At $2.30 and above I do believe AWB was substantially overvalued - especially given both their and FCL's denials of problems in their lending portfolio's.
Quite aside from anything else, it defies belief that given AWB Landmarks (and Elders) hard earned reputation of lending to clients who have been unable to get loans from the banks, and an unbelievable run of droughts, floods and frosted crop writeoffs around the country PLUS poor cattle and wool prices AND now a freeze in the land market covering a probable collapse in rural land values that there are no problems here.
The major banks lend to rural at much lower LVR's (preferably no higher than 40%).
One has to be realistic and say - if climate change is going to impact as quickly as it clearly is - and if AWB and FCL's lending has been as risky as talk in the bush suggests (and some recent debt mediations confirm) then how is it that the major banks are booking problems but the rural lenders are not?
I think the recent share price movement in both AWB and FCL must in part reflect that this has been added to investors general concerns about the operating performance of both companies and the share prices have been marketed down accordingly.
It remains though that both companies have strong franchises in the bush and the ability to bounce back hard in the event of a decent season.
At this stage I think all KNOWN problems seem to be priced into the shareprices (in fact it seems to me to be oversold), but until there is a little more transparency in both companies lending operations I would be keeping a very close eye on things and applying some commonsense in considering what is likely happening regardless of what the companies would like people to believe.
As always this is my personal opinion. Do your own research.
AWB Price at posting:
73.2¢ Sentiment: Hold Disclosure: Held
