17/08/2004 - 22:00

Commodities boost TSR figures

17/08/2004 - 22:00

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Commodities boost TSR figures

After a couple of tough years, the fourth annual Trudo WA Business News Total Shareholder Return survey reveals positive market conditions for many of Western Australia’s listed corporates. 

The broad market measure, All Ordinaries Accumulation Index, was up 22.4 per cent for the 12 months to June 30, 0.8 per cent above the S&P/ASX 200. A total of 189 companies, representing about 55 per cent of the sample, managed to exceed the All Ords.

However, equity market returns have significant ground to recover. The three-year compound growth in the All Ordinaries Accumulation Index of 4.9 per cent remains well below investors’ longer term expected equity rates of return.

General world economic conditions and rapid growth in the Chinese economy in particular have produced strong commodity demand. While this was offset in part by the appreciation of the Australian dollar against its US counterpart, the strength of the price rises has provided stronger $A returns.

Reserve Bank figures for the 12 months to April 2004 show major increases for most commodities measured in Special Drawing Right terms, that is, against a basket of four major currencies. 

Price increases include copper (+72 per cent), nickel (+51 per cent), aluminum (+21 per cent) and gold (+15 per cent). Market conditions meant many base metal prices were at around 15-year highs.

The rise in commodity prices led the S&P/ASX 200 Materials Accumulation Index to lift 36 per cent, although this performance was eclipsed by the S&P/ASX 200 Energy Accumulation Index – up by 45 per cent – buoyed by continued high oil prices.

Both Hardman Resources and Woodside benefited from the continued strong oil price and positive results from the Mauritania drilling program. 

Woodside Petroleum’s market capitalisation rose $2.85 billion to $11.1 billion in the 12 months to June 30 2004. Hardman Resources provides greater leverage to the West African and other exploration assets.  One hundred dollars invested in Hardman at the start of the five-year survey period was worth about $4,300 at its conclusion.

The strength of metals prices ensured miners well represented in the one-year TSR results. Among the larger cap stocks, Jubilee, Equigold and Consolidated Minerals posted strong returns. 

Those investors who waded back into the old Anaconda shares were well rewarded with the now renamed Minara Resources posting a one-year TSR of 141 per cent as past difficulties continue to be worked through amid an extremely buoyant nickel market. 

Portman shareholders also experienced a rapid turnaround in their fortunes, with a number of mine expansion issues resolved and the market very positive for iron ore.

In chief executive Michael Chaney’s last full year at the helm, Wesfarmers shareholders have experienced another year of solid returns with a one-year TSR of 33 per cent, assisted by the company’s ongoing active capital management. During 2003-04 Wesfarmers made a tax-effective capital return of $2.50 per share, returning some $930 million to shareholders following the sale of its Landmark rural services business and a re-gearing of the balance sheet. Dividend payments continue to provide shareholders with a solid yield.

After a period of significant corporate activity, Foodland shares underperformed against the market over the latest 12-month survey period. Both the major Australian supermarket chains have now rolled out petrol docket offers, intensifying the always-challenging competitive environment for both the Action and independent supermarket operators.

Foodland’s moving of a number of property assets off balance sheet will free up additional capital for the benefit of shareholders. Foodland’s board and management have provided shareholders with strong performance over both three- and five-year timeframes and could be expected to meet the ongoing challenges of the retail environment.

Alinta continues to be an active participant in the rationalisation of Australian energy infrastructure assets following the withdrawal of the predominantly US-based investors from the Australian market.  Since privatisation in 2000, Alinta has facilitated the departure of its cornerstone investor through a Scheme of Arrangement in conjunction with AMP Henderson and its controlled funds. 

In March 2004 Alinta acquired the assets of Duke Energy for $1.7 billion, providing further diversification of earnings across Australia and New Zealand. In its relatively short life as a public company Alinta has grown and diversified rapidly from a solely WA-based gas company, providing very solid returns for shareholders along the way.

The year 2003-04 produced mixed results for some of the companies that had lagged in earlier surveys. 

Long-suffering Burswood share-holders were provided with an exit mechanism after a widely anticipated takeover offer from PBL. The takeover offer, combined with a special 10-cent dividend, has provided attractive one- and three-year returns for shareholders.

Clough has instituted a range of board and management changes to address performance issues at the company.

It is probably too early to assess the impact these will have on the challenges facing the company. 

ERG’s long slide continues to be as dramatic as the company’s spectacular ascent as write-offs, restructures and rights issues continue in an attempt to restore both balance sheet and operating performance. 

ERG’s market capitalisation has fallen from $900 million to $87 million over the three years to June 30 2004.

The outlook for 2004-05 is unlikely to provide similar gains. The benefit of positive trading conditions has largely been incorporated into share prices. Already in the 2004 reporting season a number of companies’ share prices have been marked down on the back of record results.

With the US credit cycle tightening and oil prices heading towards $US50 per barrel, things are certainly not going to get any easier.

 

TRUDO 

  • All Ordinaries Accumulation Index, up 22.4 per cent for the 12 months to June 30, but three-year compound growth of 4.9 per cent well below investors’ longer term expectations
  • S&P/ASX 200 Materials Accumulation Index up 36 per cent.
  • S&P/ASX 200 Energy Accumulation Index – up by 45 per cent – buoyed by continued high oil prices.
  • Hardman Resources, Woodside, Jubilee, Equigold, Consolidated Minerals, Minara Resources, Wesfarmers, and Alinta among the solid performers.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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