Select Harvests Limited

SHV Details

·         Significant impact of crop downgrade on FY17 earnings: Shares of Select Harvests Limited (ASX: SHV) dropped 10.6% on May 26, 2017, after the revelation of the crop downgrade by the company. Currently, SHV received 98% of its 2017 almond crop at its Carina West processing facility and has processed 60% of the crop (including almonds from all its growing regions). Based on actual yields, the crop estimate has been reduced to between 13,500 -14,000 MT with an estimate price of A$7.50-A$8.00/kg. Crop downgrade at estimated prices are expected to have a material impact on full year earnings as sales commitments are currently at 60% of the crop. However, the capital investment has been made and non-bearing orchard area is significant with over 3,400 acres coming into production over the next 3 years. Further, the company has the benefit of the Jubilee Orchard acquisition volumes contributing from next harvest, and is diligently growing its productive base through investment in acquisitions, greenfield plantings and orchards productivity improvements, and this is anticipated to see a crop more than 20,000MT by 2021 with full production expected to be reached by 2025.

·         Recommendation: For H1FY17, Select Harvests’ revenue declined to $126.5m from $166.4m in H1FY16, while profit has fallen from $23.6m to $11.6m. The stock has declined 36% over the past six months as on May 26, 2017, owing to subdued results and latest crop down grade. We give an “Expensive” recommendation on the stock at the current price of $ 4.34

FlexiGroup Limited

FXL Details

·         Concerns about Certegy’s revenue growth is dragging the stock down:During H1FY17, FlexiGroup Limited’s (ASX: FXL) revenue grew by 33% year on year (yoy) to $235.5m with 15% yoy increase in net income to a $47.7m, led by NZ Cards segment and Australia cards segment. However, net income was partially offset by increase in employment expenses of 35% to $43.7m. Importantly, the group has lowered its guidance for FY17 cash net profit to $90-93m (down 2%) from $90-97m earlier forecast, largely due to the underperformance of Certegy. However, Australian cards, which constitute 52% of group receivables and 39% of group cash net profit, continued to deliver robust growth while Certegy (No Interest Ever business), is behind expectations. The company expects underlying trading in Q4FY17 to be robust and key initiatives include the launch of Oxipay and the project in Ireland going live. Moreover, the dividend policy has been rebased to provide additional capital to sustainably support significant organic growth opportunities within Cards, Ireland and Commercial leasing.

·         Recommendation:The stock slipped by 7% on May 26, 2017 and has declined 31% over the last one month owing to subdued performance in Certegy and lowered guidance for FY17. On the other hand, Renaissance Smaller Companies Pty Ltd became a substantial holder of FXL with 5.27% interest. We give a “Speculative buy” recommendation on the stock at the current price of $ 1.64

Ansell Limited

ANN Details

·         Sale of Sexual Wellness (SW) business:Shares of Ansell Limited (ASX: ANN) dropped 6.7% on May 26, 2017 following the rise witnessed a day before after announcing about the sale of its Sexual Wellness business. The recent fall may be owing to some profit booking. The group has executed a binding agreement for the sale of its Sexual Wellness (SW) business for US$600m to Humanwell Healthcare and CITIC Capital China Partners (Buyer Consortium), and the transaction is expected to get completed by the end of September 2017. Net after-tax cash proceeds to Ansell are expected to be approximately US$529m and the company also expects to realize a net profit after tax in the order of US$365m in FY18. The new on market share buy-back program for up to 10% of the company’s issued capital or approximately 14.75m shares over the next 12 months will commence in June 2017.

·         Recommendation: The stock has moved up 11.1% over the past three months, while it was up 25% for the last twelve months as on May 26, 2017.We give a “Hold” recommendation on the stock at the current price of $ 23.48

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