Select Harvests Rolling In Clover

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

-17% increase in plantings in FY15
-Strong almond prices continue
-Substantial growth now likely
 

By Eva Brocklehurst

Select Harvests ((SHV))  is on a roll. The almond producer's earnings were expected to level off in two years time, along with the maturing of its orchards, but the medium-term growth profile has been considerably strengthened.

The company has raised $47m in capital, at $5.35 a share, and announced a $62.8m suite of acquisitions. The three properties acquired involve land and orchards in both Victoria and South Australia. In Victoria the acquisition includes 1,600 acres of land to support new orchards, a property of 435 acres of planted almonds and development land comprising 1,365 acres. The property in South Australia comprises 2,046 acres of almonds and a development land bank of 1,500 acres. Moelis estimates the effective price was $17,000 per acre for the orchards and $1250 per acre for the undeveloped land. This acquisition implies a 17% increase in planted orchards for Select Harvests in FY15, allowing for crop rotation.

A doubling in planted acreage is the company's objective for 2018, using the land bank. This should provide 21,659 acres under plantings, versus the current 10,800 acres. Moelis estimates this would require a $80-90m capex program over the years to 2018 and underpins a strengthening of earnings over the medium term.

Despite a softer-than-expected FY14 result, given higher costs associated with the weather's impact on the latest harvest, Moelis still upgrades forecasts for the next three years. The broker believes the fundamentals are undemanding, as the almond producer is well placed and benefitting from robust demand in an international industry that continues to be affected by a prolonged drought in California, which usually supplies more than 80% of the world's almonds.

FY14 underlying profit was still up 8%, with a final crop size of 10,500 tonnes compared with initial projections of up to 12,600 tonnes, which was similar to that achieved in FY13. This weaker harvest was partly offset by an average price of $8.40/kg for the nuts, despite the sub-optimal quality, compared with $6.60/kg in FY13. Moelis expects earnings per share growth of 28.6% in FY15 and 10.5% in FY16. A dividend of 24c is forecast in FY15 and 26c in FY16, equating to a pay-out ratio of 43.4% and 42.6% respectively. The broker retains a $6.75 target and Buy rating.

See also, Select Harvests' Profit To Peak In FY15 on June 25 2014.
 

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