Select Harvests In A Sweet Spot

This story features SELECT HARVESTS LIMITED. For more info SHARE ANALYSIS: SHV

-Global almond supply falls short
-Orchards maturing at key time
 

By Eva Brocklehurst

Almond producer, Select Harvests ((SHV)), is in a sweet spot. The company's share price has rallied over 40% since November but, rather than considering an opportunity was missed, one broker believes there's more to come. Moelis is upbeat regarding the near-term potential for Select Harvests in an industry where global supply is falling way short of demand.

The harvest from the company's 11,560 acres of almond-bearing orchards next month is expected to match 2012's bumper crop, and prices are higher. Moelis expects prices might be up 10-15% at $6.60/kg, compared with the $5.03 received for the 2012 almond crop.

A key consideration for Moelis, and reflecting the potential over the next couple of harvests, is that 2014 and 2015 harvests will mark the point where a large percentage of the almond trees move into the optimal phase in the growth cycle. The broker envisages this will allow the company a high degree of flexibility in terms of replanting and sustainability. Couple that with the fact that international demand is growing at 8% per annum and supply at 4% per annum and the attraction starts to become evident. Select Harvest is in a strong international position to capitalise on the woes of a prolonged drought in California, where 83% of global almond supply is sourced.

The other positive consideration for the broker is that the company has put in place a comprehensive risk mitigation program over the past couple of years. This includes bee pollination agreements, frost fans on farms and key, long-term access to water. Add this to a vertically integrated business model and Moelis anticipates healthy profits to come. Management is also seeking new growth opportunities, including added processing volume and orchard acquisitions. Last November Select Harvests acquired 2,430 acres, including 680 acres of mature orchards.

Moelis maintains a Buy rating and $7.00 price target. Despite the rally in the share price recently the broker is confident there's more on the horizon, based on the fundamentals and an undemanding valuation. The company has increased its acreage across Victoria, NSW and South Australia and now has a 15% share of the Australian market. The broker's estimates reflect this sweet spot with earnings per share forecast to rise from 40.1c in 2013 to 53.8c in 2014 and peak at 55.2c in 2015, before reducing to 48c in 2016.
 

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