AWB - Is there value there?

[Ext User(John Smyth)]

I'm wondering if all the "scandal" with AWB is material to the fundamentals
of the business.

Price down 40% + so I'm wondering if its becoming a BUY for value investors.

Just interested if this new situation warrants doing any homework on this
company or not?

Thanks
John Smyth

[Ext User(Lionel)]

John Smyth wrote:
> I'm wondering if all the "scandal" with AWB is material to the fundamentals
> of the business.
>
> Price down 40% + so I'm wondering if its becoming a BUY for value investors.
>
> Just interested if this new situation warrants doing any homework on this
> company or not?

The "scandal" at this stage has not affected the business. There may be
some customers upset but in general they probably won't make the link
between AWB and most of the AWB services they use such as Landmark. For
the others who do make the link, i.e. the wheat growers, they have no
choice anyway. The question is will AWB be reviewed as the operator of
the single desk system?

Sitting on a PER of around 10 and dividend yield of 6.4% based on last
years earnings, with expected 10% growth this year they are somewhat
undervalued provided they don't lose the wheat export rights.

Lionel.

[Ext User(David Segall)]

"John Smyth" <smyth@tpg.com.au> wrote:

>I'm wondering if all the "scandal" with AWB is material to the fundamentals
>of the business.
>
>Price down 40% + so I'm wondering if its becoming a BUY for value investors.
>
>Just interested if this new situation warrants doing any homework on this
>company or not?
>
>Thanks
>John Smyth
>
I think the government will license other wheat traders following this
scandal and continued pressure from the U.S. wheat industry and the
Australian Grain Exporters Association.

The loss of their monopoly makes the value of the shares very
difficult to asses.

[Ext User(Tom N)]

Lionel wrote:

> John Smyth wrote:
>> I'm wondering if all the "scandal" with AWB is material to the
>> fundamentals of the business.
>>
>> Price down 40% + so I'm wondering if its becoming a BUY for value
>> investors.
>>
>> Just interested if this new situation warrants doing any homework on
>> this company or not?
>
> The "scandal" at this stage has not affected the business. There may
> be some customers upset but in general they probably won't make the
> link between AWB and most of the AWB services they use such as
> Landmark. For the others who do make the link, i.e. the wheat growers,
> they have no choice anyway. The question is will AWB be reviewed as
> the operator of the single desk system?

Question 2 is will AWB lose wheat contracts with other countries? If that
happens then the wheat price AWB can get will presumably drop. I presume
their profit is dependent to some degree on the wheat price.

Question 3 is can management keep focused on the job and not get distracted
to the point it affects business?

Also consider the funny shareholder structure where unlisted grower-class
shares control the company.

Huntley reckons "Accumulate for Yield. The current pall of gloom appears to
be creating an adequate discount for the worst eventuality."

[Ext User(Lionel)]

Tom N wrote:
> Lionel wrote:
>
>> John Smyth wrote:
>>> I'm wondering if all the "scandal" with AWB is material to the
>>> fundamentals of the business.
>>>
>>> Price down 40% + so I'm wondering if its becoming a BUY for value
>>> investors.
>>>
>>> Just interested if this new situation warrants doing any homework on
>>> this company or not?
>> The "scandal" at this stage has not affected the business. There may
>> be some customers upset but in general they probably won't make the
>> link between AWB and most of the AWB services they use such as
>> Landmark. For the others who do make the link, i.e. the wheat growers,
>> they have no choice anyway. The question is will AWB be reviewed as
>> the operator of the single desk system?
>
> Question 2 is will AWB lose wheat contracts with other countries? If that
> happens then the wheat price AWB can get will presumably drop. I presume
> their profit is dependent to some degree on the wheat price.

True that lower prices will result in lower profits but I don't think it
will be too substantial, especially considering their other businesses
are doing well. A complete loss of the monopoly is a different story.


> Question 3 is can management keep focused on the job and not get distracted
> to the point it affects business?

Very true . .


> Also consider the funny shareholder structure where unlisted grower-class
> shares control the company.
>
> Huntley reckons "Accumulate for Yield. The current pall of gloom appears to
> be creating an adequate discount for the worst eventuality."

I don't know if that makes sense, do they think there is no growth in
the company? 3-4 weeks ago the market thought it was worth 6.40, the
fundamentals haven't changed so is Huntley saying accumulate for yield
because they think the business may be at risk? If so then they whould
expect dividends to fall meaning it would be no good as a yield stock???

I have a real dislike for Huntly, Macquarie, and all those other brokers
that have all these stupid buy 2 hold 0 sell 1 and whatever other
recommendations . .


Lionel.

[Ext User(Public Image Ltd)]

David Segall wrote:
>
> I think the government will license other wheat traders following this
> scandal and continued pressure from the U.S. wheat industry and the
> Australian Grain Exporters Association.

It will set new standards for hypocrisy if the government, who
originally agitated to preserve the monopoly and who seem to be just as
implicated in the scandal as AWB, then propose a break-up of that
monopoly as some sort of solution. Which is not to say that it may not
happen, but it will be interesting to see what sort of (tax-payer
funded) sweetener deal they will have to come up with.

[Ext User(Lionel)]

Public Image Ltd wrote:
> David Segall wrote:
>> I think the government will license other wheat traders following this
>> scandal and continued pressure from the U.S. wheat industry and the
>> Australian Grain Exporters Association.
>
> It will set new standards for hypocrisy if the government, who
> originally agitated to preserve the monopoly and who seem to be just as
> implicated in the scandal as AWB, then propose a break-up of that
> monopoly as some sort of solution. Which is not to say that it may not
> happen, but it will be interesting to see what sort of (tax-payer
> funded) sweetener deal they will have to come up with.
>

I agree and I don't think that this inquiry should be the motivation for
changing the single desk system or the operator. If they believe that
AWB is doing a bad job or that we should get rid of the single desk
system then that is a different story, but either way they will have to
be careful so as to not shock the system which may cost wheat growers.

"JPMorgan Chase & Co said AWB shares could fall to $2.14 if it lost the
wheat export monopoly and was forced to repay any illicit payments.

AWB's shares, which rose 12¢ yesterday to close at $4.64, were $6.02 on
January 17 when the Cole inquiry began. They have lost 23 per cent of
their value since the start of the inquiry at a time when the
sharemarket is surging ahead at record levels.

Peter Quinton, director of research at Bell Potter Securities, said the
single desk was worth about 25 per cent of AWB's earnings. "Obviously
they won't lose all of that but they would lose some of it," he said."

http://www.theage.com.au/news/business/awb-may-lose-grip-on-wheat/2006/02/06/1139074166917.html

Don't you think that if the single desk is worth 25% of earnings then
the 30% drop that we have seen (4.5/6.4, awb got up to 6.40 just as the
Cole inquiry began, not 6.02 as quoted in that report) would have
already factored most of this in? They are suggesting close to another
50% fall???

Gees these people just like to bignote themselves!

Lionel.

[Ext User(Public Image Ltd)]

Lionel wrote:
>
> Don't you think that if the single desk is worth 25% of earnings then
> the 30% drop that we have seen (4.5/6.4, awb got up to 6.40 just as the
> Cole inquiry began, not 6.02 as quoted in that report) would have
> already factored most of this in? They are suggesting close to another
> 50% fall???

Bear in mind that target includes the possible a one-off repayment of
300M to someone or other, and some management turmoil hurt. On the
other hand, that figure would seem to exclude AWB's assets. The main
question here is what sort of barriers to entry there may be,
regardless of regulation. As a roughly parallel example, you don't see
the ASX fretting too much about the competition.

[Ext User(B J Foster)]

John Smyth wrote:

> I'm wondering if all the "scandal" with AWB is material to the fundamentals
> of the business.
>
> Price down 40% + so I'm wondering if its becoming a BUY for value investors.
>
> Just interested if this new situation warrants doing any homework on this
> company or not?
>
> Thanks
> John Smyth
>
>

It's nothing in comparison to the storm over the cartoons. i.e. these
things always get overdone.

"Meat and Wool New Zealand chairman Jeff Grant said the newspapers'
decision to publish the cartoons had the potential to damage the
long-standing high reputation of New Zealand exports.
....
The greatest risk lay in the New Zealand sheep export industry.
Mr Grant estimated $NZ100 million ($92 million) of sheep meat was
exported to Iran annually.

'[The publication's] not necessary, it creates a risk that now has to be
managed', he said".
http://smh.com.au/news/world/nz-braces-for-cartoon-fallout/2006/02/05/1139074093234.html?page=2

Brings to mind..."Plus ca change, plus c'est la meme chose"

or, maybe there's an opportunity in there somewhere for politically
correct Australia to grab a share of some dairy markets.

Personally, I'm investing in alternative energy because the day is
coming when the west will collectively count the real cost of oil.

[Ext User(Lionel)]

Public Image Ltd wrote:
> Lionel wrote:
>> Don't you think that if the single desk is worth 25% of earnings then
>> the 30% drop that we have seen (4.5/6.4, awb got up to 6.40 just as the
>> Cole inquiry began, not 6.02 as quoted in that report) would have
>> already factored most of this in? They are suggesting close to another
>> 50% fall???
>
> Bear in mind that target includes the possible a one-off repayment of
> 300M to someone or other, and some management turmoil hurt.

Very true.


http://www.aireview.com/index.php?act=view&catid=7&id=3500&setSub=1

It should be noted that AWB is 70% owned by wheat farmers. By removing
the single desk there are going to be a lot of unhappy farmers out
there, the farmers are unlikely to support that decision.

What thoughts do people have on the single desk system? Is this the best
way to manage wheat exports or is there a better alternative? Don't
consider the current investigations . . .

Lionel.

[Ext User(Public Image Ltd)]

Lionel wrote:
>
> It should be noted that AWB is 70% owned by wheat farmers. By removing
> the single desk there are going to be a lot of unhappy farmers out
> there, the farmers are unlikely to support that decision.

Yep, farmers have never been too enthusiastic about free-market
capitalism. Maybe if FCL, ABB, etc, eventually get a piece of the
action, the farmers could be placated by being awarded controlling
interests in those companies as well. :-)

[Ext User(Lionel)]

Public Image Ltd wrote:
> Lionel wrote:
>> It should be noted that AWB is 70% owned by wheat farmers. By removing
>> the single desk there are going to be a lot of unhappy farmers out
>> there, the farmers are unlikely to support that decision.
>
> Yep, farmers have never been too enthusiastic about free-market
> capitalism. Maybe if FCL, ABB, etc, eventually get a piece of the
> action, the farmers could be placated by being awarded controlling
> interests in those companies as well. :-)


I won't complain if Futuris gets a piece of the action :). I've got
interests in both FCL and AWB, at this stage I'm only losing a few
percent on AWB after dividends.

I've heard the suggestion that there is no one else really qualified to
manage the single desk, I'm not sure about ABB's management as I haven't
really researched the company too well, but I'm sure FCL would be more
than capable, they emphasise their dislike for AWB's monopoly at just
about every meeting they have.

Lionel.

[Ext User(ewq)]

g'day Beej,
what are some examples of 'alternative energy' companies?
cheers,

[Ext User(Lionel)]

ewq wrote:
> g'day Beej,
> what are some examples of 'alternative energy' companies?
> cheers,


I've personally been on the lookout for alternative energy, but more
specifically renewable energy. Unfortunately I haven't found any decent
companies out there.

One that I'm interested at the moment is not renewable but is a
biodiesel company, Australian Biodiesel company (ABJ). It looks like it
has potential but I'm concerned about whether the assumptions made in
the prospectus about feedstock prices are reasonable and will they get
pushed as biodiesel is still new in Australia, and their predicted
production is based on getting buyers, I'm less concerned because in the
long term I think they will have no problem boosting the production of
both the plant in Sydney and the one being built in Narangba up to 100%.

I'd be interested in anyone else's opinion.

Lionel.

[Ext User(Lionel)]

Public Image Ltd wrote:
> David Segall wrote:
>> I think the government will license other wheat traders following this
>> scandal and continued pressure from the U.S. wheat industry and the
>> Australian Grain Exporters Association.
>
> It will set new standards for hypocrisy if the government, who
> originally agitated to preserve the monopoly and who seem to be just as
> implicated in the scandal as AWB, then propose a break-up of that
> monopoly as some sort of solution. Which is not to say that it may not
> happen, but it will be interesting to see what sort of (tax-payer
> funded) sweetener deal they will have to come up with.
>

http://www.asx.com.au/asxpdf/20060209/pdf/3vcshps63df43.pdf

It had to happen and it is in the best interest of AWB. This will help
them maintain their current position.

Lionel.

[Ext User(Ian)]

"Lionel" <lionelv_@gmail.com> wrote in message
news:dsejr0$j59$1@bunyip2.cc.uq.edu.au...
> I've personally been on the lookout for alternative energy, but more
> specifically renewable energy. Unfortunately I haven't found any decent
> companies out there.
>
> One that I'm interested at the moment is not renewable but is a
> biodiesel company, Australian Biodiesel company (ABJ). It looks like it
> has potential but I'm concerned about whether the assumptions made in
> the prospectus about feedstock prices are reasonable and will they get
> pushed as biodiesel is still new in Australia, and their predicted
> production is based on getting buyers, I'm less concerned because in the
> long term I think they will have no problem boosting the production of
> both the plant in Sydney and the one being built in Narangba up to 100%.
>
> I'd be interested in anyone else's opinion.
>
> Lionel.

Hi Lionel,

I had a fairly quick squiz at ABJ, but decided to hop down to the casino and
whack it all on 17 instead. Just seemed way too speculative for my taste.
Yes, it may all come good and could be huge, but could more easily go the
other way, I reckon.

OTOH, fortune favours the brave. Guess I'm not brave ;)

-- Ian

[Ext User(Lionel)]

Ian wrote:
> "Lionel" <lionelv_@gmail.com> wrote in message
> news:dsejr0$j59$1@bunyip2.cc.uq.edu.au...
>> I've personally been on the lookout for alternative energy, but more
>> specifically renewable energy. Unfortunately I haven't found any decent
>> companies out there.
>>
>> One that I'm interested at the moment is not renewable but is a
>> biodiesel company, Australian Biodiesel company (ABJ). It looks like it
>> has potential but I'm concerned about whether the assumptions made in
>> the prospectus about feedstock prices are reasonable and will they get
>> pushed as biodiesel is still new in Australia, and their predicted
>> production is based on getting buyers, I'm less concerned because in the
>> long term I think they will have no problem boosting the production of
>> both the plant in Sydney and the one being built in Narangba up to 100%.
>>
>> I'd be interested in anyone else's opinion.
>>
>> Lionel.
>
> Hi Lionel,
>
> I had a fairly quick squiz at ABJ, but decided to hop down to the casino and
> whack it all on 17 instead. Just seemed way too speculative for my taste.
> Yes, it may all come good and could be huge, but could more easily go the
> other way, I reckon.

Thanks for the comment, you couldn't elaborate could you? I don't think
it is anywhere near as bad as a casino, I mean it's not a new concept,
biodiesel has been used in Europe since mid 80's and is also required to
be blended into all diesel in the US. This particular company has a
number of things going for it. It has developed its own refinement
technology/process that it can license and what surprised me is that it
has already got a contract to do so with a Canadian company. ABJ gets
paid for providing and installing equipment and then ongoing fees. It
also has some proven track record in that it's plant in Sydney is
already in production and has been providing fuel to government
departments and councils successfully.

All of the executive directors own substantial amounts of shares in the
company, somewhere up to 80% (it's probably closer to 60%) of the
company in total and one of the directors owns $11 million in shares. I
imagine $11 million isn't exactly an amount of money anyone would go
gambling away.

Lionel.

[Ext User(Lionel)]

Lionel wrote:
> Ian wrote:
>>
>> I had a fairly quick squiz at ABJ, but decided to hop down to the
>> casino and
>> whack it all on 17 instead. Just seemed way too speculative for my taste.
>> Yes, it may all come good and could be huge, but could more easily go the
>> other way, I reckon.
>
> Thanks for the comment, you couldn't elaborate could you? I don't think
> it is anywhere near as bad as a casino, I mean it's not a new concept,
> biodiesel has been used in Europe since mid 80's and is also required to
> be blended into all diesel in the US. This particular company has a
> number of things going for it. It has developed its own refinement
> technology/process that it can license and what surprised me is that it
> has already got a contract to do so with a Canadian company. ABJ gets
> paid for providing and installing equipment and then ongoing fees. It
> also has some proven track record in that it's plant in Sydney is
> already in production and has been providing fuel to government
> departments and councils successfully.
>
> All of the executive directors own substantial amounts of shares in the
> company, somewhere up to 80% (it's probably closer to 60%) of the
> company in total and one of the directors owns $11 million in shares. I
> imagine $11 million isn't exactly an amount of money anyone would go
> gambling away.

To add to that my calculations on best/nearly worst case scenarios put
their PER for the last quarter of this year at somewhere as good as 4
and as bad as 40 . . . the 40 is showing my uncertainty . . .

Lionel.

[Ext User(Ian)]

"Lionel" <lionelv_@gmail.com> wrote in message
news:dsghck$23sv$2@bunyip2.cc.uq.edu.au...
> Lionel wrote:
> >
> > Thanks for the comment, you couldn't elaborate could you? I don't think
> > it is anywhere near as bad as a casino, I mean it's not a new concept,
> > biodiesel has been used in Europe since mid 80's and is also required to
> > be blended into all diesel in the US. This particular company has a
> > number of things going for it. It has developed its own refinement
> > technology/process that it can license and what surprised me is that it
> > has already got a contract to do so with a Canadian company. ABJ gets
> > paid for providing and installing equipment and then ongoing fees. It
> > also has some proven track record in that it's plant in Sydney is
> > already in production and has been providing fuel to government
> > departments and councils successfully.
> >
> > All of the executive directors own substantial amounts of shares in the
> > company, somewhere up to 80% (it's probably closer to 60%) of the
> > company in total and one of the directors owns $11 million in shares. I
> > imagine $11 million isn't exactly an amount of money anyone would go
> > gambling away.
>
> To add to that my calculations on best/nearly worst case scenarios put
> their PER for the last quarter of this year at somewhere as good as 4
> and as bad as 40 . . . the 40 is showing my uncertainty . . .
>
> Lionel.

You paint a pretty persuasive picture ! It's just outside my comfort zone.
Come to think of it, I'm not too sure about plonking the money on 17 at the
roulette table either ;)

[Ext User(Lionel)]

Ian wrote:
> You paint a pretty persuasive picture !

And I don't even own any shares in them . . . damn.

> It's just outside my comfort zone.
> Come to think of it, I'm not too sure about plonking the money on 17 at the
> roulette table either ;)

And fair enough too. I don't have enough money in cash to invest anymore
at this time in the market, but I get the funny feeling I will be
kicking myself in a few years . . . but then, who cares, I'm constantly
kicking myself since sept 11 . . . I was a student then so I shouldn't
really be worried.

Lionel.