Analysts forecast golden future for agribusiness sector
EMBARGOED UNTIL: 0.00 Hours 9 November 2010: After lagging other sectors for the first half of
2010, the listed Agribusiness Sector took off in the third quarter of 2010, according to the latest
Agribusiness Index released by the Commonwealth Bank.
The Index, which comprises 16 rural-dependent companies* in the All Ordinaries Index that directly
grow food or fibres, produce raw materials and fuels or provide agricultural services in Australia, not
only outperformed the S&P/ASX 200 Index, but generated higher returns than a composite
of
the
Energy, Materials and Utilities S&P/ASX200 Sector Indices.
Over the three months to September 30, the Index returned 20.6 per cent to shareholders (including
dividends), driven higher by recent robust reporting season results and takeover talk within the Sector.
The Index outperformed the S&P/ASX 200 Index, which returned 8 per cent to investors.
Based on consensus analyst forecasts, the Forecast Fundamental Return
indicator suggests the
Agribusinesses Sector will return 33.8 per cent for the 12 months to September 2011; well above the
18.7 per cent forecast return for the broader share market. That indicator rose from 23 per cent in the
June quarter, reflecting improved market conviction.
On a risk-adjusted basis, the Agribusiness Sector is forecast to out-perform the broader market over
the next 12 months, with the expected return per unit of risk second only to the Utilities Sector.
Forecast volatility for the Sector has also declined from 25.9 per cent to 24.2 per cent for the year to
September 2011, with a smoother market ride expected in the months ahead.
The improved forecasts will please agribusiness investors who experienced a loss of 4.5 per cent over
the 12 months to September 2010, compared to a modest 0.6 per cent gain for the S&P/ASX200
Index.
According to Brendan White, Executive General Manager of Regional and Agribusiness Banking at
the Commonwealth Bank, the outlook for the Agribusiness Sector is bright, with rallying commodity
prices and bumper seasonal conditions contributing to rising confidence and returns.
“Tight global grain supplies, rising demand for dairy products, particularly milk powder, rallying
commodity prices and strong east coast seasonal conditions are expected to push up prices of
agribusiness stocks over the next 12 months, underpinning
the sector’s outperformance,” said Mr
White.
*
To be considered for inclusion in the Agribusiness Index, the prime source of revenue for the company must be Australian.
A full copy of the report is attached.
–
ENDS –
Media Inquiries:
Louisa Galligani
Phone: 02 9118 1784
Mobile: 0468 987 335
Email: louisa.galligani@cba.com.au
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 Agribusiness stock universe covers any stock in the All
Ordinaries index that directly grows food, fibres, raw materials and or fuels in Australia. To be considered for
inclusion, the prime source of revenue for the company must be Australian. Agricultural food products include
the cultivation of cereals, vegetables, fruit and or meat. Cotton, wool and wood are examples of agricultural
fibres and raw materials. Fuels such as methane, ethanol and biodiesels are also considered agricultural
products.
The Commonwealth Bank Agribusiness sector currently consists of 16 rural-dependent companies:
Australian Agricultural Company Limited (AAC), Australian Vintage Limited (AVG), AWB Limited (AWB),
Clean Seas Tuna Limited (CSS), Elders Limited (ELD), 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), TFS Corporation Limited (TFC),
Tassal Group Limited (TGR) and Warrnambool Cheese & Butter Factory Ltd (WCB). 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),
Timbercorp Limited (TIM), ABB Grain Limited (ABB) and Forest Enterprises Australia Limited (FEA).
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 commenced 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.
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.
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.
NEWS 
