While a recent fall in almond prices prompts brokers to lower earnings forecasts for
-Select Harvests FY21 result beat consensus earnings estimates by 25%
-Scope for an almond price recovery
-Causes of the recent softness in pricing
Easing almond prices have ensured a fall in broker earnings forecasts for
The company is an integrated grower, processor and marketer of almonds that owns and operates farming and processing assets in
FY21 results delivered a 25% beat to FY21 consensus earnings (EBITDA) estimates, driven by a rising almond price in the second half on top of a favourable product mix, according to
Despite these positives, the market focused upon the fall in almond prices to the current
While the broker retains its Buy rating, it also acknowledges near-term uncertainty and lowers its target price to
Citi also retains its Buy rating and believes there is scope to benefit from an almond price recovery. Citi's optimism is based on company management's expectation that market pricing will improve before a commitment is made to sales of the 2022 crop. Forward sales, which typically begin in November, may be deferred until harvest in
The broker also feels the current almond price weakness is transitory and points to early signs of reviving export demand and a continuation of the Californian drought.
Citi also notes the potential for softer pricing to impact early commitments and lowers its forecast FY22 average almond price. As a result, FY22 and FY23 earnings forecasts have been reduced and Citi's target price falls to
Causes of the recent softness in pricing
Almond pricing has softened through the back half of October and
Citi attributes weaker prices to a range of factors including well-stocked buyers in
Moreover, the broker cites industry sources that explain 20% of almond sales have been aborted due to the flow on effects from a distorted sea freight supply chain. This incorporates high ocean carrier rates and unreasonable demurrage and detention charges.
On top of this, sellers have been cautious over drought concerns and a belief that the current price fall will correct, explains Citi.
Looking forward, the broker assumes an Australian dollar hedge rate of
Citi lowers its forecast to
Finally, FY21 earnings from continuing operations marked a miss versus
According to
Wilsons, equally not included in the seven stockbrokers monitored daily, retains an Overweight rating with a price target of
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