PYTHONESQUE humour might have had the managed investment scheme sector crying out “I’m not dead, yet”, but there really is life in the industry despite the dramatic and near-terminal events of 2009.
PYTHONESQUE humour might have had the managed investment scheme sector crying out “I’m not dead, yet”, but there really is life in the industry despite the dramatic and near-terminal events of 2009.
In February last year, two industry stalwarts, Great Southern and Timbercorp, were telling the markets they were overcoming debt issues that had arisen at the depths of the global financial crisis.
Both collapsed just ahead of the June 30 cut-off for the 2008-09 MIS marketing season, contributing to a massive 75 per cent fall in revenue for a sector already vulnerable to the impact of the GFC.
Much reduced in size as the sector may be, those remaining are firm believers that the problem wasn’t MIS, but rather the mismanagement of the companies that collapsed.
Rural giant Elders has emerged as a significant player in the sector and remains committed to releasing a 2010 product focused exclusively on timber. It is targeting $53 million in sales, or around 18 per cent of the total forecast market of $294 million for 2009-10.
Some years ago, Elders bought into the sector with the acquisition of early entrant ITC, which it is about to rename as Elders Forestry.
While it hopes to provide a sense of security to investors by using the Elders name directly in MIS, there may also be an expression of confidence in the sector by the Adelaide-based group in more strongly linking its long-established name into the controversial industry.
In forecasts released to the market, Elders expects the market will grow from $250 million in the disaster year of 2008-09, to around $400 million in 2010-11. Almost all of that business will be in forestry.
While this growth is substantial, it needs to be viewed in context. MIS sales peaked in 2005-06 at $1.14 billion, slipping to $1.09 billion two years later. About 30 per cent of that was non-forestry such as cattle, viticulture and olives.
Expectations regarding the health of the market may be tested by AACL’s planned float on the ASX, which was mooted in WA Business News late last year. The company is seeking as much as $11 million in investor funds, which would value it at $18 million.
While it might seem game to list a new MIS company less than a year since two major ASX players collapsed, AACL’s model is markedly different from those traditionally used in the forestry and horticulture sectors.
Focused on broad acre cropping, AACL operates a kind of share-farming operation that allows grain growers and investors to share the risks and rewards of cereal production.
In addition, the annual harvests in a staple food industry with a well-known track record of production is a considerable distance from the 10-year growth horizons which most trees offer, and flimsy three-to-four-year revenue forecasts for many viticulture projects.
AACL is not entirely reliant on MIS funding. In 2009, it generated $30 million in pre-payments from The Grain Pool and it hopes to increase pre-payment funding from the grain marketer to $50 million this season. In its prospectus, AACL also raises the possibility of tapping wholesale and institutional funds for investment in its grain co-production projects.
Diversification of fund sources is also an objective of Kununurra sandalwood grower TFS Corporation, which is chaired by Frank Wilson, a lawyer whose links to the retail tax-effective investment sector pre-date the emergence of MIS.
TFS CFO Quentin Megson believes MIS is a good fit for his company but acknowledged that a long-term plan had been developed to minimise the retail sector risk from which it hopes to raise $35-40 million this year.
“Even before the Great Southern and Timbercorp rigmarole, when you did your SWOT analysis, there was always a threat in relying on tax deductions or something the government has a hand in,” Mr Megson said.
TFS’s strategy will be to create two trusts with about $50 million each in funds generated from offshore investors.
About 30 per cent of those funds were earmarked to buy existing woodlots, creating a secondary market for earlier MIS investors and offering offshore investors an accelerated return.
