CRITERION: Tim Boreham | August 03, 2009 Article from: The Australian.
NSW-CENTRIC grain handler GrainCorp issued a powerful full-year earnings upgrade this morning and the reason is not just bountiful precipitation in its homestate. But it helps.
GrainCorp expects to make between $53million and $63m in the year to September 30, which is quite a step-up from the $37m-$42m expected back in May, and a radical improvement on the previous year's $6 million loss.
The grain-handler expects to manage more than 9.5m tonnes, which compares with the previous year's subdued 6.5m tonnes and its 12-year average of 8.3m tonnes.
The figure includes 4.5m-5m tonnes of grain exported from GrainCorp's port terminals. According to CEO Mark Irwin, this reflects the government's decision to remove the bulk wheat export monopoly, following the AWB-Iraq scandal. This has “`encouraged more competition in the Australian wheat export market and is driving a more robust export program”.
GrainCorp provides port access to 10 bulk grain exporters, most of whom are exporting wheat. “The number of customers we service shows the effectiveness of our long-standing policy of providing open access to all exporters,” Irwin says.
This comment is a pointed one, as it comes ahead of the competition regulator's decision on terminal access, due out next month. Under the export regime, the handlers owning the port facilities (GrainCorp, ABB Grain and the unlisted CBH) must provide “fair and transparent” access to other accredited exporters.
Wilson HTM's analysts believe GrainCorp and ABB Grain already provide such a regime and that accreditation should not be an issue. But it's possible that other exporters (ANB, Glencore and Cargill) will argue that bulk handlers should not be grain marketers as well.
We imagine the competition czar would prefer as many exporters vying for our cockies' kernels, but we'll put this one down as a potential cloud.
Speaking of the weather, Irwin cautions that, while there's the prospect of a good winter harvest, more “finishing rain” is needed.
The weather bureau last month warned of the strengthening chances of a re-emerging El Nino pattern, which means a dry spring for south-eastern Australia.
Cynics might suggest that given this is an official weather bureau prediction, it's actually a source of comfort. Let's just say that, notwithstanding the fickle weather gods, GrainCorp’s recovery looks to be continuing apace.
Criterion changed GrainCorp from an ‘avoid’ to a ‘buy’ in May, after the company repaired its balance sheet with a $60 million raising at $6.25 a share.
GrainCorp shares spiked 38c, or 5 per cent, this morning. The stock now looks to be approaching fair value but we'll treat it as a LONG-TERM BUY.
GNC Price at posting:
$6.76 Sentiment: None Disclosure: Not Held
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