Select Harvests Limited

SHV Details

Select Harvests Limited (ASX: SHV) is an Australia-based leading almond grower and manufacturer, processor and marketer of nut products, health snacks, and muesli. The company supplies them to the retail and industrial markets in Australia and exports almonds globally. The company has a market capitalisation of ~$736.97 million as of 7^th May 2021.

Muted Performance in FY20

For FY20, the company has reported a 16.8% YoY decline in revenue to $248.3 million owing to the lower value of crop and delayed shipments. Further, coupled with lower global almond pricing and increased water costs caused a 39.3% YoY fall in EBITDA for the period. In line with lower operating profit, net profit after tax fell by 52.8% YoY to $25 million in FY20. The profitability was also weighed down by the adverse impact of Covid-19 leading to limited market access and related timing of customer payments.

The company paid total dividend of 13cps for FY20.

Financial Snapshot (Source: Company Reports)

Outlook

The company, on 18 December 2020, declared the completion of the acquisition of Piangil Almond Orchard which will help increase SHV’s planted area by 20% to 9,262 hectares as well as boost its almond production to around 4,600 tonnes in FY21. Besides, the company has set out strategies for FY21 with a focus on sustained reduction in cost per kg across all production stages and capitalising on the growing global demand for value-added almonds. Apart from this, the company has reached an agreement to restructure its food division with emphasis on competitive advantage and expanding its Carina West facility.

Key Risks

An estimated record US almond crop and market access problems owing to the global pandemic has led to substantial pressure on almond prices. Further, higher water costs also remain a concern.

Valuation Methodology: Price/Earnings Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has been up trending from its low of $4.92 with sporadic fall. For the ongoing week, it has given a stronger close at $6.18 after the previous week of stronger close thereby exhibiting strength in an uptrend. The technical indicator RSI with a reading around 58 suggests strong bullish momentum for the stock.

Going forward, the stock may have resistance around the 61.8% retracement level of $6.81 whereas support could be around $6.00.

Stock Recommendation

The stock price of SHV declined by 16.1% in 1 year and by ~2.85% in 1 month. It has made a 52-week low and high price of $4.910 and $7.978, respectively. 

We have valued the stock using a Price/Earnings multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to Price/Earnings Multiple (NTM) (Peer Average), considering its growth strategies, restructuring of its food division, and expansion of its Carina West facility. For the purposes of relative valuation, we have taken peers like Ridley Corporation Ltd (RIC.AX), Elders Ltd (ELD.AX), 'Costa Group Holdings Ltd (CGC.AX), to name a few.

Considering the aforementioned factors, we give a “Hold” recommendation on the stock at the current market price of $6.120 per share, down by 0.164% on 7^th May 2021.

SHV Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: Investment decisions 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.

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