Monday, December 3, 2007

Primed for PrimeAg

With wheat prices up above $400 a tonne the drought and surging global demand for soft commodities means that the coming float of PrimeAg, which is being managed by Comsec will be a hot float. Macquarie Group has recently moved into this sector with one of their 'infrastructure' style funds being created earlier this year. If you want exposure to rising soft commodity prices (and you do) then try and get hold of some of this float. I'll definitely be putting my hand up.
The economies of scale in farming and in particular cropping are huge, so this is a trade that makes a lot of sense. Key management seems sound with Roger Corbett and a former president of the National Farmer's federation on board.

Key Dates:
Lodge prospectus with ASIC 14 November
Offer Opens 26 November
Shares trade on ASX 17 December


babs said...

billy - my take:

beta on this stock will be huge. farming is a business of boom and bust, and while i appreciate the business model of purchasing properties across a broad region to mitigate rainfall risk, there will still be very large swings in profitability.

I like their statement explaining why they have provided no forecasts: "the future is the future".

Looking at their "capability illustration", you could double that figure (to see what impact when all the proceeds are spent on properties) to come up with a cash yield of maybe 4%.

I would guess in the perfect year you would get double that (8%), and in the worst possible year you would get say 2%. Apply whatever distribution curve on that you feel appropriate.

Then factor in commodity price growth (which I personally wouldn't be too bullish about) and capital growth (which could be reasonable) and there is your business.

Will be interested to see what their capex looks like and how economies of scale pan out - they should get good buying power for inputs (fertilizer, seed etc) but wouldn't think they could spread their machinery around too much as distance would hinder this.

Water rights are also an interesting one given current political climate.

Are you going to be able to get any stock?

Rocky said...

Water rights will be an interesting issue, but I'm not all that interested in that for this particular trade. A lot of the gains across the rural sector have come from the capital growth of the properties themselves. It's fairly easy to be bullish on soft commodity prices when we have the sort of ill conceived madness that is ethanol from corn chewing up a lot of the cropping land. I think this will be solid as long as they stay in cropping and away from Rams.

Big City Bear said...

Zing! Babs got owned.

babs said...

we all know my love for sheep...

babs said...

Further on rural volatility for listed companies. Asciano (mkt cap A$5.2 billion) today announced it is getting out of its rural businesses:

Asciano, which was spun off from Toll Holdings Ltd [TOL.AX] in June, said it would focus on coal transport as the decade-long drought had made its rural businesses unprofitable.

"Due to their cyclical nature they are not businesses we can stay in for the long term. This current situation cannot be tolerated," Chief Executive Mark Rowsthorn told investors.

Asciano plans to reduce its grain operations and sell or close its rural container business at a cost of A$50 million.

Rowsthorn said the restructure will reduce exposure to volatile cyclical sectors and will produce annual benefits of A$40 million.