THE Australian stockmarket's agribusiness/food sector is small, but it hosts stocks that are involved in country's food exports, particularly into the Asian market.
Morgans analyst Belinda Moore says the firm's AgriFood Index of listed agribusiness/food stocks has beaten the S&P/ASX 200 in total return over periods of one year, two years, three years, five years and 10 years - although she cautions that the results are skewed by several prominent takeovers (for example, Queensland Cotton, Maryborough Sugar, ABB Grain and AWB) at large price/earnings multiples.
Moore gives her line-up of preferred stocks:
Elders Limited (ELD)
An iconic brand with 125 years of history, Elders is a one-stop shop for rural Australia. After near oblivion, Elders is a turnaround story under an impressive new management team and board and has more than tripled its underlying profit in the six months to March 31 to $16.2 million. Elders has recapitalised and changed its focus from a highly geared conglomerate to a pure play agribusiness.
Select Harvests (SHV)
Australia's largest almond grower and processor is also the third-largest almond grower in the world. Select is benefiting from the severe drought in California, and its recent sale-and-leaseback deal will increase returns by reducing the capital intensity of the business while allowing it to grow its almond supply over the medium to longer term.
Bellamy's Australia (BAL)
The Tasmania-based company makes a range of organic food and formula products for babies and toddlers. It has a strong and trusted brand and is benefiting from Asian demand for safe, high-quality Australian food, and consumers' increasing preference for organic food.
Capilano Honey (CZZ)
One of the world's largest honey packers, Capilano exports to 33 countries. It is benefiting from consumers' increased awareness about the health benefits of honey and Moore says the company is attractively priced for its growth profile.
Webster (WBA)/Tandou (TAN)
Although Morgans does not have a recommendation on these stocks, Moore says walnut grower Webster's two recent acquisitions of NSW properties and its merger proposal to Mildura-based cotton, pastoral and water management company Tandou, if approved by shareholders on May 25, could potentially more than triple Webster's value. At a stroke, Webster would become one of Australia's biggest holders of water irrigation rights and one of the country's largest irrigated cropping and cotton-growing players.
Moore also points to the sector's potential expansion later this year with the expected listings of Australia's largest dairy exporter, Murray Goulburn, in a $500 million unit trust issue, and grower-owned rice export monopoly SunRice, in a similar dual share-class listing.
