Booming Agriculture Sector: Lens on WOA, GNC, CGC

Summary

• Agriculture sector faced issues such as lower demand from China and supply chain disruptions due to COVID-19.
• The sector, however, has done reasonably well owing to the Australian government support to address distribution-related challenges and the fact that food items are essential commodities. China’s recent recovery and panic buying also aided the sector.
• Supermarkets and online food delivery categorised as ‘essential services’ has helped players such as WOA. GNC and CGC.
• WOA benefited from online and store sales growth while GNC profited from the uninterrupted supply chain.

The Australian agriculture industry includes the growing and farming of horticultural and other crops. Also, it consists of the skilful breeding and raising of animals. The country mentioned that the agriculture industry is an essential contributor in this unprecedented time.

While the COVID-19 pandemic has been a nightmare for specific sectors with the financial markets were on a roller-coaster ride, the agricultural sector has been relatively unscathed. Despite the challenges regarding supply chain management and impact on demand from China, the industry has performed well and reported the businesses as usual.

The government has played its part in ensuring that food products are exported to different nations with no hurdles. The government had earlier announced a support package worth $110 million to co-ordinate airlines within major towns and help deliver fresh food products to destinations including China, Hong Kong, Japan, and Singapore, among others. that

While the industry has survived the global crisis, there are still a few challenges remaining. Australia exports ~70 per cent of its production and is thus heavily dependent on demand from abroad. With the virus spreading to the entire world, oversees demand and supply chain challenges are likely to affect the industry in the future.

Let us have a look at three ASX-listed agriculture stocks that have been resilient in these testing times.

Wide Open Agriculture Limited (ASX:WOA)

Wide Open Agriculture is a regenerative food and farming company. WOA operates under a ‘4 Returns’ framework and built in the Wheatbelt of Western Australia. Dirty Clean Food, a brand of the Company, markets and supplies food products in South-East Asia and Australia.

Signs Licence to Plant-Based Protein Technology:

WOA notified the market on 18 May 2020 that it had signed a licence agreement and option with Curtin University. The deal is to create a novel and proprietary plant-based lupin protein from Australian sweet lupin (Lupinus angustifolius). Wide Open can release these products in multiple food types for human consumption.

As part of the deal, the two parties will start enhancing the new technology’s production method to transform raw lupin into a feasible protein source. The protein source is required to generate good-quality products.

Curtin University grants the R&D Licence to WOA for the development period ending 12 months after the date of commencement. Further, Wide Open Agriculture is committed to financing the next round of R&D activities, and the forecast cost is estimated to be in the range of $50,000-120,000.

The plant-based protein of the Australian market is likely to be valued at $3 billion by 2030. Over 60 per cent of Australian sweet lupin is generated in WA with an average market worth $200 million (annual).

Financial Performance:

The Company had generated a quarter on quarter growth in revenue. Third-quarter FY 2020 ended 31 March 2020 recorded revenue of $393,689, an increase of 32 per cent over second quarter FY 2020.

Owing to the Company’s resilient business model, in March, WOA had achieved the highest revenue of $179,353 in the Company’s history, despite the challenging conditions brought by the coronavirus.

In March, the Company entered a partnership agreement with two new companies, namely Short Order Burger Co. and Fins Seafood.

Stock Performance:

The market responded positively to the WOA agreement as the stock closed 118 per cent higher on 18 May 2020 at $0.305. On 29 May 2020, the market capitalisation of the Company stood at $22.59 million. WOA has provided shareholders with a positive return of 164 per cent and 153.85 per cent in the last one month and YTD, respectively.

The stock is currently under a trading halt due to an expected announcement involving a capital raising.

GrainCorp Limited (ASX:GNC)

GrainCorp Limited has agribusiness and offers grain storage, handling, and freight services on the east coast of Australia. The Company’s product ranges from baby formula, beer, biofuel, edible oils, grains. The application facility of GNC and CropConnect™ provides a platform for selling grains, which permits real-time checking of commodity pricing to make a sale accordingly. Other than Australia, GrainCorp has business across many countries such as India, Germany, New Zealand, UK, among others.

Recently, the Company reported its FY 2020 half-year results for the period ended 31 March 2020. Revenue from ordinary activities and underlying EBITDA increased by 3.4 per cent and 578 per cent on pcp basis, to $1,959 million and $183 million, respectively. Also, underlying NPAT increased from the loss of $48 million (in HY19) to a profit of $55 million. At 31 March 2020, the balance sheet was solid with zero core net debt as compared to $802 million on pcp basis.

Outlook:

• Due to the favourable weather and recent rainfall, widespread winter planting is expected for FY 2021.
• Lower grain trans-shipments are expected to ECA ports, and higher grain exports are anticipated in 2H FY 2020.

Early in April, GNC finalised the execution of the demerger of United Malt Group Limited. On 29 April 2020, the Commissioner of Taxation had issued ATO Class Ruling providing the demerger-linked income tax consequences for GNC’s shareholders. Also, GrainCorp had completed the sale of its Bulk Liquid Terminals business (excludes Port Kembla) to ANZ Terminals Pty Ltd.

Stock Performance:

On 01 June 2020, GNC stock settled at $4.410 per share, a decline of 0.226 per cent against its last close. The market cap of GrainCorp stood at $1.01 billion. The Company has provided shareholders with a positive return of 23.46 per cent and 28.42 per cent in the last one month and YTD, respectively (as on 29 May).

Costa Group Holdings (ASX:CGC)

Costa Group grows, packs, and finally markets the fresh vegetables and fruit. CGC distributes its products to domestic and international markets, including Asia, Australia, Europe, and North America. The Company has nearly 3,500 hectares of farmed land and employs more than 6,000 employees during peak seasons periods.

CGC entered this year with a revenue of $1.048 billion in FY 2019 for the period ended 31 December 2019. The Company mentioned that despite drought and COVID-19 induced conditions, it has strong fundamentals. Costa stated that demand and subsequent pricing for its product portfolio are strong, especially in the retail sector, which is the primary market for the Company. CGC has plans to further plant 50 hectares at the new site at Pupiao in Yunnan Province in CY 2021.

Stock Performance:

At the close of the trading session on 01 June 2020, stock of CGC settled at $3.200 per share, indicating a decline of 0.621 per cent against its previous closing price. CGC’s market cap was $1.29 billion. Costa Group has generated positive returns of 16.67 per cent and 28.29 per cent within the period of one month and YTD, respectively (as on 29 May).

NOTE: $ denotes Australian Dollar, unless stated otherwise.