It has been another big year for managed investment schemes, but the experts warn the industry is consolidating rapidly.
Buoyant investors have delivered another bumper year for managed investment scheme promoters, with sales up at least 20 per cent to around $1.26 billion for the year ending June 30.
The strong results were already evident last week, when West Perth-based Great Southern Plantations, which holds a 35 per cent share of Australia’s MIS market, forecast total sales of agricultural investment products for the year 2006 of $458 million, up from $365 million.
Great Southern’s result represented an increase of about 25 per cent over last year, bettering the overall market growth.
Rural research analyst Australian Agribusiness Group executive manager, Tim Lee, said this year was patchy in terms of individual companies, even though the market grew solidly.
“Some of the more well-known groups have not done as well as expected,” he said. “It is a mixed year but overall the market is up.
“Those that have done well will have increased market share.”
It is a point confirmed by rival research house Adviser Edge, with the clear winners being Great Southern and Melbourne-based Timbercorp Ltd, which has big operations in Western Australia and nearly doubled sales to $321 million from $176 million.
Last year, the pair had around 54 per cent of the $1 billion market. This year they hold around 62 per cent of the market between them.
Adviser Edge managing director Shane Kelly said it was increasingly evident that the continued dominance of the two major players in the market was making it difficult for other project managers to expand their product ranges with any certainty.
“This is a very difficult market for new entrants” Mr Kelly said.
“The major barrier to anyone trying to enter the market is access to distribution networks for the products. This is not likely to change in the near term”.
Despite the strength of the market leaders, total sales across the sector were at the lower end of the forecast spectrum, with Mr Kelly pointing to several issues created uncertainty that affected demand.
Investors’ concern regarding on high commission products and a more favourable superannuation investment climate following the federal budget affected sales, as had the late release of product rulings for a number of projects.
Furthermore, Mr Kelly said vineyard scheme managers had a significant level of negative press surrounding the state of the Australian wine industry, dampening demand for their products.
“We would expect to see very low levels of new plantings by the MIS vineyard managers this year,” he told WA Business News.
“Based on the preliminary figures, we would expect around 500 to 600 hectares to be established by MIS companies this year, the majority of which will be covered by supply contracts with major wineries.
“Given the way this year has played out, it is difficult to expect [overall MIS] sales growth to be maintained, even given the lower level experienced in 2005-06.”
In some ways, Great Southern Plantations’ result was in contrast to this, with the company claiming this was the first year it had closed its plantation projects early after being oversubscribed.
The company said it was comfortable managing about 35,000ha, with the biggest issue being land accessibility.
Great Southern’s growth in 2006 primarily came from its non-forestry projects, which were up 180 per cent on last year’s sales of $143 million.
It described the investor response to a beef cattle project, with more than $70 million in sales, as “overwhelming”.
Even the other non-plantation projects were significant. The organic olive scheme raised about $50 million while the wine grape project generated about $20 million.
This widening range of options reflected an industry trend.
Adviser Edge found timber investment had plateaued at $744 million for the financial year, while there was significant growth in horticulture, $414 million, and agriculture, $98 million.
“This is the first time in six years that there has been a significant percentage shift away from timber and could be a sign of things to come,” Mr Kelly said.
Australian Agribusiness Group’s Mr Lee agreed there had been a move towards a broader range of commodities with tomatoes, cherries, walnuts and even pearls on offer this year.
“Next year that will diversify further,” he said, predicting that more mainstream products would become the target of MIS promoters.
“We might expect to see some cropping,” he said.
Great Southern Plantations managing director John Young said the non-plantation product was a deliberate long-term strategy that would underpin the future growth of the company.
In fact, he delivered a subtle warning to those in traditional farming enterprises.
“There are a number of agricultural commodities with international markets, strong potential demand and oppor tunities for economies of scale that we can distribute through our large distribution network,” Mr Young told WA Business News.
The non-plantation projects would deliver regular income streams, he said, which were particularly attractive to older investors whose retirement savings were under-funded.
“With the new changes to superannuation, building investments and income outside superannuation is increasingly important,” Mr Young said.
“These products are not purely about tax deductions; they provide a diversified investment with regular income and competitive returns.”
