A new report from the Boston Consulting Group has indicated a current uptick in the mining sector following a turnaround in shareholder returns in ASX 200 companies last year.
The 2016 Australian Value Creators report showed 2016 to be a significant recovery period for the mining and materials industry.
It found that the mining sector rebounded with a one-year total shareholder return (TSR) of 22.6 per cent due to the recovery in commodity prices, particularly iron ore and coal.
This is despite five year negative total returns.
Europe and Japan had the strongest ASX 200 one year TSR, while this was lower in the United States and emerging markets.
Lead report author and head of BCG’s corporate development practice in Australia and New Zealand, Damien Wodak, said the turnaround in the sector is significant particularly amid global uncertainly caused by Brexit, the US election and Australia’s negative GDP growth in the third quarter of 2016.
Despite the positive results, Wodak said there is still room for improvement over the longer term, as Australia’s TSR of 11.2 per cent over five-years remains below that of the US, Japan and Europe.
“While Australia is behind other regions over a five-year period, the good news is that a high proportion of our TSR was derived from profit growth,” Wodak said.
“Compared to other markets that are more reliant on a change in multiple, this result demonstrates strong fundamental performance of Australian companies.”
Among the five largest sectors in the ASX (healthcare, financials, industrials, consumer staples and mining/metals), healthcare was the strongest in both one year and five year returns.
All five sectors had at least one top quartile ASX 2000 performer in 2016.
Over the past decade, the composition of the top quartile has significantly changed. For example, in 2009, mining, materials and energy companies represented 75 per cent of top quartile companies, but their dominance has declined. Currently, no one sector represents more than 35 per cent. Despite the recent recovery in commodity price, only 13 per cent of mining and materials companies reached the top quartile.