Select Harvests Limited

SHV Details

Select Harvests Limited (ASX: SHV) is engaged in processing, packaging, marketing, and distributing edible nuts, dried fruits, seeds, and a range of natural health foods. The company grows, processes and sells almonds to the food industry from company owned as well as leased almond orchards.

Result Performance (Half-Year Ended 31^st March 2021 – H1FY21)

The company has registered an increase in its total revenue to $84.75 million in H1FY21 against $61.68 million in H1FY20. Its profit for the half-year stood at $1.273 million as compared to $17.357 million in H1 FY 2020. The company stated that lower global almond prices negatively impacted its earnings which impacted its first half financial result. It is focused towards the factors within control like almond volume, quality as well as operational costs.

Key Data (Source: Company Reports)

Outlook:

The company continues to focus on reducing its operating costs as well as improve the quality throughout all the areas of the production cycle. Moreover, the focus is towards keeping the balance sheet healthy to explore market opportunities. The debt levels could remain consistent as the sales receipts are offset by the 2022 crop growing costs as well as capital commitments.

Key Risks:

The company is exposed to several risks like safety risks, horticultural risks (including climatic, disease, water management, pollination as well as quality) as well as food safety risks.

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

Technical Overview:

Chart:

The SHV stock has shown a remarkable rally from the low of AUD 5.30 made on 28 May 2021 to eight months high of AUD 6.56 tested on 18 June 2021, a gain of ~23.77 percent. On the weekly chart, stock price broke out the horizontal trend line resistance at AUD 6.32 level on 16 June 2021. Currently, the stock prices are approaching towards the horizontal trend line resistance zone at AUD 6.70. An important support level for the stock, is placed at AUD 6.32, while key resistance level is placed at AUD 6.70.

Stock Recommendation:

The company’s EBITDA margin for H1FY21 stood at 27.9%, better than the industry median of 14.7%. However, its gross margin and net margin for H1FY21 stood at 25.6% and 3.7%, lower than the industry median of 40.7% and 6.9%, respectively. ROE for H1FY21 stood at 0.7%, lower than the industry median of 7.4%.

The stock price of the company is trading towards the 52-week higher levels and, therefore, it could be said that most of the positive developments have been discounted in the current price.

We have valued the stock using a Price/Earnings multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). We have assigned a slight discount to Price/Earnings Multiple (NTM) (Peer Average) considering rise in total debt as well as horticulture risks.

Considering the aforesaid facts, we give “Sell” recommendation on the stock at the current market price of A$6.540 per share (11:54 am Sydney, Australia Time) on 18^th June 2021.

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 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

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