Investing in the raft of initial public offerings for Australia’s food producers has turned into a lottery over the last month. Food-related stock is not hot property, as an unenthusiastic response to the recent float of the Australian Agricultural Company confirmed. However, yesterday’s float of the Australian Wheat Board got off to a good start, reports David Robertson.
The AWB, formerly the state-owned Australian Wheat Board, floated yesterday and analysts were able to relax as the shares moved to a 10% premium on a A$3.15 (US$1.68) issue price. Trading started at A$3.42 then slipped to A$3.34 but finished strongly at A$3.46, valuing the company at A$945m.
A strengthening Australian dollar, making exports more expensive, and rumblings of discontent among wheat growers over the float had worried institutional investors who had just been burnt from the listing of beef producer the Australian Agricultural Company (AACo) a week before.
Confidence among analysts had also been dented by Australian Olives’ decision to shelf its IPO.
With Olives and AACo bombing, a good first day’s trading was vital to the long-term sentiment towards AWB, an analyst told just-food.com.
It appears the listing has been successful largely because, say analysts, of the company’s monopoly in Australia, its control of 18% of the global wheat market and the issue of just A$100m, or 12% of the company, in stock.
AWB’s 242 million A-class shares are owned by wheat producers but management opted to issue a further 31.8 million B-class shares to trade alongside the existing shares in order to raise money to expand the group’s finance and risk management products. The extra shareholdings; 60% went to institutions, 20% to retail investors and 20% to farmers, will also add liquidity to the tightly held stock.
“Really, to get some liquidity which will put the true value on the stock you need the institutional interest in the company and if you don’t offer them something they will ignore you,” explained farmer and AWB chairman Trevor Flugge.
Last year the AWB exported 18 million tonnes of the record 24.5 million tonne wheat crop at an estimated value of A$3.5bn. Forecasts this year suggest export earnings could reach A$4bn as the AWB has expanded into lupin, fava bean and lentil markets. The company is expected to make a A$79.4m profit this year, up 25% on last year.
But the decline in value of the US dollar and subsequent rise in the Australian dollar may put these figures in doubt, and currency issues were certainly a cloud over yesterday’s listing. Exporters face a double hit from weaker commodity prices and smaller returns in Aussie dollars. The AWB has already taken action to reduce the price of prime hard wheat by A$4 a tonne and A$3 a tonne for durum wheat.
The fate of the AACo was also on investors’ minds when trading in AWB started yesterday. The 177-year-old AACo was spun out of Futuris Corp last week with a value of A$193m and there was strong interest initially but shares have traded well below the listing price of A$1 a share. Prices are floating between 93c and 97c but many analysts expect it to sink further as soon as broker Credit Suisse First Boston stops supporting it.
Australian Olives, based on a popular tax-avoidance scheme, is also in trouble as the international price for olive oil has dropped from A$8 a litre to A$4 in the last decade. Its sales have fallen well short of targets and it was forced to ditch the A$11.65m listing of half the company because of lack of support.
AWB’s start has been encouraging given the poor performance of other food stocks, in particular some of the retailers like Coles Meyer, as well as manufacturers like Goodman Fielder and the poor showing of the olive and beef companies.
Analysts say there is little interest in food-related companies as they are consistently falling short of other market performers. The question for AWB investors will be whether the company can hold onto its share price in the face of a more realistic export environment as currency values realign.
“It’ll be a while before the food companies look as attractive as other parts of the market and if things get worse nobody will go near them,” conceded an analyst.
By David Robertson, just-food.com correspondent
To view related research reports, please follow the links below:-
The 2000 World Forecasts of Wheat Meal, Wheat Flour and Meslin Flour Export Supplies
The 2000 World Forecasts of Unmilled Durum Wheat Export Supplies