August confidence boost for Agribusiness
Tuesday 25 August, 2009: The listed agribusiness sector received a significant confidence boost during the past month; posting a sizeable return for investors in the sector of 25.0 per cent during August.
The Commonwealth Bank Agri Index recorded a higher return during the past month in comparison to the S&P/ASX200 which posted an 18.8 per cent return during the same period.
Brendan White, Executive General Manager, Commonwealth Bank Agribusiness said the sector surged from new found confidence in the market and during the past month all stocks in the Index posted positive returns.
“Strong performances from a number of the companies within the Agribusiness Index; Incitec Pivot Limited (IPL), Nufarm Limited (NUF) and Elders Limited (ELD), contributed to the sector's strength during the past month,” he said.
During August, ELD recorded the highest return of 82 per cent, IPL 39 per cent and NUF 30 per cent.
“With IPL making up 40 per cent and NUF making up 20 per cent of the Index, this month‟s results are extremely pleasing for the sector.”
Mr White also commented that seasonal conditions for farmers across the country, while varied, remain generally favourable.
“Although the recent trough that is generating very warm, dry and gusty northwest winds in southern QLD and NSW may hurt yields, farmers across the country should come out of these unseasonal conditions fairly unscathed,” he said.
“The trough is also bringing patchy light rain to the southern interior and a front and deep low is causing very strong winds and showers in Victoria, Tasmania and South Australia.”
In addition, Mr White said consensus forecast return for the sector continued to increase, and is currently at 12.3 per cent for the year to August 2010.
“The sustained improvement in forecast returns for stocks within the Index has also contributed to the outstanding result this month.”
On a risk-adjusted basis Agribusiness is in the middle of the pack – in line with the expectations for Industrials and Consumer Discretionary. The sector is expected to our perform Consumer Discretionary, Consumer Staples, Financials, IT, Property, Materials, Energy and the broader market on a risk adjusted basis during the next 12 months.
“Forecast volatility for the sector remains high at 29 per cent for the next 12 months. Signalling to investors that a return to normality is still not here and caution should be taken if entering the market in the coming weeks,” Mr White said.
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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 14 rural-dependent companies: Australian Agricultural Company Limited (AAC), ABB Grain Limited (ABB), AWB Limited (AWB), Elders Limited (ELD), Forest Enterprises Australia Limited (FEA), GrainCorp Limited (GNC), Gunns Limited (GNS), 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). Companies previously included in the sector but since removed due to delisting or exiting the All Ordinaries index include Queensland Cotton Holdings Limited (QCH), Auspine Limited (ANE), Great Southern Limited (GTP) and Timbercorp Limited (TIM).
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 14.
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.
DISCLAIMER: 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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