Australian agri stocks still best market choice
16 April 2008
Agri sector outlook remains strong with forecast returns nearly double that of S&P ASX 200
Agri year-on-year returns outstrip broader market
Agri sector resilience stimulates international investor interest
Australia’s listed agribusiness sector continues its charge ahead to record yet another consecutive month of solid growth. Although the broader S&P ASX 200 accumulation index has shown signs of a moderate recovery this past month, the consensus outlook for the agri sector remains the most attractive for the coming year.
According to the April Commonwealth Bank Agri Indicators Report, whilst the agri sector has rewarded investors a respectable return (including dividends) of 2.0 per cent over the past month, it is the first time since monitoring began in November 2007 that it has fallen short of returns in the broader market at 6.8 per cent.
According to Jon Sutton, Executive General Manager, Agribusiness, Commonwealth Bank, whilst this month’s results indicate positive signs of recovery for the S&P ASX 200, the agribusiness sector is still the one to watch.
"The recovery we have seen in the broader market this past month is off the back of extended periods of extreme lows – the agribusiness sector on the other hand has continued in a steady upwards trajectory. Longer-term, the outlook for agribusiness is still very positive, and year-on-year it continues to significantly outperform the S&P ASX 200.
"Over the last 12 months, investors in the agri sector have reaped stellar total returns of 37.5 per cent, compared with a disappointing -6.6 per cent in the broader S&P ASX 200. Looking ahead to the coming year, this trend is set to continue, with forecast returns in the agri sector expected to be around 36 per cent, compared to just 19 per cent across the wider market," said Mr Sutton.
The April Agri Indicators Report also suggests that the sector’s exuberance – the level of market mis-pricing – is in the ‘fair value’ zone and its forecast volatility also remains relatively steady at around 13 per cent. This makes agribusiness the most attractive sector in the S&P ASX 200 on a risk-adjusted basis over the coming year.
According to Mr Sutton, the agribusiness sector’s immunity from the worries clouding the broader market has stimulated interest from foreign investors.
"The strong performance of this sector and its resilience in a troubled market is being recognised by market players across the globe. We have seen a definite increase in interest from international fund managers to invest in Australian agriculture.
"There is a general optimism about the sector from the investment community right down to the farm gate and this, coupled with the positive 12 month outlook, is making people bullish about the trend in this thriving sector.
"The news for our customers remains positive – it’s great to see such buoyancy in a sector that plays such a vital role in the country’s economy," said Mr Sutton
This month’s Agri Indicators Report sees the introduction of another listed agribusiness stock – PrimeAg Australia Limited. The Commonwealth Bank Agri Indicators Report is created by analysing 16 major agribusiness stocks in the All Ordinaries index and measuring market volatility, exuberance and fundamental shareholder returns.
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Notes to editors:
i. About the Commonwealth Bank Agri Indicators Report
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 Agribusiness sector currently consists of 16 rural-dependent companies: Australian Agricultural Company Limited (AAC), ABB Grain Limited (ABB), AWB Limited (AWB), Futuris Corporation Limited (FCL), Forest Enterprises Australia Limited (FEA), GrainCorp Limited (GNC), Gunns Limited (GNS), Great Southern Limited (GTP), Incitec Pivot Limited (IPL), Nufarm Limited (NUF), PrimeAg Australia Limited (PAG), Ruralco Holdings Limited (RHL), Ridley Corporation Limited (RIC), Select Harvests Limited (SHV), Tassal Group Limited (TGR), Timbercorp Limited (TIM). Companies previously included in the sector but since removed due to delisting or exiting the All Ordinaries index include Queensland Cotton Holdings Limited (QCH) and Auspine Limited (ANE).
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 54 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.
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