CRITERION: When is a disaster not a disaster?

Which Spanish cousin is about to visit us, meteorologically speaking?

Last September, the weather bureau was confident enough to predict the onset of a hot and dry El Nino spell, after three years of cold and wet La Nina conditions.

Now, modelling from four overseas weather bureaux points to the return of La Nina – even though she hasn’t really departed.

It’s certainly been wet on the eastern seaboard, but then again, the September to October period was the driest on record so the weather gods really have been messing with our heads.

Weather – especially the abnormal variety – affects a slew of ASX stocks for better and for worse. At the onset of La Nina in 2020, one investment bank devised a list of no fewer than 50 weather affected stocks.

For example, BHP and Rio Tinto are potential beneficiaries of La Nina because it’s wetter in Brazil, which hampers the activities of iron ore rival Vale. When a butterfly flaps its wings in the Amazon, the ripple is felt in the Pilbara …

Before being bought out by its parent and delisted, Coca Cola Amatil routinely would blame a cold summer for reduced fizzy drink sales.

Given the extensive flooding and northern Queensland being battered by cycles, investors have a keen weather eye on general insurers IAG (ASX:IAG), Suncorp (ASX:SUN) and QBE Insurances (ASX:QBE).

The latter has more global exposures, including to destructive US hurricanes, but across the board the insurers haven’t been shy in posting hefty premium increases (and getting away with it).

Wet weather bodes poorly for the insurers mot just because of catastrophe claims: run-of-the mill road accident claims also spike after the skies open.

Arguably the most weather-dependent non-agricultural stock is construction company Johns Lyng Group (ASX:JLG), which derives about two-thirds of its revenue from insurance repairs, notably water damage. One-third of income derives from catastrophe damage, as opposed to ‘business as usual’ insurance jobs.

Most of the company’s work derives directly from the insurers, which farm out work to a panel of repairers.

While the recent floods have been deemed as less damaging than the 2022 events, Johns Lyng’s army of 5000 contractors are very busy indeed.

While management is yet to update guidance ahead of this year’s half year results, broker Evans & Partners has updated its John Lyng earnings expectations by 20 per cent, for the year to June 2025 (there’s a delay between winning the work and recognising the revenue).

The firm forecasts underlying earnings of $139.3 million for the 2023-24 year, up 2 per cent, on revenue of $1.3 billion (up 1.4 per cent).

Rain hail or shine, Johns Lyng has been reliable performer since listing four years, having risen almost sevenfold. The stock has also gained 13 per cent calendar year to date.

As for the ag stocks, an El Nino no-show would likely be a benefit, although much depends on when and where the La Nina rain falls.

Current cropping conditions look good, to the benefit of grain handler and marketer Graincorp (ASX:GNC). Moist subsoil will also help sector generalist Elders (ASX:ELD), but when it comes to what influences the stock there are more levers to pull than on a John Deere ProDrive combine harvester.

Finally, the El Nino non-appearance looks to have crimped the share price of water rights holder and trader Duxton Water (ASX:D2O), with the stock falling 11 per cent over the last six months.

Conversely, more water is a boon for orchardist Select Harvests (ASX:SHV), the country’s biggest almond grower and a prolific water user. Dry conditions in California – the main rival almond growing region – also benefits the stock.

As with the other shares alone, don’t go nuts on the weather theme alone as other factors will come into play.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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