Agri holds its own in troubled market
18 September 2008
As the country’s financial markets brace themselves for the knock-on effect of further global market losses, Australia’s listed agribusiness sector is holding its own, avoiding a fall into negative territory over the past month and delivering investors significantly higher returns than the broader market year-on-year.
According to the September Commonwealth Bank Agri Indicators Report, the agri sector remained flat at 0.0 per cent during the month to 15 September, while the broader S&P/ASX 200 accumulation index slipped into the red to deliver investors returns of -1.7 per cent.
Although the sector is no longer seeing the stellar gains earned earlier in the year, over the past 12 months it has still significantly outperformed the broader market by almost 30 per cent, reaping returns of 11.7 per cent.
According to Jon Sutton, Executive General Manager, Commonwealth Bank Agribusiness, although the agri sector has been retreating from previous peaks, it has retained its hold as one of the top three performers on a forecast risk-adjusted basis for the coming year.
“The news for Australia’s agri sector remains relatively positive against a backdrop of despair across the broader financial markets.
“The consensus broker forecast for the coming year remains in excess of 30 per cent, although there is keen anticipation to scrutinise the updated earnings results of those companies due to release during November,” said Mr Sutton.
The September Agri Indicators Report also shows exuberance in the sector remains very low, while forecast volatility continues to be elevated at just over 20 per cent.
Mr Sutton said, “The low exuberance suggests that agri stocks are still trading at a discount to their underlying fundamentals. However, although this may give rise to buying opportunities, investors should heed caution given the high volatility in the sector and the troubles across the broader financial market.”
According to Mr Sutton, analysts and investors will also be watching with interest the first wheat harvest since the AWB lost its export monopoly.
“The deregulated market should bring greater choice for grain growers in terms of selling options. Production is expected to be significantly up on last year to over 20 million tonnes, but there is much speculation about a downwards push on pricing if infrastructure issues cause the expected grain glut.
“Growers who are currently investing in the installation of on-farm silos should have greater flexibility to manage these pricing issues, be able to better control their cash flow and hopefully boost profits,” he concluded.
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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.
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.
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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