Australian Wheat Board (AWB) shares are selling at $4.25 today, yielding 6.9%. This is about 9 times earnings and 60% of their peak price over the last year, of $6.92. This looks cheap for a large diversified agricultural conglomerate which is one of Australia’s largest companies. I am thinking of having a punt myself on the expectation that the current problems will eventually disappear, probably with the current batch of managers being sacked, but with the monopoly power AWB have in marketing wheat, intact. This last issue is crucial – Laura Tingle et al. in today’s AFR (subscription only) believe the AWB’s monopoly power will be reviewed. The Government is stalling just so that it can work out the politics with the Nationals.
Probably too early to move yet. I’ll wait and watch but buying opportunities might present themselves for the brave. Big buying that initated a northward recovery in the share price would certainly focus my attention.
Update: Alan Mitchell in today’s (15/2/06) AFR (subscription only) suggests the game is up for AWB. With Australia’s wheat production only 4% of the world’s total the ability to influence price is limited anyway. The main source of monopoly power it is suggested is something quite different:
‘A supplier might command a higher price simply because it is prepared to share the price premium with corrupt purchasing officials.
Of course, if that was the AWB’s game, it would have had to compete against other bribe-offering suppliers.
But the AWB’s advantage may have been that its competitors were less willing or less able to bribe the Iraqis.’
Strong stuff, I’ll hold off speculating in AWB until the air clears on this one.
Further update: AWB suspended from trading. Need to wait and watch. If relisted the price might collapse giving possible buying opportunities.