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    re: how low will it go ?? www.theage.com.au

    AWB may lose grip on wheat

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    By Philip Hopkins
    February 7, 2006
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    SHARES in AWB could be slashed by between a quarter and two-thirds if the grains giant loses its monopoly over wheat exports as a result of the Iraqi scandal, analysts warn.

    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.

    "Over and above that of course, there's the prospect that management is going to be changed, which is a whole different level of uncertainty — management uncertainty. Where you put the two together it's a fairly potent combination."

    The Federal Government set up the inquiry by former judge Terence Cole after AWB was named in a United Nations report for allegedly making almost $300 million in illegal payments to Saddam Hussein's regime under the United Nations oil-for-food program.

    Prime Minister John Howard said on January 20 the government may end AWB's wheat export monopoly.

    JP Morgan said AWB shares would fall to $3 without the single desk, and the repayment of $300 million to Iraq or growers would cut the stock's valuation by a further 86¢ per share. The company's stock is expected to fall below $4 in the near term, the report said. The bank has an "underweight" rating on the shares.

    Mr Quinton said analysts could see what contribution the single desk makes to profit. "The problem is how much you should build into your share price targets for management turmoil," he said.

    "That's where the difference of opinion is."

    However, Mr Quinton said brokers should not be "bottom fishing" AWB. "I think it's probably too soon. Some think it's fallen so much it's a good buy," he said.

    A leading Melbourne funds manager, who asked not to be named, said the aggressive tactics of the US wheat industry were a danger to AWB.

    The US wheat lobby is pushing for the US Congress and three powerful commodity exchanges to ban AWB from US markets. AWB is a major player in futures contracts on the Chicago Board of Trade.

    "If they really wanted to get nasty, they (the Americans) could ban them from using that," the funds manager said.

    "It's a bit unsavoury when the Americans subsidise their wheat. It annoys me when they get on their high horse. The Americans are being motivated by greed."

    Paul Jensz, an analyst with Austock Brokers, said the forgotten people in the furore so far were Australia's 50,000 wheat growers.

    "They are the best wheat growers in the world. We need to help them. We must ensure a sustainable industry so that we can get good prices for our wheat growers," he said.

    The Cole inquiry must report by March 31.

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