Today we start a two part series called, “Which Australian industries are set to soar and fall in 2016?”
According to a recent IBISWorld report there are a number of Australian industries set to rise and fall over the next 12 months, the question is: “How will it impact the companies on the S&P/ASX 200?
According to analysts at IBISWorld the cotton growing industry is in for a bumper year in 2016, expecting rapid growth of 19.2%. Other industries set to boom in 2016 include internet publishing and broadcasting, organic farming, houseware retailing, and university and other higher education, which we’ll discuss in this installment, Part 1.
Some industries however, are in for a less than exciting year, which we’ll discuss in Part 2.
(The list of shares in this article is by no means exhaustive, but simply an indication of the types of companies and industries to watch for in 2016).
Cotton growing in Australia
IBISWorld projects that the cotton growing industry will fly in 2015-16, growing by 19.2% to reach $879 million. The industry is expected to recover strongly from a poor performance in 2014-15, when revenue fell by 62.7%.
The reasons are that a marginal increase in global cotton prices coupled with increased cotton production are expected to contribute to this substantial revenue growth in 2015-16.
According to IBISWorld senior industry analyst Spencer Little, “the cotton growing industry is highly volatile, with revenue movements ranging between 136.1% growth and 62.7% decline over the past five years.”
Internet publishing and broadcasting in Australia
Over the past five years, consumers have continued to migrate towards the internet for services previously provided in newspapers, such as real estate, car and job advertising.
The main source of industry growth in the current year is expected to be the entrance of popular video streaming websites, such as Netflix, Stan and Presto. These players do not compete directly with other internet publishers and broadcasters. Rather, they are taking market share away from free-to-air and pay-TV providers, as consumers grow tired of waiting for new content to be broadcast on traditional mediums.
Advertisers love the internet, “The ability to easily search with filters for specific results makes the internet the prime medium for these forms of advertising,” explained Mr Little.
Shares to watch include, Webjet Limited (ASX: WEB), SEEK Limited (ASX: SEK), Carsales.Com Ltd (ASX: CAR), REA Group Limited (ASX:REA), Seven West Media Ltd (ASX: SWM), Nine Entertainment Co Holdings Ltd (ASX: NEC), Ten Network Holdings Limited (ASX: TEN), Southern Cross Media Group Ltd (ASX: SXL).
Organic farming in Australia
The organic farming industry is forecast to fly in 2015-16, with revenue expected to grow by 5.6% to reach $733.8 million. Demand for organic products in Australia and overseas has risen as consumers have become increasingly aware of the perceived health benefits and environmental effects of their food choices.
“The industry is expected to continue to grow strongly as organic consumption becomes more mainstream,” Mr Little said. The nation’s two major supermarkets, Woolworths Limited (ASX: WOW) and Coles, which belongs to Wesfarmers Ltd (ASX: WES), now stock greater amounts and wider ranges of organic produce, making the purchase of organic products more convenient.
Houseware retailing in Australia
Housewares revenue is projected to grow by 5.1% in 2015-16, but by only 1.9% in 2016-17. The slower growth in 2016-17 can be attributed to a projected fall in consumer spending and a decline in residential building construction activity, amid fears of an oversupply in multi-unit apartments.
Over the past five years, demand for houseware products has grown due to a rise in residential building construction, an increase in new dwelling commencements and alterations to existing dwellings. “Industry revenue growth has been further supported by rising household discretionary income, which has boosted consumers’ ability to spend on housewares,” Mr Little explained.
University and other higher education in Australia
Revenue in the university and other higher education industry is expected to grow at a compound annual rate of 4.6% over the five years through 2015-16, to reach $29.6 billion. Revenue is projected to rise by 3.6% in 2015-16, driven by increased student enrolments, including both domestic and international students.
“International student enrolments grew by 8.1% in 2014, driven by preferable student visa arrangements and a depreciation of the Australian dollar,” said Mr Little.
Stay tuned for our next installment, Part 2, were we’ll take a closer look at the losers, and how it will impact the companies on the S&P/ASX 200.