Graincorp: Is this share your best bet for Chinese growth?

Credit: N Sawyer

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)

The technology that's going to REPLACE the Internet is already here...

Exposure to Asia is an exciting investment thematic but its not as exciting as this...Dollar for dollar, insiders are calling it one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.