Australia set to beef up its exports.
WHAT'S YOUR BEEF? YOU SAY YOU CANNOT TUCK INTO juicy European steaks on business trips any more because mad cow disease is on the hoof. Better pay a visit Down Under.
There are many more cows than people in Australia. At the last count, more than 29 million cattle were quietly chewing the cud and depleting the ozone layer - all of them completely sane.
Beef farmers are enjoying their best times since the early 1970s. The four-legged industry is worth US$3.5 billion annually. Exports of beef hit a record 900,000 tonnes last year. The United States, Japan and South Korea are the biggest markets. Business was very good without any potential lift from the bovine spongiform encephalopathy (BSE) scourge in Europe. But the spread of the disease was seen as enhancing the clean, green Australian image, and its reputation for the quality of its chilled beef, as well as for live cattle sold to Indonesia, the Philippines and the Middle East.
Tough European Economic Council quotas restrict Australian beef sales to 7,000 tonnes a year, and that is not likely to change any time soon. The John Howard government is anxious not be seen as trying to capitalise on the mad cow crisis, which is expected to see the slaughter of two million cattle in Europe over the next six months. But health officials moved very fast early this year in banning the import of any kind of beef product from 30 countries in Europe. Retailers have been asked to remove goods voluntarily, including frankfurters, soups and filled pasta from their shelves. The ban was even extended to certain brands of cosmetics.
Some Australian exporting farmers say they are concerned that the BSE scare might lead to international consumers switching en masse to chicken and lamb.
Still, with the Australian dollar hovering around a lowly US$0.55 cents, Aussie beef is very competitive in price, as well as being a safe meal to set before the most dedicated carnivore trencherman.
Many of the huge cattle stations throughout the sunburned land are owned by the likes of media billionaire Kerry Packer, the Sultan of Brunei, and the pastoral investment arms of groups including the AMP insurance giant.
Soon one of the biggest of them is to be launched on the stock market.
Australian Agriculture Co (AACO) owns 380,000 head of cattle spread across 18 leases in Queensland and the Northern Territory, and a number of feed lots around Australian ports. Its chief executive, 32-year-old Peter Holmes a Court, has an extremely unusual CV for a cattle baron. Until six months ago, he was a theatre impresario based in New York. Among other credits, he ran Jerry Seinfeld's first international tour, introduced the South African hit, Gumboots, in Britain, and produced the Australian dance show, Tapdogs.
So why is he swapping hoofers for heifers? Peter's late father, Robert Holmes a Court was a legendary corporate raider in Western Australia in the 1980s. His principal lieutenant, Alan Newman, took over the 176-year-old Elders pastoral group in 1995 and backed it into his listed Futuris Corporation.
Elders handles upwards of three million cows a year bought as a stock agent from other producers. When the time came for its own AACO cattle unit to be spun off as a separate listing, Newman called up the eldest son of his old mentor to run it.
"We will be the only pure beef play on the share market," says Holmes a Court. "The intention is to treble the size of the company to a billion dollars over three to five years. That means growing both organically and by takeovers."
Holmes a Court plans to issue Australian Agriculture shares to fund some quite small acquisitions. And the shares should have quite an attraction - when a farmer retires and wants to break up the estate among his children, giving them shares rather than cash might help avoid unnecessary acrimony.
Australian fund managers have been traditionally cool towards the shares of agricultural companies, branding them as cyclical and ex-growth.
That bias has been changing over the past two years as the industry is rationalised by takeovers and amalgamations. Stockbrokers Salomon Smith Barney point out in a recent research note that three big players in agricultural distribution now control about US$3 billion worth of farm inputs. They are Wesfarmers/Dalgetty (35% market share), Futuris/Elders (17%), and a private Concern CRT (15%).
There was something of a stampede for Futuris shares when it was announced that it was floating off AACO while retaining a significant stake in the venture.
They moved up to a two-year high of A$2.10, where they are selling at 11 times current year profits and offer a yield of 4.5%