Irish agribusiness shares struggle in difficult year for investors

It has arguably been one of the most volatile years in the history of global stock markets thanks to the severe disruption caused by the COVID-19 pandemic in the global economy. In March and April, we saw enormous wealth destruction as financial markets plunged in reaction to the unprecedented public health lockdowns right around the world.

On top of COVID-19, huge uncertainty was also created in markets by the continued escalation in trade tensions between China and the US, the fraught lead-up to the US presidential election as well as the seemingly never-ending Brexit negotiations between the UK and the EU.

Yet despite all of these uncertainties, financial markets showed their resilience in the second half of 2020, with many industries seeing a strong recovery in demand. When we look at the share prices of the Irish agri-food companies that are listed on the stock market we can see that, in general, 2020 has not been a good year (Figure 1).

Shares in Aryzta, Origin Enterprises and Greencore will all finish this year significantly lower than where they started out. Only Kerry Group and Donegal Investment Group shares will finish 2020 in a higher position than at the start of the year.

Shares in Total Produce and Glanbia will roughly break even for 2020, having recovered strongly in the back end of the year. Glanbia’s share buyback programme in the final months of the year undoubtedly helped support its share price in the final weeks of 2020.

Of all the Irish agribusinesses, shares in Greencore performed the worst in 2020. Greencore shares have lost almost 60% of their value in 2020, with the UK’s largest sandwich-maker hit particularly hard by the COVID-19 lockdowns.

The second worst performer in 2020 is Aryzta. Shares in the bakery giant are down 35% this year as Aryzta was also severely affected by COVID-19, with sales to food service customers significantly reduced for much of the year.

Shares in Origin Enterprises are down more than 10% this year after the company endured a difficult 2019 financial year thanks to a much poorer grain harvest across Europe.

However, with prospects for the 2021 grain season looking more optimistic, Origin shares have been on an upward curve in the final weeks of 2020.

It’s also been a challenging year for many international agri-food companies.

As can be seen in Figure 2, shares in global dairy giant Danone are down almost 30% for 2020 despite record supermarket demand for dairy essentials such as yoghurt.

Instead, consumer stockpiling of infant formula in the early months of 2020, particularly in Asia and Europe, has really hurt Danone’s sales and profits in the second half of the year.

The company has announced a raft of job losses as it seeks to cut costs in the face of flagging sales growth. Shares in rival food giant Nestlé are also down slightly this year.

Likewise, shares in UK supermarket giant Tesco are down more than 10% for the year despite record footfall and sales for supermarkets.

In contrast, shares in the world’s largest restaurant chain, McDonald’s, will actually finish 2020 on a high despite the company being forced to shut most of its outlets across the world for a significant portion of the year.

The strength of the McDonald’s brand was only reinforced this year as consumers queued for hours at drive-throughs to get their Big Mac fix when restaurants reopened after the first lockdown.

Interestingly, two of the strongest performing shares in 2020 are those of the two US farm machinery companies, John Deere and AGCO, which makes Massey Ferguson and Valtra machinery.

Shares in John Deere were up more than 50% in 2020, while AGCO shares soared by over 30% during the year.

With grain and oilseed prices expected to be much higher in 2021, investors are clearly confident of a good year for John Deere and AGCO farm machinery.

Outside of the agribusiness sector, it’s also been an interesting year for many other companies (Figure 3).

Irish aviation giant Ryanair has clearly been one of the most negatively affected companies by COVID-19. Yet shares in Ryanair will finish 2020 in line with where they started the year, underlining the strength of the company.

Ryanair shares have rallied strongly in the second half of 2020, particularly when news of the COVID-19 vaccine was announced. The COVID-19 vaccine has clearly underpinned investor confidence that international air travel will begin to return to some level of normality in 2021.

Speaking of vaccines, one of the strongest-performing share prices this year has been that of US pharma company, Moderna. Shares in Moderna have risen more than 600% this year after the company rose to prominence as one of the leading manufacturers of a COVID-19 vaccine.

Another one of the big success stories of 2020 has been US tech company Zoom.

The company’s video-conferencing platform became the go-to communications tool for businesses and consumers all over the world this year after COVID-19 changed the way we live and work.

Shares in Zoom have rocketed by almost 500% over the course of the year.

And while there have been winners, there have also been losers. Shares in UK-based airline group IAG, which operates Aer Lingus and British Airways, have not matched the resilience of shares in Ryanair and are down more than 40% this year. Also in the transport sector, shares in Irish Ferries (ICG) are down 14% this year.

And in the accommodation and hospitality sector, shares in Ireland’s Dalata Hotel Group are down 30% over the course of 2020.

Shares in the video-conferencing platform, Zoom, rocketed by almost 500% in 2020

The hospitality sector has been among the hardest hit this year. Interestingly, US accommodation giant AirBnB floated on the stock market in December 2020, valuing the company at over $100bn.

The disruption caused by COVID-19 to how we live our lives, go to work, travel and do business has been profound. The public health lockdowns needed to stop the spread of the virus have had a severe impact on the global economy and many businesses all over the world.

But as we begin to roll out the COVID-19 vaccine, there is growing optimism in financial markets and business circles that 2021 will be a very different year.

For all the investors out there, 2021 will present significant investing opportunities in the companies that can make the most of the return to normality.