Australian Agricultural Company Ltd 

Production cost cut in 1H FY 17: Australian Agricultural Company Ltd (ASX: AAC) in the first half of FY 17 has reported that their net profit after tax reached $47.9 million, which is a $1.9 million fall against the earlier corresponding period. The sales revenue fell by $46.6 million to $214.1 million in the first half of FY 17 on the back of rising wagyu days on feed which had limited wagyu product available for sale. Reduction of non-wagyu and live cattle sales also affected the business. However, the revenue reductions were partially offset by improving pricing of the wagyu products coupled with rising sales from Livingstone Beef. Moreover, AAC has reported a 25% cut in production costs as the company got advantage of the strong seasonal conditions, as well as control over operational costs from its strategic decision to own cattle right through the supply chain. AAC improved margins due to the reduction in the production cost. Additionally, in the first half of FY17, AAC’s branded beef sales as a percentage of total sales grew from 86% to 92%. AAC has locally launched the flagship luxury Westholme and Wylarah brands in Singapore in early October, and intends to launch these brands into other key markets over the next 18 months. AAC stock has fallen 13.42% in six months as on 14 December,2016 while we believe investors need to leverage these subdued levels. Trading at a reasonable P/E, we give a “Buy” recommendation on the stock at the current price of – $ 1.58

Farm Pride Foods Ltd

Industry into shortage in FY 16: Farm Pride Foods Ltd (ASX: FRM) in FY 16 has reported a 2.7 % growth in the revenue to $93.77 million and a 60.8% growth in the net profit to $8.13 million. However, the industry egg production remained relatively balanced until April and then the national supply moved into shortage on the back of very cold and wet winter in the southern states and rising consumption. There has been an uncertainty over the new free-range guidelines which are expected to come into effect in late 2016 and this has led to national underinvestment in production facilities. On the other hand, FRM expects supply to be in balance by the end of the first half of FY 17. Additionally, there was a shareholder speculation about disease at one or more of the farms, to which FRM responded about no Emergency Animal Diseases (EAD) like AI and ND erupted at Farm Pride. FRM stock has fallen 24.8% in the last six months as on 14 December 2016. Given some level of uncertainty, we give an “Expensive” recommendation on the stock at the current price of – $ 1.51

Graincorp Ltd

Challenging environment witnessed in FY 16: Graincorp Ltd (ASX: GNC) recently announced that Archer Daniels Midland has sold its 19.9% stake in GNC. The group reported that FY 16 has reported the underlying NPAT of $53 million as compared to $45 million in FY15. The statutory NPAT in FY 16 is $31 million against $32 million in FY 15. FY 16 has been one challenging year as some major external headwinds impacted grains and oils businesses. Moreover, in FY 17, GNC expects that the delayed harvest would hurt prices and new port elevators. Having a subdued dividend yield and mounting pressure while the stock trades close to its 52-week high price, we give an “Expensive” recommendation on the stock at the current price of – $ 9.12

Capilano Honey Ltd

Raised fund through the right issue: Capilano Honey Ltd (ASX: CZZ) has reported a 20.9% growth in the net profit after tax to $9,483k in FY 16 over last year. Moreover, CZZ had raised funds via the fully underwritten 1 for 10 pro-rata non-renounceable right issue that resulted in the issue of 860,360 additional new ordinary shares. This led to gross proceeds of $16,777k. On the other hand, investors need to note that China’s business played a major role in the group’s FY16 performance. Accordingly, CZZ stock has fallen 24.2% in the last six months as on 14 December 2016, due to ongoing concerns over the group’s performance in China. Hence, we give an “Expensive” recommendation on the stock at the current price of – $ 16.18

Select Harvests Ltd

Above average rainfall has delayed the development of the 2017 crop: Select Harvests Ltd (ASX: SHV) revealed that its reported FY16 Net Profit after Tax (NPAT) was $33.8m and the underlying Net Profit after Tax (NPAT) was $27.9 million down from $59.4 million in FY15. The underlying earnings per share (EPS) is 38.5 cents per share (cps) against FY15 EPS of 86.8 cps. Moreover, the 2017 crop has experienced a short, but effective bloom and the growing conditions are challenging with above average rainfall across the entire growing region. This rainfall has delayed the development of the 2017 crop. We give an “Expensive” recommendation on the stock at the current price of – $ 6.41

Bega Cheese Ltd

Appointment of CEO: Bega Cheese Ltd (ASX: BGA) recently reported that they appointed Paul van Heerwaarden as Chief Executive Officer effective February 2017. Paul would be replacing Aidan Coleman who is retiring. On the other hand, the softening demand in China, sanctions in Russia and a highly competitive Australian market had created a very challenging operating environment for the dairy companies and dairy farmers while the group reported 7.5% revenue growth. Bega Cheese stock has fallen 28.4% in the last three months as on 14 December, 2016 while the concerns emerge about the misbalance between global supply and demand. Looking at the limited prospects, we give an “Expensive” recommendation on the stock at the current price of – $ 4.45

Inghams Group Ltd

Competition concerns: Inghams Group Ltd (ASX: ING) was listed on ASX in November 2016. The group appointed David Matthews as a Company Secretary. ING stock has been under pressure falling by 2.19% in the last one month as on 14 December 2016. Investors are concerned over the rising competition faced by the group which could hamper their business. Moreover, any pressure in average selling price of the products might affect the bottom line. We give an “Expensive” recommendation on the stock at the current price of – $ 3.10

Costa Group Holdings Ltd

Acquisition of the Avocado Ridge orchards: Costa Group Holdings Ltd (ASX: CGC) made an agreement for acquiring the Avocado Ridge orchards and packing operations from the Carney family, in conjunction with Macquarie Agricultural Funds Management (MAFM). This acquisition is a first major step in CGC’s strategy to vertically integrate the avocado category and enhance capacity to their current plantings, ripening and marketing functions. In FY16, stronger citrus and mushroom sales outweighed impact from lower banana and tomato pricing and helped CGC deliver pro forma EBITDA growth before SGARA of 27.6%. The group witnessed favorable operating environment for first four months of FY17. CGC has also upgraded the NPAT before SGARA forecast to at least a 15% rise on FY16 pro forma NPAT, but inclusive of China start-up expenses. CGC stock has risen 13.6% in the last six months as on 14 December 2016 and is trading at higher levels. We give a “Hold” recommendation on the stock at the current price of – $ 3.32

a2 Milk Company Ltd

Positive FY 17 update for four months to October but sector-driven pressure is intensifying: a2 Milk Company Ltd (Australia) (ASX: A2M) has reported a 96% growth in the revenue to NZ$155.2 million for four months to October 2016 on the back of their ongoing growth in infant formula and milk products. The NPAT grew seven times to NZ$22 million during the period. The shares of A2M stock rose 36.2% in six months as on 14 December, 2016 and the group reiterated their confidence of their performance in China. However, pressure on peer Bellamy’s Australia has impacted A2M stock performance in the recent past and the stock is down 12% in the last five days. We give a “Hold” recommendation on the stock at the current price of – $ 1.98

Webster Ltd

Aim to convert water assets into valuable horticultural and agricultural products: Webster Ltd (ASX: WBA) had come-up with a reformulated approach and commented that its water entitlements have a value of about $320 million (at June 2016). The group aims to maximise the available water from the water entitlements. Further, WBA aims to convert its water assets into more valuable horticultural and agricultural products instead of selling to provide shareholders with a higher return on their funds in the medium to long term. For the full year to 30 June 2016, the group witnessed a statutory loss of $81.55 million, owing to impairment of goodwill of $96.45 million arising from the acquisition of Tandou and Bengerang. Further, walnut yields in fiscal 2016 were significantly impacted and dryer than normal conditions affected annual cropping area. On the other hand, the area under annual summer crops in the current year is likely to be 50% higher in aggregate than last year. Reasonably normal plantings at Hay, Bourke and Garah are expected and the group plans to double the irrigated area footprint over the next 3 years with regard to Kooba aggregation. We give a “Hold” recommendation on the stock at the current price of – $ 1.34

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