Initiating coverage on Select Harvests (SHV)

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
18 November 2013, 1:53 PM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

Note: Following our initiation on Select Harvests on 18 November, SHV announced the acquisition of an almond orchard in South Australia. This move is in line with the company's strategy of increasing its almond supply to take advantage of attractive industry fundamentals. We expect further acquisitions in FY14. We reiterate our Outperform rating and raise our price target from A$5.20 to A$5.42.

Select Harvests is one of Australia's leading integrated almond businesses with significant positions throughout the entire almond value chain - growing, processing and marketing. SHV also owns a food business with leading retail brands selling nut products, health snacks and muesli.

SHV has been a successful turnaround story under a new Chairman (Michael Iwaniw - former Managing Director of ABB Grain) and management team.

SHV is leveraged to attractive industry fundamentals. Globally, demand for almonds is growing at 8% p.a. led by healthy eating trends and the urbanisation and growing affluence in China and India. The growth in China has been phenomenal. Over the last five years, China's import demand of US almonds has grown at a CAGR of approximately 50%. China is importing more almonds per annum than the entire Australian crop can produce. Global supply is growing at only 4% due to production constraints. Significant barriers to entry exist as there are very few places in the world which can actually grow almonds and there is a long lead time in an orchard maturing. A lack of recent plantings globally and significant capital requirements restrict competition.

While SHV's share price has risen strongly in the past year, we note that the company still trades on attractive fundamentals. We also believe that consensus estimates are too conservative and that they will progressively be upgraded once the market gains confidence in the quality of this year's crop. A 'stronger for longer' almond price is here to stay given the positive industry fundamentals. In addition, we believe that a sizeable growth opportunity (acquisition) will also underpin the next leg of strong share price appreciation.

We expect a positive trading update at the company's Annual General Meeting on Friday 22 November. Buy before the AGM. 

More information

If you are interested in finding out more about Select Harvests (SHV) please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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