Small Caps | Apr 14 2014
By Tim Moffatt, Head of Private Wealth SA and David Keating, Equities and FOREX Advisor, PhillipCapital
Webster Ltd ((WBA))
Bullish Internal and External dynamics; Walnut production to double by FY16 as Californian drought and Asian protein demand pushes Walnut prices to all-time-highs.
Walnut production growth, strong balance sheet, margin improvement, strong dividend growth…
Walnut production is expected to grow from 6,500 tonnes to 11,500 tonnes by FY16 – as trees planted 5-8 years ago mature and reach full production capacity.
A new cracking facility has recently been built at Leeton, allowing domestic processing of kernels (rather than exporting shells for cracking) – this will improve operational/margin performance. This facility will also allow kernel supply to the domestic market – WBA recently announced it was in advanced negotiations with a key domestic kernel customer.
Finally, post recent $15m CAPEX spend in FY14, the company has a strong balance sheet position with minimal net debt. The 1H14 dividend was increased 50% on the previous corresponding period, a strong sign management is optimistic about the future.
Global Walnut pricing tailwinds on Californian drought, Chile frost + Asian and “healthy eating” demand…
WBA presentation 26/3/14: “Australian price levels have opened strongly over last year. Pricing signalled to remain strong through 2014”. Local Walnut prices are indexed to Californian sales which is the largest export region. California is suffering an exceptionally bad drought (2013 the lowest rainfall year on record), underpinning strong pricing. Without a break in the drought here, supply is expected to remain constrained.
On the demand side of the equation Walnuts are experiencing demand from Asia, as developing countries increase per capital wealth and demand a higher protein diet (meat, fish, dairy, nuts). An example of this is China recently becoming a net importer despite being the largest producing region. In addition developed countries are consuming more Walnuts on the general shift toward healthy eating and recognised wide health benefits of Walnuts in particular (rich source of essential fats & omega 3’s).
WBA remains in strong uptrend, with short-term correction complete…
Technically WBA was at risk of a head-and-shoulders topping pattern and possible reversal of uptrend. This looks to have been negated on price uptick post site-tour and positive presentation update 26 March 2014.
Resistance is seen at $1.40 recent highs then all-time-highs $1.90.
Company Background
Webster Limited (WBA) is a land-based food production company with 2 main operating businesses: Field Fresh Tasmania, and Walnuts Australia. WBA focuses on export of onion and in-shell walnuts and production of counter-seasonal food to supply to northern hemisphere markets.
WALNUTS AUSTRALIA: Walnut Australia operates as the walnut orchard owner, manager and producer of walnuts with over 2,200 ha of orchards owned and/or managed in Tasmania & NSW. The operations include walnut tree nursery, orchard establishment and maintenance, harvesting and processing, grading and packing, and sales and marketing.
FIELD FRESH TASMANIA: Field Fresh specialises in growing and marketing of brown and red onions with operations based in northwest Tasmania. WBA has contract of brown and red onions with approximately 40 local farmers on over 700ha in the districts. Its primary markets are Northern Hemisphere.
Written & Edited by:
Tim Moffatt Head of Private Wealth South Australia PhillipCapital
Level 1, 16 Vardon Avenue, Adelaide, SA, 5000, Australia
tmoffatt@phillipcapital.com.au
www.phillipcapital.com.au
David Keating Equity and FOREX Advisor PhillipCapital Level 1, 16 Vardon Avenue, Adelaide, SA, 5000, Australia
dkeating@phillipcapital.com.au
www.phillipcapital.com.au
Please note the authors have an interest/shareholdings in WBA.
Reprinted with permission of the publisher. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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