Select Harvests Limited

SHV Details

FY21 Financial Performance: Select Harvests Limited (ASX: SHV) is engaged in the growing, processing, packaging, and marketing almonds from company-owned and investor-owned orchards.

• Business Updates in FY21: SHV decided to divest in the Lucky and Sunsol brands and render a staged closure of the Thomastown production facility. A one-off cost from discontinued operation stood at $9.1 million in the FY21 accounts.
• Top-line Movements: SHV delivered revenue of $228.6 million, up by 22.2% YoY, owing to a 21.5% uptick in almond volume to 28.25k MT, partially constrained by a 9.3% downshift in average almond price to $6.80/kg.
• Pressure on Bottom-line: EBITDA edged by 14.8% YoY and was clocked at $53.7 million, primarily attributed to an almond price fall of 9.3%. Production cost per kg increased by 2.9% due to immature orchards’ age profiles.

Key Performing Indicators; Analysis by Kalkine Group

Key Risks and Challenges

SHV’s operations and financial performance is affected by the adverse price movements of associated crops. Continued delays due to disruptions to port facilities and available shipping spaces.

Outlook

The company entered operational restructuring plans to restructure its food division with the transition of Thomastown almond production to Carina West. SHV expects $6 - $8 million in cost savings for FY22 due to lower water costs and favourable carryover rates.

Valuation Methodology: EV/Sales 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 SVH gave a positive return of ~21.892% in the past three months. The stock’s 52-weeks price level band stands at $4.980 - $8.980. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a downside of low single-digit (in percentage terms). Considering the almond price risk and disrupted logistics framework, the company might trade at a slight premium to its peers’ EV/Sales multiple average. For valuation, few peers like Australian Agricultural Company Ltd (ASX: AAC), Wide Open Agriculture Ltd (ASX: WOA), Cobram Estate Olives Ltd  (ASX: CBO), and others have been considered. Given the trading levels touching resistance, contracting bottom-line, an uptrend in raw materials cost, current trading levels, downside indicated by valuation, and key risks associated with the business, we suggest investors book profit and give a “Sell” recommendation on the stock at the closing market price of $6.570, up by ~1.076%, as of 29 April 2022.

SVH Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions should depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and is subject to the aforementioned factors.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a 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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