Investor confidence high as agri stocks outperform market
27 November 2007
Despite the ongoing challenges facing Australia’s agribusiness industry, investor confidence in listed agribusinesses is soaring with sector stock significantly outperforming the broader market, according to the inaugural monthly Commonwealth Bank Agri Indicators Report(i), released today.
The Commonwealth Bank Agri Indicators Report monitors the performance and potential returns of 16 agribusiness stocks in the S&P/ASX 200 over time. The Indicators are created by analysing these stocks’ market volatility, exuberance and fundamental shareholder returns.
According to Jon Sutton, Executive General Manager, Agribusiness, Commonwealth Bank, the Agri Indicators Report provides a unique insight into one of the best performing sectors in the Australian economy.
"The Agri Indicators Report clearly shows that the listed agribusiness sector is booming. In the past month investors have seen stellar returns of 7.9 per cent compared with the -1.8 per cent returns observed for the S&P/ASX 200 over the same period.
"The good news is also set to continue over the coming year, with the consensus outlook for the agri sector forecast to be well above the broader market at 25.2 per cent - the S&P/ASX 200 is forecast to be just 15.4 per cent," said Mr Sutton.
The impressive performance and outlook of the listed agribusiness sector is in part attributed to its slower-than-market recovery from recent market pricing corrections and according to Mr Sutton, also highlights that agribusinesses are being managed extremely efficiently in what are challenging times.
"The agribusiness sector was hit much harder than the S&P/ASX 200 index when the market was corrected in August following the sub-prime crisis – this is most likely because the stocks at their peak were very over-priced," said Mr Sutton.
"Agri stock prices were actually over-corrected at this time and the sector has since seen a more gradual recovery than the S&P/ASX 200. This has also helped it bypass the recent market pricing correction in October.
"One thing to note is that the sector’s exuberance – the level of mis-pricing – is currently a little higher than the broader market. While the market as a whole has dropped from fair-priced to 2.5 per cent under-priced as at close of business on 22 November, the agri sector has only dropped to 1.2 per cent over-priced. This should not have a significant impact on the general positive performance of the sector."
Commonwealth Bank Commodities Strategist, Tobin Gorey, said the Agri Indicators Report reflects two main points: that investors are looking past the impact of the drought and feeling confident about agriculture here and around the globe; and also that the need for greater investment in the industry is being met to enable it to keep up with the rapidly increasing demand for produce.
"The agricultural sector is one of the best performing in the Australian economy and among the best on a global scale. Many countries are now looking at agriculture to contribute to the reduction of greenhouse gas emissions through the growth of ‘friendly’ transport fuels; there is also a rising demand for more, and better, food in Asian and emerging markets. In China alone, milk consumption has increased 20 per cent annually," said Mr Gorey.
"Overall, the November Commonwealth Bank Agri Indicators Report reveals a real optimism about the sector and this buoyancy is also keeping its volatility levels at a steady 11.9 per cent - more good news for investors."
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 the most 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.