A shaky year for local investors

Parochial investors who put their money into Western Australian stocks have just experienced their worst year in nearly a decade, judging by the results of WA Business News' annual total shareholder return survey.

The TSR survey has been held every year since 2001, catching the tail end of the dot.com boom and tracking the resources boom.

The best year for investors was the 12 months to June 30 2007; in that period, 75 per cent of all listed WA companies delivered a positive return to their shareholders.

In the year to June 30 2008, the proportion plummeted to just 21 per cent.

The results would probably be even worse if the survey period was up to the end of August, since many WA companies, including some of the top performers - ranging from iron ore heavyweight Fortescue Metals Group to junior coal developer Comdek - have suffered a sharp fall during the past two months.

The TSR survey factors in share price changes, dividends, capital returns, share splits and any other corporate events to calculate the total return that shareholders have achieved over the past five years.

The top-performing stocks for the year to June 30 comprised a diverse group of junior mining companies.

The best performer was Comdek, which is about to change its name to Resource Generation after being reborn as an aspiring coal miner. It fell into administration in 2006 in its previous guise as a satellite communications business, but is now run by a new board and management team.

Investors who held the stock for the year to June 30 enjoyed a spectacular 1,402 per cent return, according to calculations by data provider Morningstar.

Other top performers over the past year include CI Resources, chaired by former state development minister Clive Brown.

CI's main asset is a shareholding in Christmas Island phosphate miner Phosphate Resources. It spent years trying to gain full ownership of Phosphate Resources, without success, but is finally getting a pay-off courtesy of the soaring price of phosphate on global markets.

Aspiring molybdenum producer Richfield Group and aspiring iron ore miner Brockman Resources were also top performers during the past year.

Investors who believed all of the hype that swirled around the biofuels sector a couple of years ago would have been stuck at the other end of the spectrum.

The worst-performing stock for the year to June 30 was biofuels producer Australian Renewable Fuels, which had to scale down its operations after being squeezed by rising costs and falling biofuel prices.

The sector that accounted for many top-performing stocks was iron ore mining, helped in large part by the 85 per cent surge in negotiated iron ore prices earlier this year.

Many junior companies are hoping to match the success of Fortescue Metals Group, which in May became Australia's newest iron ore exporter when its first shipment left Port Hedland.

Some of the stand-out performers in the sector include Aquila Resources, led by executive chairman Tony Poli, Atlas Iron, which aims to start exports from Port Hedland later this year, Strike Resources, which is seeking to develop a major project in Peru, and Gindalbie Metals, which is active in the Mid West.

Established iron ore producers Mt Gibson Iron and Portman did not match the returns achieved by aspiring project developers, but still had an excellent year, with strong growth in their share values.

FMG, along with uranium miner Paladin Energy, remain the stand-out WA performers over the past five years.

Investors who held Paladin shares over the five years to June 30 2008 enjoyed a total return of 257 per cent per annum.

FMG investors were not far behind, with a total return of 255 per cent a year.

Both companies rose from 'penny dreadful' status to their current ranking as two of WA's largest companies, with established operations and a positive outlook.

While their historical returns are outstanding, recent trading in Paladin and FMG stock shows that investors in even the most popular companies can get burned if their timing is wrong.

FMG's share price has fallen from a high of $13.15 earlier this year to about $7.30 currently.

Similarly, Paladin's shares have fallen from a peak of $9.36 last year to $5.50 currently.

The TSR survey confirmed that larger blue-chip companies tend to be a safer bet.

While only 21 per cent of all WA companies achieved a positive return last year, 60 per cent of WA's top-50 companies, as measured by market capitalisation, managed a positive return.

This category includes companies that pay regular dividends, which means they are not solely reliant on the share price to deliver returns to shareholders (see page 32).

This pattern was also apparent in the Deloitte WA Index, which measures the value of all listed WA companies.

The Deloitte index increased by 15.9 per cent over the year to June 30 2008 as the positive returns achieved by larger stocks more than outweighed the negative returns from the smaller stocks.

The healthy annual gain by the Deloitte index was mainly driven by a 20.1 per cent surge in share values in the June quarter.

By comparison, the All Ordinaries index, which tracks the value of Australia's 500 largest companies, was down 15.5 per cent for the year.

Major international markets suffered similar falls: the S&P 500 index in the US fell 14.4 per cent, the FTSE 100 in the UK fell 15.0 per cent and Japan's Nikkei index fell 25.7 per cent.

In each case, the weakness was concentrated in the real estate, financial services and banking sectors, which have never been a substantial part of the WA market.