Ruralco Holdings Limited (ASX: RHL)

RHL Details

Digital Transformation on track: 2017 was a record year for RHL with year on year net Profit after Tax (NPAT) up 422% to $22.4 million. Return on capital employed and Return on Equity both improved and increased by 4 percentage points to 17.3% and 10%, respectively and it also improved its operational expenditure while the gross profit reached 80.8%. These improved returns and reduced cost will help RHL attain a positive operating leverage. The record full year results confirmed the advantages of the Company’s geographic and operational diversity which reduced the volatility of its earnings due to any impact from dry winter cropping period and due to the reduction in the domestic cattle price in the second half of the year. The Board announced a final fully franked dividend of six cents per share which brought the dividend for the full year to 15 cents per share, indicating a 50% increase on the prior year. It restructured its Executive Team to support its strategy to grow the Business.
 

Future Farming Strategy (Source: Company Reports)
 
RHL is leading in digital transformation with the help of its Program Elevate which includes nine projects to enable Ruralco’s growth aspirations and to deliver digital transformation which is based on reliable back office foundation integrated with a scalable e-commerce platform. It is using its technology partnerships with SproutX and Precision Hawk and is also working with its research and development organisations like Meat and Livestock Australia and CSIRO to identify the practical AgTech solutions farmers look for. Over the next 12 months, it will focus on completing the integration of the portfolio of the acquisitions and also on targeted earnings contribution. It is on track with regards to spending $10.2 million in the year for streamlining the processes particularly in ‘procure to pay’ that focuses on improving the cost. Looking at the overall scenario, we give a “Speculative Buy” at the current price of $3.28


RHL Daily Chart (Source: Thomson Reuters)
 

Clean Seas Seafood Limited (ASX: CSS)

CSS Details
Positive Revenue Guidance: Clean Seas’ update for July to October 2017 entailed a sales revenue of $13.5 m which was up by 30% from $10.4 m and sales volume of 858 tonnes was up 20% from 714 tonnes for the same period in the prior year. The Farm gate for large fresh fish was $13.68 which was up 18% from $11.59 as compared to prior year for the same period. The cash flow from the operations was $1.0 m which was up from $0.4m for the same period in the prior year. The OECD and FAO forecast for fish consumption will continue to rise steadily through 2025. Clean Seas’ Spencer Gulf Hiramasa Kingfish sells at a premium to wild caught Kingfish. It is one of the Global Leader in the “Full Cycle” Breeding and Farming of Yellowtail Kingfish, and is forecasted to grow around 3,100 tonnes in FY18. Its customers are the leading seafood distributors and wholesalers in key cities across the world. The group also has a direct relationship with more than 120 distributors and wholesalers. Its brand is featured in the menus in the best restaurants around the world including Melbourne, Sydney, Milan, NYC, London, Toronto and so on. In 2017, CSS commissioned a new in-house processing facility in Adelaide which provides an end to end quality control across the supply chain from the Hatchery to the customer. This facility has a significant capacity for future expansion including production of new “value added” products which are planned from 2018-2019. While the group has laid down a revenue guidance of 23%-34% for FY18, the share price has increased by 41.86% in the past six months and the stock now trades at a lofty price to earnings level. We have a “Sell” recommendation at the current price of $0.061


CSS Daily Chart (Source: Thomson Reuters)
 

Huon Aquaculture Group Limited (ASX: HUO)

HUO Details

Continuous Improvement: Huon had achieved record FY17 revenue and earnings with substantial improvement in its financial performance as the Company’s operations benefited from a return to more normal growing conditions and also helped in the completion of the controlled Growth Strategy-or CGS which was fully implemented in FY16. The CGS continued to substantially mitigate its environmental and other business risks, and has introduced a long-term and sustainable efficiency gains. 2017 was a turnaround year for the Company. However, harvest tonnages were slightly lower in FY17 than in FY16 while the revenues rose 11% owing to improved pricing in the domestic market, which is otherwise assisted by continuing tightness in global salmon supply. The Operating EBITDA for 2017 also increased by 138% as compared to FY16 and it accounted to $62.8 million. The cash flow operations increased during the year to $54.0 million against $16.3 million in the prior year. The expansion in production that is required to meet the steadily growing local and international demand for Huon’s products will occur at its Storm Bay offshore sites. New sales agreement resulted in 22% of production which was being directed by the retail market as compared to 10% in prior years and it provides a better balance to Huon’s sales channel mix and provides a greater certainty in planning future production. It is also creating opportunities through technical innovations and more efficienct projects, and has an approval for the investment in 2018 for $40 million for constructing its new Whale Point salmon nursery.
 

Operations (Source: Company Reports)
 
The shortcomings with regards to low production at Macquarie Harbour, capital expenditure shooting up the FY18 expectations and risk driven growing cycle of summer, need to be watched out for. Given the above, we put an “Expensive” recommendation at the current price of $5.02         
 

HUO Daily Chart (Source: Thomson Reuters)
 

Australian Agricultural Company Limited (ASX: AAC)

AAC Details

Improving Supply Chain: Australian Agricultural Company is on the look-out for a Chief Financial Officer. The group’s operating EBITDA for 1H FY18 was $16.1 million which was up by 16% as compared to last year. However, the statutory EBITDA loss of $36.5 million included mark to market of livestock inventory valuation. In H1 FY 18, the cost of production per kg increased approximately by 2% which reflected operational improvements being offset by less favourable seasonable conditions.
 

Progress in 2018 (Source: Company Reports)
 
The debt facility increased from $400 million to $500 million. Australian Agricultural Company remains committed to executing its three pillars’ strategy. Meanwhile, AAC stock has fallen by 28.97% in six months as on January 17, 2018 given the latest result being below expectations. Staying cautious on the momentum, we give a “Hold” at the current price of $1.255
 

AAC Daily Chart (Source: Thomson Reuters)

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