Select Harvests Limited

SHV Details

Appointment of Non-Executive Director: Select Harvests Limited (ASX: SHV) is engaged in growing, processing, packaging and marketing of almonds from company owned orchards and investor-owned orchards. Recently, the company has appointed Travis Dillon as Non- Executive Director. Travis has previously worked as Managing Director and Chief Executive Officer of Ruralco .

FY21 Financial and Operational Highlights:

• For the year ended 30 September 2021, almond crop volume stood at 28,250 MT as compared to 23,250 MT in FY20, while Almond Price stood at $6.80 per kg against $7.50 per kg in FY20 due to record Californian almond crop (3.2 billion pounds) and an aggressive selling program.
• SHV recorded a rise in revenue to $228.6 million as compared to $187.1 million in FY20 due to the opening of export markets following COVID-19 related global lockdowns in key markets.
• The company’s NPAT for the year amounted to $25.3 million as compared to $29.2 million in FY20. Operating cash flow for the year stood at $38.2 million against $13.2 million in FY20.

Revenue & EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Disrupting Weather Conditions: The company’s business is highly sensitive to disruptions in weather conditions, which may lead the business to low crop volume and a declining top line.
• Pricing Risk: The company’s operational and financial performance could be impacted by the adverse movement in prices of the crops.

Outlook:

• For FY22, the company has planned Investment in increasing Sorting and Packing capability, which is likely to be completed in February 2022.
• The company is optimistic about the global macro-outlook for almonds moving forward, which will be supported by increasing wealth and a higher number of consumers adopting and consuming healthier diets.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of SHV is trading below its 52-weeks’ low-high average of $4.910 - $8.980, respectively. The stock has been corrected by ~8.67% and ~26.51% in the past one and three months, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 uncertainties and pricing pressure, etc. For the purpose of valuation, peers such as Costa Group Holdings Ltd (ASX: CGC), Bega Cheese Ltd (ASX: BGA), and United Malt Group Ltd (ASX: UMG) have been considered. Considering the indicative upside in valuation, growth in revenue, decent crop volume, rising operating cashflow, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $6.200, as on 02 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

SHV Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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