-Best almond crop yield in the past decade
-Potential for geographic diversification
-Key challenge lies with water costs
Almond grower and processor
FY19 results were ahead of broker estimates while yields in the almond divisions were above historical industry averages, and there was of -15% reduction in production costs per kilo.
Operating net profit of
There was no formal earnings guidanceprovided for FY20 but the company assesses, based on a yield of 1.35t/acre, the theoretical crop would be around 21,000t with scope for a variance either way of 10%. Bell Potter upgrades estimates for FY20 by 8% and FY21 by 18% to reflect changes to yields, costs and pricing assumptions and assumes FY20 yields are -5% below theoretical levels.
The company generated
The broker also envisages potential for geographic diversification amid expansion opportunities in
Prices
With Californian crop commitments up 18% over the year and volume risks to the downside,
Bell Potter suspects Select Harvests will have greater operating leverage to elevated almond prices in the current cycle and also has a Buy rating with a
Australian port prices are
Water
The price of water remains a substantial challenge and elevated costs are expected to persist in FY20. Water costs were up 30% in FY19 on a per kilo basis, although the company has indicated that it will not be fully impacted by current pricing given prudent management of water purchases.
With water purchases now largely complete for FY20, Bell Potter assumes costs of water are in line with the allocation pricing over the year to date on the company's unhedged requirements. Given lower projected yields and elevated water costs, the broker's forecasts project a 23% increase in the cost per kilo.
Wilsons points out
Wilsons assumes crop yields normalise in FY20 and, along with further significant increases in water costs, this drives expectations for an earnings decline in FY20. Still, the broker believes the production growth profile offers investors an opportunity to invest in sustained growth and the share price broadly reflects fair value, maintaining a Market Weight rating with a
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