Australian Agricultural Company Ltd

       AAC Details
 
Improving operating EBITDA based on selling of highest quality of beef: Australian Agricultural Company Ltd (ASX: AAC) announced its half year results highlighting a$19 million increase in operating EBITDA to $11 million for the six months to September 30, 2015. Sales were up 71% to $258 million. There was $97 million increase in statutory EBITDA to $92 million. Further, statutory NPAT of $50 million for the six months indicated a $64 million improvement on the previous corresponding period (pcp). AAC also reported that its net operating cash flow was up $52 million at the back of better operating EBITDA and a $28 million reduction in working capital. Increase in beef sales for the half to $218 million (89.5%) steered the operating result. This was primarily due to increased prices and the shift in volume from live cattle to boxed beef. Even, total meat sales volumes surged 90% on the previous corresponding period while higher live cattle prices drove a 28% increase in live cattle sales to $36 million. Wagyu meat & by-product sales prices surged 6% while shortfed/other meat & by-product sales prices increased 10%.
 

Results (Source: Company Reports)
 
Overall, meat sales prices and volumes have been stronger than in the previous year. Livingston Beef is increasing daily throughput and providing a positive contribution to the group. The increase in company co-produced cattle transferred into the supply chain (greater than 150% increase from Grassfed to Grain Fed and Northern Beef) has improved the performance of the supply chain. All this also shows the extent to which the company has been able to transform itself into a vertically integrated beef business. The company now focuses on further increasing margins by implementing a strategy for differentiated branding, investing in innovation and technology and continuing to optimise the supply chains. AAC’s Wagyu brands also won few national and international awards in the past six months.The company has obtained improved terms on its bank facilities providing greater flexibility and lower cost of funding. The existing bank debt facility of $ 400 million has been split into two separate facilities of $ 250 million and $ 150 million. The outcome of this is increased funding flexibility, improved alignment with the underlying assets and reduced funding costs. We believe that the successful transformation and the impressive results make this an investment worth considering and we accordingly rate it as a Buy at the current price of  $1.505
 
 
AAC Daily Chart (Source: Thomson Reuters)
 

Clean Seas Tuna Ltd

                  CSS Details
 
High Q1FY16 Sales and performance of Yellowtail Kingfish: Clean Seas Tuna Ltd (ASX: CSS) released the cash flow report and the business update for the September quarter. Sales were 322 t which is 47% higher than the comparable quarter for the previous year and 10% higher than the preceding quarter. Sales were mostly to the Australian and European markets while sales to the US and Asia made up 4% of the total. The company remains focused on increasing sales to the US and Asia substantially while continuing to increase sales to the other markets. Sales in October are approximately 10% higher than the monthly average sales in the first quarter of FY 2016 and the expectation for FY 2016 remains at 2000 t. The Yellowtail Kingfish continues to perform strongly with excellent health and historical survival rates. October is the period of the year when seawater temperatures is appropriate for the Kingfish to resume strong growth. The first run of 2016 year Class fingerlings were transferred to sea cages in September 2015 and the second run will be transferred in November 2015. Further runs are scheduled for December and February. Performance has been good to date and the Hatchery facility continues to produce high-quality reliably. The company continues to focus on achieving sales of 3000 t every year over the coming years to improve margins as well as improving fish performance with lower costs of feed per kilogram of fish grown. The benefits of investment in feed and feed management will be delivered through the support of the Department of Agriculture.
 

Farming Locations (Source: Company Reports)
 
We believe that the company’s focus on producing Kingfish for the sashimi market will be paying because of the increasing global appetite for sashimi. The stock has corrected about 10.53% in the last one month (as at November 24, 2015). Accordingly, we believe that the prospects are bright and the current low price proffers an entry opportunity. We therefore recommend a buy for the stock at the current price of  $0.05
 
 
CSS Daily Chart (Source: Thomson Reuters)
 

Farm Pride Foods Ltd

            FRM Details
 
Decline in revenue but impact from advertisements on egg utilization: For the financial year 2015, Farm Pride Foods Ltd (ASX: FRM) reported improved performance across a number of metrics. Revenue from ordinary activities was down 5.4% to $ 31.34 million but consolidated profit after tax from ordinary activities was up 133% to $ 5.05 million and net profit attributable to shareholders produced the same figures. EBITDA was $ 12.19 million compared to $ 7.33 million in the previous year. The previously expected reduced margins in the second half year did not materialise because the industry experienced only a short period of surplus supply. No interim final dividend was declared. Net cash flow from operating activities was $ 9.23 million compared to $ 4.8 million in the previous year. Retail grocery sales volumes of eggs was 51% for cage eggs, 40% for free range eggs and the rest for organic and barn laid eggs and the overall CAGR was 7% with less than 1% for organic, 13% for barn laid, 17% for free range and 4% for cage.
 

Performance (Source: Company Reports)
 
The company’s message for the nutritional benefits of eggs has had great impact on the outcome of the advertisements showing that increased percentage of GPs are more inclined to discuss the dietary benefits of eggs with patients. The company’s research shows that two thirds of GPs are now convinced that egg intake has little or no effect on serum cholesterol levels. This is a big jump from the previous years. The market opportunities are considerable if you consider that many experts believe that the population in Australia is going to increase from around twenty-four million to about fifty million in 40 years and the market and consumption of eggs will further be boosted by the increase in longevity and life expectations. Presently, supply and demand of eggs are evenly balanced but this expansion in the market could take care of future expanded production. We believe that the outlook for the company is bright but remain concerned that the current stock price is expensive in relation to the growth prospects. Further, the stock is already trading close to its 52-week high price. We would not recommend a buy at this point in time.
 
 
FRM Daily Chart (Source: Thomson Reuters)
 

Huon Aquaculture Group Ltd

                     HUO Details
 
Strong sales volume but softening in prices: Huon Aquaculture Group Ltd (ASX: HUO) announced its profit results for FY 2015 following its listing in October 2014. It has posted an operating EBITDA of $ 40.5 million in line with its guidance and operating net profit after tax of $ 20.3 million. Among the other highlights were strong sales volumes in line with the prospectus forecast, the strong performance of the underlying biological assets, controlled growth strategy investment on time and within budget, the successful commissioning of the world class processing facility and net debt of $ 33 million and low gearing ratio of 13.4%. Operating EPS was 21 cents per share and return on assets was 6.4%. Managing director and CEO Peter Bender said that the company had an encouraging start as a publicly listed business and despite a number of challenges, the main performance should be regarded as solid. At the same time, significant progress has been made on the controlled growth strategy which is vital for the future of the company. Though market conditions have been volatile, the company has been able to maintain its sales volumes with the growth of 2.4%.
 

Growth Strategy (Source: Company Reports)
 
The strong pricing in the first half of the year was not witnessed in the second half at the back of increased volumes of frozen thawed salmon being imported into the domestic market. Thus, imports and a good local growing season led to softening of prices. Export markets also had a problem with Russia banning the imports of Norwegian and Scottish salmon. We believe that the company will continue to experience headwinds in the short-term and do not think that the current price justifies an investment.
 
 

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