Australia and New Zealand Banking Group (ASX: ANZ) recently released a report titled "The Grains Muster."
The report focussed on the growing demand for grain, red meat and dairy in Asia and how it could transform Australia's grain industry.
In a finding which will perhaps surprise many, the grains-focussed report found that while human consumption of grain is a factor, the two drivers of increased grain demand will be:
- that the drought in Australia has reduced the ability to support grass-fed cattle
- a dramatic shift in Asia's diet towards red meat and dairy will necessitate grain-based feed to meet demand
Notably, the report found that under the scenario envisioned, an increase in wheat production of 20% will be required. This equates to a lift in export income of $1.3 billion by 2030.
Most recently investor attention has been focussed on growing demand in China for Australian produced infant formula and vitamins; the grain sector would appear to have largely been forgotten.
In fact, in the past 12 months while the share prices of Bellamy's Australia Ltd (ASX: BAL) and Blackmores Limited (ASX: BKL) have skyrocketed 383% and 267% respectively, the share price of the ASX's only remaining listed grain company Graincorp Ltd (ASX: GNC) has slumped 25%.
With the share price at $7.35 compared with a level above $12 back in 2013 when Graincorp received a takeover approach now could be a timely opportunity for investors to take a closer look.
Management has provided guidance for an underlying net profit after tax of between $40 million and $55 million this year which implies a price-to-earnings multiple of 31 times, but it should be noted that analysts' forecasts suggest earnings to more than double the following year. (source: Thomson Consensus Estimates)
