Agri falls into line with broader market
16 December 2008
The volatility in global financial markets has had a major impact on Australia’s listed agribusiness sector, with data revealing the sector has taken a significant fall over the past month.
According to the December Commonwealth Bank Agri Indicators the agri sector has fallen by a hefty 20.3 per cent, against the broader S&P/ASX200 which fell by 10.9 per cent, during the month of November.
Dale Champion, Acting Executive General Manager, Commonwealth Bank Agribusiness, said: “Across the board, markets have fallen over the past 12 months, while the agri sector has to a large degree withstood much of the volatility longer than the broader market.
“However the market environment has caught up with the agri sector this month, as illustrated by the Agri Index registering a significant drop, and brought it back to par with the performance of the S&P/ASX200.”
The past month has also recorded a busy period of corporate activity for some Agribusiness companies that comprise the Commonwealth Bank Agribusiness index, and a degree of uncertainty around these activities is also weighing on the index.
Incitec Pivot announced on 12 November it would undertake an accelerated non-renounceable entitlement offer to raise around $1.1 billionfor a capital injection. During the month the company softened, falling 29 per cent. In addition AWB and ABB Grain confirmed on 28 November they were in discussions regarding a possible merger.
Three companies with Managed Investment Schemes (MIS) – Timbercorp, Select Harvests & Great Southern – have also experienced drops in their share price over the past month. Timbercorp lost 80 per cent over the past month, while Select Harvests and Great Southern have lost -43.8 per cent and -46.9 per cent respectively, based on IRESS data.
“There has been considerable uncertainty with Managed Investment Schemes for some time. This uncertainty has in turn weighed heavily around companies with an association to them, to a point whereby TimberCorp recently announced that they will not be doing any in 2009,” said Mr Champion.
While the agri sector has experienced this sharp fall in the past month, looking at Agri Indicators figures for the past 12 months the agri sector, at -46.9 per cent, has only now come into line with the broader S&P/ASX200, at -43.2 per cent.
There has also been a revision in consensus analyst forecast earnings for the next 12 months. Up until last month, there was a high forecast for 12 month earnings – over 30 per cent – as analysts had not made any revisions. Analysts have now revised the figures to bring consensus forecast earnings for the next 12 months to a more reasonable 17 per cent.
“This is positive in the sense that the new information is being reflected in the latest figures. It is also positive that analysts have not revised the longer term outlook to a negative,” said Mr Champion.
The key message for investors in the agri sector remains to stay focused on the long-term, with the 12 month outlook for the agri sector still forecasting positive 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 Agribusiness index 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 Agribusiness index 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 a in the All Ordinaries index. The Commonwealth Bank Agribusiness index 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 8 stocks included in the index. This number is currently 16.