AWB Update

Submitted by Craig Strzelecki on 24 May, 2007 - 20:45

AWB shares have had a volatile week, plummeting 11% in the first two days, and then clawing back 2% yesterday. Weighing on the sentiment was the company’s first half net profit numbers and the decision to strip the company of control of the single desk wheat export after next crop. AWB will clearly remain a volatile stock until the final industry structure is realised. As expected, the result was impacted by drought conditions and the small FY07 crop. NPAT was $11.8m, adjusted $24.9m and interim dividend of 4cps. Underlying profit of $24.9m was down 59% on pcp of $60.3m. An underlying tax rate of 19% was lower than MRE’s 25% expectation. Total overheads across the group were reduced by $25.9m (230 FTEs), ahead of stockmarket analyst, Macquarie Research Equities expectations. The new dividend reflects both the drought and the future of wheat marketing arrangements. The analysts have lowered their annual dividend forecasts to 8cps. Guidance previously given at the AGM for FY07 of an underlying profit of $67m was not updated. Achievement of this forecast will require further follow up rains from recent seasonal break. New wheat marketing arrangements: The Prime Minister has announced that a new grower owned wheat marketer (most likely a de-merged AWBI) will be formed by March 2008 and that the current wheat marketing system will remain in place for the December 2007 crop. If the new entity is not finalised by March 2008, the industry will be deregulated further. The impact of this on AWB depends on whether the AWBI demerger includes the pool management division. If it doesn't, our price target is $3.33 and if it does, our price target falls to $2.58. If the demerger misses the March 2008 deadline, deregulation becomes a possibility. This would reduce the analysts' price target to $1.85 per share. There is still significant uncertainty as to the eventual outcome. Earnings revision FY07 EPS up 7.3% to 15.5cps, mainly due to lower tax rate assumptions. FY08 EPS up 1.1% to 30.5cps. The analysts' long term valuation based on a normal season is $3.33 and assumes AWBI separation only. If the pool management division is separated from AWB as well our price target falls to $2.58. AWB will clearly remain a volatile stock until the final industry structure is realised.

AWB Limited is listed on the Australian Stock Exchange (ASX) under stock code AWB. AWB was listed on the ASX on 22 August, 2001. You can view their investor website here. The company is the exclusive manager and marketer of all Australian bulk wheat exports through what is known as the Single Desk. The company markets wheat into more than 50 countries, with Australian wheat exports worth up to $5 billion per year. AWB markets and trades a range of other grains both domestically and internationally, as well as providing additional services such as chartering. Brendan Stewart is the chairman of the AWB and Gordon Davis the Managing Director. Browse for Australian stockbroker recommendations. Other articles about AWB. Check your charts and good luck with your share trading!

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