Agribusiness Outperforms

The Age

Tuesday October 21, 2008

Philip Hopkins

AUSTRALIA'S listed agribusiness sector has finally been hit by the financial crisis, but nonetheless remains a better long-term investment than the general sharemarket, according to Commonwealth Bank.

CBA's October agri indicators report shows that the sector declined by 22% in the month to October 15, while the broader S&P/ASX 200 Index lost 11.4% of its value.

Both indices have fallen by similar amounts since their peaks - minus 44% for agribusiness and minus 39% for the S&P - but agri's fall from grace has been more sudden.

Over periods greater than 12 months, the agri sector has outperformed the general market. Over the past year, the S&P/ASX 200 has shed almost 33% compared with agribusiness's 16%, the CBA index shows.

Over the past five years, agribusiness has had an annual return of 11% compared with the S&P's 10.3%, and over the past eight years, the figures are respectively 13% and 8.2%.

Jon Sutton, executive general manager of CBA's agribusiness division, said there had been little change in the fundamentals underpinning agribusiness since last month.

"Earnings prospects are still strong, volatility is still high and the sector remains significantly underpriced," he said.

Mr Sutton said Incitec Pivot took up 40% of the agri sector and had suffered more than all the other stocks in the past month. Despite this, brokers were upbeat.

"However, the current environment is one of fear, with the market placing very little value on fundamentals." He said the fall in the value of the Australian dollar had cushioned the impact of rising costs and lower potential returns, particularly for grain growers.

The Commonwealth agribusiness index consists of 16 companies, including ABB Grain, AWB, Futuris, GrainCorp, Forest Enterprises, Nufarm, Incitec Pivot, Select Harvests, Tassal and Timbercorp.

© 2008 The Age

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