convenient and accessible banking and financial services for all Australians.
With more branches, agencies, ATMs, EFTPOS outlets and 24/7 call centres than any Australian banking and finance competitor, and offering Australia’s leading internet banking service, the Commonwealth Bank is a diverse organisation with a long history in the Australian banking industry.
This report has been prepared without taking account the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual's objectives, financial situation and needs and, if necessary, seek appropriate professional advice. Past performance is not a reliable indicator of future performance. Commonwealth Bank of Australia ABN 48 123 123 124, AFSL 234945. A full copy of the Agri Indicators Report can be obtained by contacting our AgriLine on 1300 245 463 7am to 7pm (AEST time), Monday to Friday.
Unless agreed separately, we do not charge any fees for any information provided in this presentation. You may be charged fees in relation to the financial products or other services Commonwealth Bank of Australia provides, these are set out in the Commonwealth Bank of Australia's Financial Services Guide (FSG) and relevant Product Disclosure Statements (PDS). Our employees may be eligible for an annual bonus payment. Some representatives’ bonus payments may be up to 50% of initial fees, and 10% of ongoing fees and commissions that Commonwealth Bank of Australia receives from the placement of a financial product. Bonus payments are discretionary and based on objectives that include business outcomes, customer service, people engagement, special tasks and people principals. Our employees may also receive benefits such as tickets to sporting and cultural events, corporate promotional merchandise and other similar benefits. If you have a complaint, Commonwealth Bank's dispute resolution process can be accessed on 1800 805 605.