A much better 2021 is forecast for
-Yield and prices favourable in
-Weaker Australian dollar helping citrus exports
-Outside of citrus, 2020 likely to be a more "normal" year
While citrus may swing the outcome this year, Citi still believes
The company has taken advantage of the knowledge gained from the pandemic disruption in
Macquarie assesses the first half is critical, as it represents 83% of 2020 forecasts. Still, the majority of core produce categories are now experiencing positive demand and prices in the retail sector.
Wholesale demand has reduced but is showing signs of levelling out. This has mainly affected farms and logistics in the food service sector because of the closure of food outlets. Meanwhile, given the rain on the east coast of
Mushrooms, Berries & Tomatoes
Strong prices and demand are holding up in the grocery channel for mushrooms and the new low-cost Monarto facility will be at full output in July, so profit margins in mushrooms are likely to materially improve. Citi assesses this new facility will be a "interesting" test of the market's true supply/demand balance.
Morgans upgrades to Add from Hold, given there are signs the headwinds are moderating and this has potential to turn into a tailwind for 2021. Major growth expenditure has been largely deployed and the balance sheet is robust.
Some of the impact of the drought on berries and tomatoes has been countered by rain early in 2020 but there is still a shortfall. Tomatoes are suffering particularly from lower demand, but are expected to improve subsequently, given the skew towards "snacking tomatoes" that have been affected by reduced office and school attendance. Tomatoes represent 12% of produce sales.
The number of hectares under raspberries has reduced by around -33% but prices are firmer. Reduced supply of blueberries is also expected to support stronger second half pricing.
Wilsons suspects 2020 earnings will continue to trend below the previously withdrawn guidance level but could be better than 2019. Moreover, 2021 should benefit from a recovery in citrus and further structural growth in international.
The broker, not one of the seven monitored daily on the FNArena database, expects a recovery in mushrooms and berries will provide material earnings benefit in 2020 and retains a Market Weight rating and
Citrus
Citrus remains the biggest uncertainty this year as the crop is smaller and more variable. However, a weaker Australian dollar is helping prices and
Costa expects lower water costs, favourable FX and export pricing will offset the volume impact but cannot quantify the impact at this stage. Morgans suggests the outcome of the 2020 citrus season will be the largest driver of whether the company achieves its full-year plan and previous guidance.
Additionally, 2021 should benefit from an "on-year" for citrus crops. Recent rainfall in the Riverland region could mitigate the smaller fruit sizes and fill out late-season varieties.
More clarity will be provided in August when the citrus season has finished. Still, the broker considers industry backdrop favourable, with the earnings outlook supported by stronger demand for grocery items and more normal supply.
The company's balance sheet has also improved post the capital raising and the delaying of some growth expenditure. Outside of citrus, the broker anticipates 2020 will be a more "normal" year. The database has three Buy ratings, one Hold (Citi) and one Sell (Macquarie). The consensus target is
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