SHV - Select Harvests

[Rainmaker2000]

For those actively tracking SHV, their business partner TIM releases its yearly report on the 15 November. I'm hoping for my sake it puts a bullet under TIM's price but it will also provide more guidance on how the drought is hitting the sector, how this years projects are going and how they plan to work with SHV post MIS

 

[Rainmaker2000]

Interesting week for SHV although its hard to know if TIM result was driving it.....I think its a congratuations to those who bought around $7 cause it looked like you may have picked bottom.....but what do I know, it's just sure good to have over a $1 of paper profits in the hand when you have a high exposure with much more on the offering....

TIM's result was an interesting study, although it was very uncertain on Almond acres and SHV. Basically, TIM is going into zero investment mode cause they are way, way overgeared after trying to develop as many projects before the end of MIS next year.......TIM is not out of ideas, infact the opposite, they see all blue sky and ventures for investment products in agriculture.....There was very little guidance as to how they will work with SHV and to the contrary, TIM is changing their business model to be closer to SHV in the supply chain

So it does not appear anything is planned after SHV's current 4000 acres development and anything, except for the status quo is possible in the future......for example, TIM is already undertaking a project with their Olive partner, Boundary Bend to grow stuff in Argentina

 

[michael_selway]

Interesting week for SHV although its hard to know if TIM result was driving it.....I think its a congratuations to those who bought around $7 cause it looked like you may have picked bottom.....but what do I know, it's just sure good to have over a $1 of paper profits in the hand when you have a high exposure with much more on the offering....

TIM's result was an interesting study, although it was very uncertain on Almond acres and SHV. Basically, TIM is going into zero investment mode cause they are way, way overgeared after trying to develop as many projects before the end of MIS next year.......TIM is not out of ideas, infact the opposite, they see all blue sky and ventures for investment products in agriculture.....There was very little guidance as to how they will work with SHV and to the contrary, TIM is changing their business model to be closer to SHV in the supply chain

So it does not appear anything is planned after SHV's current 4000 acres development and anything, except for the status quo is possible in the future......for example, TIM is already undertaking a project with their Olive partner, Boundary Bend to grow stuff in Argentina

It has ok number stills

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 70.8 68.1 62.0 68.4
DPS 57.0 54.5 50.5 56.0

Business Description
Select Harvests Ltd (SHV) is involved in the growing, processing, packaging and distribution of almonds, and the manufacturer of chemically-based pesticide products. SHV also provides management services in horticultural, processing and marketing fields. SHV is the largest supplier of packaged nuts in Australian supermarkets.

 

[niknah]

Agriculture exports to China may take off soon like base metals...

http://www.cctv.com/program/bizchina/20071114/101126.shtml

Food prices were the biggest driver of the accelerating inflation, jumping 17.6 percent from the same period last year.

Among food items, pork witnessed the biggest increase, shooting up 54.9 percent, while vegetable prices rose 29.9 percent, 17.9 percentage points higher than the previous month. Nonfood items rose 1.1 percent.

Another article about a supermarket stampede...

http://chinaworker.cc/en/content/news/294/

 

[Rainmaker2000]

Michael, are they Aspect Huntley numbers. I just find them hard to believe. I wonder what they base the numbers on.....

Those numbers suggest SHV's earnings will decline for a few years, which is dissimilar to the company's 'growth story'. Unless they know about future droughts, the decline is difficult to explain.

a) They are currently buying back cheap shares boosting EPS....10% of equity this year after buying back more last year
b) New plantings may decline significantly, but most of their cash comes from management of acres, which increased amazingly last year and will increase this year
c) Significantly more almonds means more manufacturing and processing profits
d) It's possible that their future plantings will be as profitable or more profitable post MIS......the company was actually pioneered on company owned land and managing land for private equity

Anyway, I guess its people's perceptions of the future and these types of forecasts which have allowed us to buy this baby for a song

 

[brilliantmichael]

When the government changes, the drought will break and the heavens will burst forth! (according to history)

(Disclaimer: Sorry this is in no way shape or form supposed to be political)

 

[Rainmaker2000]

Interesting half yearly from Select

Profit dropped a little more than expected from about 13 to 9 million. In retrospect, they did pretty well to keep it at 9 mill......management fees were up hugely as expected but they were hammered by:

Temporary water -$2 million
Select orchards hit by drought -$4 million
Food division -$3 million
No new orchards this year cause of MIS $?

A flat result on the above fronts would have led to a massive result

It looks like all those above issues will evaporate pretty quickly:

Hopefully it rains and Select has purchase..hehehe...140% water for next year...not sure how that works...up from the 0ish allocation this year

Food division restructured to bring $3 million a year savings.........2009 WA Orchards.....

The broader growth drivers look on track....so will have to console oneself with the 22 cent dividend and hope for good management execution ahead

 

[brilliantmichael]

Yep still here! Still makes a good case overall imho. Have been accumulating during market downturn. Pros and cons:

Pros:
- Still good economics. Operational cashflow fluctuates due to natural circumstances, but still far outweighs capital requirements (which are proportionately small). May fluctuate from year to year, but POSITIVE nonetheless.
- World growth will continue underpin almond demand.
- Orchards still maturing.
- One-off expenses complete (resturucturing of retail division, water licenses, and purchase of new processing plant).
- Above normal return on equity.

Cons:
- Continuing risks to orchard health due to climate.
- Risk to rising aussie dollar (cyclical)/inflation from production costs competing with mining sector.
- Exposure to other producers (commodity producer).
- Management focused on retail division to "diversify" away from primary production. Please no empire building guys. You already do a great job growing and producing the stuff. Please remember percentage return on equity remains the ultimate measure of success.


Only for the long term minded.

 

[Rainmaker2000]

Share price does not appear to be going up in short term, but then it has not really been hit by correction as banks have lost about 40% for example....

This is a stock I'm very keen on in the portfolio and I'm looking to free up some more funds if it falls further....I'm more than happy to reinvest dividends also

I really think the rewards far outweigh the risks.....for example, if this year is as bad as it gets, they are still making a good lot of cash while the rest of the industry declines.....I'm happy with their vertical integration with their consumer food business, obviously it should be done as efficiently as possible........eg. one factory not several...

My one concern is if management does not execute what has been promised....mainly the $3 million a year in savings from closing the factory seems a very high number.....just that and no temporary water will add $5 million a year

 

[michael_selway]

Share price does not appear to be going up in short term, but then it has not really been hit by correction as banks have lost about 40% for example....

This is a stock I'm very keen on in the portfolio and I'm looking to free up some more funds if it falls further....I'm more than happy to reinvest dividends also

I really think the rewards far outweigh the risks.....for example, if this year is as bad as it gets, they are still making a good lot of cash while the rest of the industry declines.....I'm happy with their vertical integration with their consumer food business, obviously it should be done as efficiently as possible........eg. one factory not several...

My one concern is if management does not execute what has been promised....mainly the $3 million a year in savings from closing the factory seems a very high number.....just that and no temporary water will add $5 million a year

Hi yep it doesnt look too bad this one,

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 70.8 55.2 62.3 70.4
DPS 57.0 50.0 52.0 57.0

Does anyone still own this one?

thx

MS

 

[niknah]

Hi yep it doesnt look too bad this one,

Earnings and Dividends Forecast (cents per share)
2007 2008 2009 2010
EPS 70.8 55.2 62.3 70.4
DPS 57.0 50.0 52.0 57.0

Does anyone still own this one?

thx

MS

Yeah, I still own this loser.
The retail side is no good, I've tried their brands in the supermarket and they're not much better or worse than the in-store white label brands. They may have only one brand that's doing well, but retail is only a small part of the company.

However food prices are going up around the world, it should be able to do well with the food inflation if it goes up. There's also alot of trees that will mature in the next few years.

 

[Brengun]

A falling dollar has got to be good news for almond exports atm.
A drop in interest rates on borrowing should be good news also.
More expansion into WA is a plus and they were clever and got their finance before the subprime scare tightened lending markets.

I still hold every single one of my SHV shares. At least they do pay a dividend, unlike other pikers who have declared no divs this year. Fully franked is nice too.

 

[knightofsx33]

SHV select harvest

Hi guys

I have being keeping an eye on this company for over a year now, it is one of my favourite companies because of its great growth prospects, its strong past earnings and also its capable management team. It has all the qualities a great company has and it is also trading right now at a relatively cheap price. Right now it is trading cheap because of some issues involving Timbercorp which went down early last year. Select harvest has being managing Timbercorp's almond division so they were owed management fees. The thing I am confused about right now is that Select Harvest has very strong earnings and also great future prospects, so why is it trading this cheap? Even with the issue of Timbercorp this stock is just too cheap. Just some thoughts.

 

[So_Cynical]

Re: SHV select harvest

The thing I am confused about right now is that Select Harvest has very strong earnings and also great future prospects, so why is it trading this cheap? Even with the issue of Timbercorp this stock is just too cheap. Just some thoughts.

The MIS industry is dead in the water, sales have pretty much stopped across the board, most of the MIS industry has either fallen over, or had there share prices smashed due to sales being at a stand still....at least that's what ive seen across the industry...are Select still selling plots at pre GFC levels?

• Great Southern - Gone
• Timbercorp - Gone
• Willmott - SP has gone from 1.85 down to 37 cents, divis cut in half.
• Forest Enterprises SP has gone from 75 cents to 4, divis gone, hasn't traded since Feb.
• Ark Fund/Rewards group...hasn't traded since Feb, divis gone, doing a recapitalisation.
• Gunns - SP has gone from 4.25 to 45 cents, divis cut, MIS sales almost non existent.

Yes Select is trading at a discount, and that's pretty much because the entire industry isn't trading anymore.

 

[knightofsx33]

yes but look at the future prospects and also its strong earnings despite the GFC, and yes it is making great sales and it didn't need and recapitalization or anything like it. It is just having issues with the Timbercorp's bad debt which only amounts to around 8 mil. It is a great company to have in my opinion. Just some thoughts.

 

[rcm617]

One of the unknowns with SHV is what management fees it is getting from the new owners of the TIM orchards, I doubt if it would be the same as before. That is where most of their profits came from in the past. The high $A is also providing an impediment to australian agriculture.

 

[knightofsx33]

yes but now they have transitioned into their own almond production and it has being effective so far, they are also managing ex Timbercop's land for Olam which may not pay as well but should pay a reasonable price. So there is no real issue with the company just market sentiment. Just some thoughts

 

[Rainmaker2000]

I'm still a very keen holder of these puppies....as you can see from my 'holding history' and my posts......I'm sitting underwater overall but have picked up many tasty morsals around 3 dollars....

I value the stock currently round $7 and suspect it will earn about 55 cents this year.

The water cycle has turned...100% allocations this year....and almond prices too to an extent......but with no help from Aussie $

The new arrangements with Olam should not be adverse if almond fundamentals keep improving........

The bus is a 'natural grower' as the existing trees continue to mature......for example 25% increase in crop harvest this year............the cap ex already made to deal with increased volumes

Couple the 'natural growth' with.........quite an aggressive program of increased leverage.......eg.WA development and increased lease hold........

Select's leverage to a sustained almonds upturn will see quite incredible returns off this base........I think we have already seen the resilience of the bus.....as water supplies and almond prices halved in last four years

 

[venger]

@rainmaker2k,

hope its ok to sort of follow up on your post-

appreciate to see the basis for your valuation that SHV is worth $7?
with a slight margin of safety on current earnings to stay stable (say 10%), with a 50cents earnings, that puts the your valuation at 14 multiples..
which is in the league of the great co's like woolies.. in fact, that's more expensive than QBE.. which can be expected to grow based on its acquisition strategy.

how is SHV going to grow its earnings?.. the headwinds to its long term growth seem to include:
- cyclical exposed to weather, currency risks
- agriculture is capital intensive
- in the commodity business.. price taker, no inflation protection

so, would seem to be a slow grower.. say 3%-5% .. ie, may be multiples of 8-12, which puts it at $4-$6?

would be interested in your reasoning..

cheers,

 

[Joe Blow]

I value the stock currently round $7

Rainmaker, could you please post the analysis you used to arrive at a figure of approximately $7 per share for SHV.

Many thanks!