who said i don't provide balance?

Bad news factored in to shares
Geoffrey Newman
February 16, 2006
INVESTMENT analysts said yesterday the loss of the single desk could slash more than $150 million a year from AWB's earnings, but the shares may hold up today as much of the bad news was already factored into the price.

AWB shares last traded at $4.25 before they were suspended from trading yesterday ahead of the meeting between senior executives and John Howard.

The shares are expected to resume trading this morning after AWB said it would relax its veto on sales to Iraq as a last resort.

Greg Canavan, an analyst at investment firm The Fat Prophets, said trading would be volatile but investors expected AWB would probably have to give up its veto entirely because of the revelations at the Cole inquiry.

"I think the market has expected at the least that would happen," Mr Canavan said. "A lot of bad news is already factored into the share price."

Yesterday's decision on Iraq was the thin end of the wedge. "I'd expect this is the first step in loosening their grip on the wheat export market," he said.

But Mr Canavan said it was a positive for the company that Deputy Prime Minister Mark Vaile was leading the mission to Iraq on AWB's behalf. "If you want to draw any positive out of this that's it," he said. "The Government is still prepared to go in to bat for them."

In a recent report, investment bank JP Morgan said the loss of the veto was the "best-case scenario" at the end of the inquiry and would leave the shares worth between $4.51 and $4.75, higher than the current price.

But JP Morgan analyst Stuart Jackson said yesterday the shares were worth only about $4 now because such a scenario was too optimistic. "There's a chance the single desk will go," he said.

The bank calculates the loss in earnings from the loss of the veto would be small, but the loss of the single desk could slash more than $150 million a year from AWB's earnings in 2011.

JP Morgan's worst-case scenario is the loss of the single desk and punitive damages against the company, in which case it would value AWB at just $2.14 a share.