Select Harvests Limited

SHV Details

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

• Key Top-Line Attributors: SHV registered $228.6 million in revenue in FY21, an incline of 22.2% YoY. The favorable revenue scaling was primarily driven by a 21.5% uptick in almond volume to 28,250MT, partially constrained by a 9.3% downshift in average almond price to $6.80/kg. The volume was uplifted by the reopening of export markets as the global economy phases out of COVID-19 disruptions.
• Pressure on Bottom-line: EBITDA slipped by 14.8% YoY and was registered at $53.7 million in FY21, primarily driven by an almond price fall of 9.3%. Production cost per kg increased by 2.9% owing to increased age profiles of immature orchards. NPAT was registered at $25.3 million, down by 13.4% YoY.
• Financial Position: Operating cash flow surged to $38.2 million in FY21 from $13.2 million in the previous year, owing to increased almond production and equivalent rise in demand. The cash balance for the period stood at $2.0 million as of 30 June 2021. Net bank debt (excluding finance leases) stood at $100.1 million, placed on a higher-end due to debt funding for the Piangil Orchard acquisition.

Operating Metrics, Analysis by Kalkine Group

Key Risks and Challenges

• Almond Price Risk: SHV’s operations and financial performance is affected by the adverse price movements of associated crops.
• Disrupted Logistics Framework: Continued delays due to disruptions to port facilities and available shipping spaces.

Outlook

• Operational Restructuring: SHV plans to restructure its food division with the transition of Thomastown almond production to Carina West.
• Lower Water Costs: SHV forecasts $6 - $8 million in cost savings for FY22 owing to favorable carryover rates from lower water costs.
• Production Efficiency: 100% of the company’s orchards have incorporated drip irrigation soil and tree monitoring system for better productivity.

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 RecommendationThe stock of SHV gave a positive return of ~16.129% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $4.910 - $8.980. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering improved almond production volume and rising global demand. For valuation, few peers like Bubs Australia Ltd (ASX: BUB), Australian Agricultural Company Ltd (ASX: AAC), Cobram Estate Olives Ltd (ASX: CBO), and others have been considered. Considering top-line growth, the resurgence of export markets, increased operating cash flows, key risks associated with the business, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $5.740, up by ~0.714% as of 18 January 2022.

SHV Daily Technical Chart, Data Source: REFINITIV

Marley Spoon AG

MMM Details

Recent Business Update: Marley Spoon AG (ASX: MMM) is a German-based food company offering subscription-based weekly meal kit services covering Australia, the United States, and Europe (Austria, Belgium, Germany, and the Netherlands).

• Conference Call Notification: On 14 January 2022, MMM announced to release its quarterly results for 31 December 2021 ending period on 31 January 2022.
• New Leadership: On 14 January 2022, MMM announced the appointment of Michael Hester as the Interim CEO of Marley Spoon’s operations in the United States. Michael was previously COO of Marley Spoon in the US.
• Acquisition of Chefgood: On 5 January 2022, MMM completed the 100% acquisition of Chefgood Pty Ltd, taking effect from 4 January 2022. The board of MMM elected to execute the first tranche payment of A$10 million in cash, funded via credit facility with Runway growth capital.

Q3FY21 Financial Update

• Net Revenue Surged: Net revenue was registered at EUR79.2 million, up by 14% PcP resulting in 55% CAGR (2-year). Q3 contribution margin stood at 28%, up by ~1.5pts relative to the previous quarter.
• Q3 Operating EBITDA: The operating EBITDA was registered at a loss of EUR13 million driven by high investments in capacity, growth, and talent.
• Cash Balance: Total cash balance for the period stood at EUR33 million, up by ~EUR17 million relative to the PCP level.

Half-Yearly FY21 Quick Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges: Higher labor costs, food cost inflation, and staffing challenges have substantially contributed to lower contribution margins in the US. Extensive post-lockdown summer vacation behavior has increased skip rates and shrunk acquisition volume, resulting in decreased average orders per Active Subscriber.

Outlook: MMM has revised its FY21 net revenue guidance. The company now estimates a net revenue growth rate in the range of 26% to 28% YoY in CY21. The company has reaffirmed its contribution margin guidance for CY21 at approximately 29%, falling in line with PcP levels. 

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 MMM gave a negative return of ~67.472% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.650 - $3.220. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering changing consumer behavior, staffing challenges, and higher food cost inflation. For valuation, few peers like Woolworths Group Ltd (ASX: WOW), Metcash Ltd (ASX: MTS), Graincorp Ltd (ASX: GNC), and others have been considered. Given the improved guidance on net revenue and contribution margins, increased net revenue, favorable cash balance position, current trading levels, upside indicated by valuation, and risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.870, down by ~9.375%, as of 18 January 2022.

MMM Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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

Note 2: Investment decisions should be made depending on the investors’ appetite for 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 is 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 the 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 unfavorable movement in the stock prices.

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