Rural-based shares show little chance of continuing their rise

By Peter V O'Brien

Friday 1st December 2000

Equity investors have confirmed the widespread view that rural industries are doing well and will continue on that path for some time.

The share prices of seven companies associated either with the land or rural services are in the table, taken at the end of last week and compared with the position at December 31.

Highs and low for this year are included, as are percentage changes since the end of 1999.

The changes show, with the exception of Grocorp, the stocks' solid runs during the year.

They continued the good performance of 1999 when it became apparent there had been improved weather and a better outlook for farming, as discussed in the March 17 National Business Review when the sector was last examined.

Grocorp's share price movements reflected a combination of the company's general performance and difficulties in the apple export industry.

Grocorp's report for the six months ended April 30 showed net profit of $256,000 compared with $499,000 for the corresponding period of the previous year.

The result included a new $550,000 write off of debt previously owed to the company's bankers.

Grocorp said significant hail damage reduced export production 35% and the company expected (in July) its total export volumes to be 411,000 cartons compared with 610,000 last year.

Comments on the performance of Dairy Brands and Tasman Agriculture are included in NBR Personal Investor on page 62.

They were two of the sharemarket's top 10 performers this year. Reid Farmers, Wrightson and Williams & Kettle are rural service companies that got a spinoff from the improvement in farming. Reid Farmers' report for the year ended June 30 said profit was $4.6 million, a 14.9% increase on the previous year's $4.0 million.

Improved performances were recorded in the rural real estate, farm supplies, financial services and livestock operating division while the contribution from wool was similar to that of 1999.

More progress was expected in the current year in line with the favourable outlook for agribusiness in general.

Wrightson's annual meeting in late October was told results for the first quarter of the current year were pleasing.

The company had earlier said the outlook for the rural sector for the next three years was generally positive, with production volumes forecast to increase and stable or rising commodity prices projected.

Wrightson has been developing variations on the traditional business of rural service companies but still linked to the provision of services.

The changes were outlined in a comment in the report for the year ended June 30.

Wrightson said its broad strategy was to develop and deliver end-to-end business solutions that made agriculture more productive and more profitable.

"This strategy will take the group beyond its traditional roles as a broker and supplier for farming inputs."

The company would leverage its capabilities in selected areas including plant and animal science and livestock, crop and land management.

It seems such developments would be based on increasing the application of technology to agriculture, because the group said substantial potential had been identified from "the ongoing enhancement of plant genetics and improved regime for pasture and stock management."

Wrightson probably has an advantage over other rural service companies in such areas because of it size and financial clout.

The company's latest report showed total assets of $225.11 million and shareholders' funds of $102.02million.

By comparison, Reid Farmers' total assets were $107.81 million and its shareholders funds were $35.36 million, while Williams & Kettle's figures were respectively $87.73 million and $37.63 million.

That meant Wrightson was bigger than the other two companies combined, although profitability had to improve considerably before a satisfactory return was achieved on the investment.,

Investors have the problem of deciding whether they should get into the sector if they are not already there.

Market anticipation of good profitability gains pushed up share prices over the past 18 months and future increases might be at the margin unless something extraordinary happened in rural industries.

Even so, the generally accepted outlook for farming and other land-based activities, excluding the apple situation, should underpin current share prices.

Land-based companies share prices (c)

Company	Price 24.11.00	Price 31.12.99	2000 high	2000 low	% change 31.12.99-24.11.00
Cedenco	133	95	137	79	+40.0
Dairy Brands	42	27	45	22	+55.5
Grocorp	13.5	20	24	10	-32.5
Reid Farmers	89	63	95	60	+41.2
Tasman Ag	129	80	138	71	+61.2
W & Kettle	265	206	271	196	+28.6
Wrightson	55	43	68	35	+27.9
NZSE 40 cap index
(rounded)	1965	2065	2174	1977	-4.8

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