Select Harvests Limited

Team Veye | 26 Mar 2020 ASX - SHV
Select Harvests Limited
Call Buy
Asx SHV

Select Harvests Limited (ASX: SHV) is an almond producer and marketer. The Company's principal activities are processing, packaging, marketing and distribution of edible nuts, dried fruits, seeds, and a range of natural health foods, and the growing, processing and sale of almonds to the food industry from company-owned almond orchards, the provision of management services to external owners of almond orchards, including orchard development, tree supply, farm management, land rental, and irrigation infrastructure, and the marketing and selling of almonds. Its segments include Food Division, which processes, markets and distributes edible nuts, dried fruits, seeds, and a range of natural health foods, and Almond Division, which grows, processes and sells almonds to the food industry from company-owned almond orchards, and provides a range of management services to external owners of almond orchards, including orchard development, land, and irrigation infrastructure rental, and the sale of almonds. (Profile source: Reuters)

From the Company Reports

Select Harvests Limited (SHV) - Business Update

Paul Thompson, Managing Director of Select Harvests, on 23 March 2020 confirmed that all Select Harvests’ facilities and almond harvest will continue to operate. They were exempt from the lockdowns and border restrictions recently announced by the State and Federal Governments.

                  

(Graphic Source – Company Reports)

The almond harvest has continued with now 50% of the crop fully harvested and being transported to the Carina West processing facility. The yield and quality remain similar to last year.

The Thomastown and Carina West facilities have been operating to meet the ongoing demand from its retail domestic customers and its export customers.

2020 Crop and Market Update

Select Harvests on 17 March 2020 announced the following update on current market conditions and the 2020 crop.

Market Conditions

The Australian January Export shipment report had been released by the Australian Almond Board for the period March 2019 to January 2020. Month on month shipments were up 40% and YTD shipments were up 26%.

The Californian Almond Board had released the domestic and export shipment report for the period August 2019 to February 2020. It confirmed the 2019 crop will be approximately 2.55 billion pounds. Month on month shipments was up 7.9% and YTD shipments were up 5%. Both domestic and export shipments for February 2020 were record results.

(Graphic Source – Company Reports)

World demand from major almond importers and domestic customers remains strong. Its Chinese customers have commenced production post the extended Lunar New Year closure as a result of the Coronavirus.

Select Harvests’ 2020 crop was over 65% committed for sale at prices within the previously provided range of A$8.00 - A$8.50/kg. As previously advised, cashflows have been delayed and it anticipates export shipments of the 2020 crop will commence within the next month.

Select Harvests Limited – FY2019 Full Year Results

Select Harvests Limited (ASX: SHV) on 29 November 2019 announced results for the twelve months of the new reporting period ended 30 September 2019 with a reported Net Profit After Tax (NPAT) of $53.0 million.

The 2019 financial year has delivered a very strong result driven by increased almond production and a firm almond sales price. The 2019 crop is 22,690MT, slightly higher than previously announced and up 45% on last year. This is a result of excellent growing and harvest conditions, increased production from their maturing orchard portfolio and the benefits from our investment in risk mitigation such as frost fans. Recent investment in additional sorting technology at the Carina West processing facility has also improved both productivity and quality levels.

Continued increasing global demand and a successful marketing program delivered an almond sales price of A$8.60 per kg for the 2019 crop (up 7% on last year).

(Graphic Source – Company Reports)

The cost of almond production per kg (excluding tree depreciation) reduced by a further 15%. In 2019 the price of water increased significantly, however the full impact was managed through the company’s water ownership structure and prudent temporary water acquisitions.

The Food Division results were in line with expectations with a challenging domestic retail environment impacting margins. This was offset by good cost control and the continued strong demand for industrial value-added products. Shipments to its international retail partners and industrial customers continue to grow in line with forecasts

Overview of FY2019 Full Year Results (note - given the new financial reporting period no financial comparatives are supplied)

  • FY2019 NPAT of $53.0 million 
  • EBITDA of $95.2 million 
  • Operating Cashflow of $80.3 million 
  • 2019 almond crop of 22,690 MT (2018 crop 15,700 MT) – up 45%
  • Almond price of A$8.60/kg (2018 crop A$8.05/kg) – up 7% • Almond productivity cost per kg reduction of 15% (excluding tree depreciation)
  • Net Debt (inc. finance lease liabilities)/Equity ratio at 30 September 2019 is 6.6%
  • Bank debt fully re-paid - $7.9 million cash in the bank 
  • Earnings per Share (EPS) of 55.5 cents per share
  • Lost Time Injuries down 61%

 

(Chart source: TradingView)

Cashflow as a result of the strong underlying performance, FY2019 produced operating cashflows of $80.3 million. This allowed all bank debt to be paid as at balance date and delivered a very healthy gearing ratio (including finance leases) of 6.6% (note this is the last reporting period prior to the introduction of AASB 16 – Lease Accounting).

 

Stock Overview
Sector Food, Beverage & Tobacco
Risk Low
Market Cap 681.91m
Daily average Volume 216,884
EPS (FY) 0.292
PE RATIO 24.28
Yearly Dividend Yield  4.94%
Target Price (s) $8.50-$10.50
Stop Loss 6.5
Recommendation Buy
52 weeks High $9.430
52 weeks Low $5.190
Directors Mr Paul Thompson
Non-executive Directors Ms Nicki Anderson
Ms Fiona Bennett

 

Veye’s Take

All Select Harvests’ facilities and almond harvest will continue to operate as they were exempt from the lockdowns and border restrictions recently announced by the State and Federal Governments. The 2019 financial year has delivered a very strong result driven by increased almond production and a firm almond sales price. Recent investment in additional sorting technology at the Carina West processing facility has also improved both productivity and quality levels. This also prepared it for increasing crop, plus providing the flexibility to react to meet short-term market peaks. The platform is set for Select Harvests to continue to achieve consistent production levels in future years. Continued increasing global demand and a successful marketing program delivered an almond sales price of $8.60 per kg for the 2019 crop (up 7% on last year). The cost of almond production per kg (excluding tree depreciation) reduced by a further 15%. In 2019. The price of water increased significantly, however, the full impact was managed through the company’s water ownership structure and prudent temporary water acquisitions. SHV can continue to deliver sustained growth in earnings. The stock had halted the fall last week and reversed. Short term consolidation could take place now. It can gain upside momentum if it closes above $7.30 for a couple of days. The fundamentals of the company remain positive and opportunities to improve exist. Veye recommends a "Buy" on “Select Harvests Limited” at the current price of $7.02


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