SHV - Select Harvests

[Rainmaker2000]

Wow, threads have become more scientific than my last post....

I see a market average PE pretty appropriate for SHV....current average is round PE 17.......SHV is worth closer to 15 to be conservative

I actually see the greater variation in the cycle, as Venger points out......if 05 conditions existed for SHV today, earnings would be closer to 80-90 cents.....but almond prices are not that high, nor dollar low....nor water(though it is back).....upside risks to $10 or downside to $5 given the cycle......but if earnings were to hit 90 cents, the share price will be closer to $18......but that's all speculation of course

Venger, it's good to follow up posts.......you look like an intelligent investor subscriber to me

Great companies don't trade at PE 14s generally...PE 14 is even well below current market PE...they trade at PE 30s.......Woolies and QBE can't be faulted greatly but they seem pretty mature businesses to me.......

Both QBE and Woolies have negative net tangible assets from memory, whereas SHV has $1.80 from memory.....that tells you something about relative PE

Notice they use the term acquisition a lot.....as in....they've run out of ideas to substantially grow organically.......

Words like 'cyclical', 'capital intensive' get mentioned a lot by Intelligent investor.......

Yes, it's agriculture......I love agriculture cycles...there is a reason to the rythem compared to other cyclicals like mining......

Outside the Intelligent investor, one learns cycles exist in every business to an extent......like the retail business, even insurance....An investors choice is more what cycles they like and can understand.....

Also, 'capital intensive' is made out like its a bad thing in its own right.......it's actually not..........the key to understand though, is how effectively capital is allocated.......and how cap ex compares to deprec/amort on the income statement

As for growth.......well, it does not come much simpler......the trees are in the ground growing.......and the harvest is sheduled to, from memory, more than double in next four years

As Australia's dominant vertically integrated almond company, twise as many almonds kind of guarantees profit growth albeit, they are not resting on their laurals..........this year the harvest will only grow 25% but then water is back up

'Slow grower' is a term I've seen Peter Lynch use......that might describe a a Woolworths or QBE.......but not a company that will harvest 25% more product this year than last.......just like it was more than 30% more almonds last year than year before........But not without risks of course

 

[venger]

Hi rainmaker2k,

apologies, after reading thru your previous post, I'm still not quite sure how you've ended up with $7?

so you reckon that SHV is worth a multiple of 15? but then, with your 55cents earnings, i still not sure how we get to $7 per share?

>> ...upside risks to $10 or downside to $5 given the cycle

So how did we get to $10 for upside and $5 for downside? Today's price is $4.50. Surely if a storm wipes out half of this years crops, we could be looking at half of forecasted earnings.. wouldn't the downside price be a lot lower? i.e, closer to $2-$3?

>> Yes, it's agriculture......I love agriculture cycles...there is a reason to the rythem compared to other cyclicals like mining......

fair enough that you love the cycles - so what is the reason to the rhythm? and how does that contribute to your valuation of SHV?

>> Both QBE and Woolies have negative net tangible assets from memory, whereas SHV has $1.80 from memory.....that tells you something about relative PE

Ouch, not quite.. QBE has a book value of $10. And Woolies have at least $5 of book value, according to my online broker.
Not quite sure what it should tell me about relative PE
What does it tell you about relative PE? appreciate to hear your thoughts.

>> that might describe a a Woolworths or QBE.......but not a company that will harvest 25% more product this year than last.......just like it was more than 30% more almonds last year than year before........But not without risks of course

this is puzzling - QBE has averaged a return on equity of 18%+. Woolies? an even more impressive RoE of over 25% for the past decade! They are not simply good businesses... they are great businesses.
SHV has quite a good average return on equity too (about 20%)... but does 30% more almonds mean 30% more earnings? could more almonds on the market mean depressed prices?

 

[Rainmaker2000]

Dude....I have no idea how the thread reached this tone but its definitely fun...

You should read more intelligent investor newsletters cause you are not doing very well 'freeballing it'

Not sure if you've noticed.......but MR Market's pricing changes on the basis of sentiment and earnings.....and so do I take a subjective view of both those things....no discount cashflow models here....thankfully I have a good sense of value from my history

On "NET TANGIBLE ASSETS".....I don't read the intell investor or follow WOW or QBE so I gave you my last "from memory"

Maybe since you follow them, You should have an accurate clue about their NTA....Is that a good idea or not? What do you think? In februarie's 'half year reports'........WOW NTA was $1.99 and QBE was $5.16.....Maybe you should give your online broker a call or do some real analysis instead.....

Maybe you should brush up on a statistic that indicates 'growth' cause you lucked out by citing Return on Equity......are you suggesting higher return on equity means higher growth? Is higher ROE good or bad for growth? Gee, your answer will make my future investing very easy

Your analysis of SHV growth (on the basis of ROE) and almond price dynamics is a little comical......how can Australia or SHV (a single digit of global almond supply) depress prices???

I certainly look forward to selling stock to you at the top of the next boom

 

[venger]

Hi again rainmaker2k,

its a bit sad.. please don't take it personally..

it is still an honest question as to how you do your valuations.. espcially to get to $7 per share for SHV.
Afterall, we are all here to learn from each other.
You seem to have a technique of arriving at quite a precise number of $7... if not discount cash flow, what technique do you use to arrive at $7 per share?

If its a 'subjective' or 'gut feel' number, it think its ok to just say that. Just trying to have it on print for myself and others - can't be too careful these days - there's a lot of stock ramping going on other forums.. especially when some of these holders are underwater and trying to dump their holdings at the expense of others.

Sorry about the QBE and WOW figures - if you re-read my posts, they were book values - not NTAs. Obviously book value would be expected to be bigger number than NTA , as your numbers have confirmed.
I just wanted to point out (via the bookvalue) that their respective NTAs are unlikely to be NEGATIVE, as your numbers have confirmed - thanks for checking for us.

Sorry again, regarding RoE - I certainly wasn't saying that RoE is the sole performance ratio or even THE measure of 'growth'. But it does give a quick snapshot of what kind of return an investor is getting for his/her money.
Given the growing population that we now have, we can certainly expect the markets to grow for QBE and woolies - more population means more insurance and groceries required. Challenge for these busineses is to maintain/or even get more market share. And in QBEs case, they have their growing 'foreign' ventures to manage. And woolies is taking on hardware retail.

With regards to almond growth - again, they were honest questions - what percentage of almond market does SHV have? Presumably, SHV competitors are also cutting costs, increasing supply, etc. Are almond consumers captive to the suppliers? Is SHV a price taker or maker in their industry?
So does an extra 30% crop for SHV mean 30% more earnings, and even higher RoE?
Is there an almond shortage in the world?
How are almond prices set? Is there an almond index to benchmark prices?

You sound like an almond expert - would love to learn more about it.

regards,

 

[Rainmaker2000]

Dude.......check out the Flight Centre thread in about March last year.......from memory, there was some irritating guy questioning fundamental V charting and why would anyone buy FLT.......it went on for ages.....gees, it can be irritating when people close their minds instead of opening them.....

Oh yeah, I think I admitted to buying stock at that time.......Can you believe I made half a million dollars from one stock......I still have to pinch myself....its surreal......I never actually thought that could happen like that

Mate, I'm just some dude posting a website.....I still work......I still love stocks... You can do your own analysis, but from what you've said, I think you should sell SHV if you own it

 

[venger]

Hi R2K,

It is always nice to hear about forum users making half a mil on a stock (sold after tax?) - provides inspiration for us all...

that's why it'd great to share our ideas.. and your ideas on SHV is more pertinent, since you've got a vast knowledge on almonds.. we would be nuts if we didn't get in on your next "half a mil" idea!

So do you see SHV as a long term 30% business growth story or is it a speculative story that you feel will hit $7 shortly before dropping down back to its underlying long business value?
If you idea is based on the former, then would think you'd target a much higher NPV.
So assuming it is the latter - a speculation - what would drive it up to $7?
Do you expect harvest to double this year? Or is the SHV chart showing the way?

cheers,

 

[Rainmaker2000]

Alas, that was before tax.....even with the 50% CGT, it was too much tax...yet to be paid too

Unfortunately, SHV is not a 500k idea.......I don't speculate generally and when I do.....its in 'special situations' rather than normal market conditions....SHV could go down to $2 and I'd be very happy, assuming fundamentals stayed the same

 

[RandR]

I have just bought a parcel of SHV, I like the company, gives a nice exposure to agri in my portfolio, with an attractive dividend and very nice balance sheet .... + ... i eat a lot of muesli

Interested to hear if there are other holders out there ? Thoughts on the direction of the company ? Are you in favour of them continuing there policy of acquisitions of new company orchards ... etc.

 

[niknah]

Doesn't look like they're taking on much debt so that's good. They're one of the few companies to survive the cancelling of the MIS scheme.

I don't think their museli business is doing well, a few years ago they had more than just the Lucky brand but none of the other brands are worth a mention now. But the Lucky brand is improving.

I saw this almond product recall the other day...
http://www.woolworths.com.au/wps/wc...about+us/woolworths-news/almondsproductrecall

 

[RandR]

My stop loss was triggered early this morning and I exited my short stay in SHV after it was announced Olam will not be renewing there management contract beyond the 2012 crop. Of their managed orchard business Olam is a quite considerable chunk.

As a result the SP plunged to finish -18% at close.

I am going to continue to monitor the company and SP in the future, my losses on this trade were minimal, so I am keen to re-enter if they look to continue there strategy of acquiring company owned orchards. If they look to be following through with developing/purchasing greater percentages of there own orchards I will happily re-enter .... at the right price of course.

 

[maffu]

Alas, that was before tax.....even with the 50% CGT, it was too much tax...yet to be paid too

Unfortunately, SHV is not a 500k idea.......I don't speculate generally and when I do.....its in 'special situations' rather than normal market conditions....SHV could go down to $2 and I'd be very happy, assuming fundamentals stayed the same

SHV is now under $2, reaching a low of $1.80 a few weeks back.
I am very interested in buying the stock, although need to do some more research regarding the future prospects. The current numbers look fantastic, so if I find the future looks good, I will hop in.

P/E of 3.65 - consistent profits over the last 10 years
P/B 0.73 -Market Cap lower than the Net Tangible Assets
Dividend Yield - 12%

The only poor thing I see is the often negative operating cash flows, which could be problematic, and the loss of that large contract in May.

 

[robusta]

SHV is now under $2, reaching a low of $1.80 a few weeks back.
I am very interested in buying the stock, although need to do some more research regarding the future prospects. The current numbers look fantastic, so if I find the future looks good, I will hop in.

P/E of 3.65 - consistent profits over the last 10 years
P/B 0.73 -Market Cap lower than the Net Tangible Assets
Dividend Yield - 12%

The only poor thing I see is the often negative operating cash flows, which could be problematic, and the loss of that large contract in May.

Negative cash flows are the worry for me to. Often these types of businesses post profits but they are based on depreciation, amortisation and increasing debt / contributed equity.

If I could be confident SHV would have positive cash flow on these numbers I would jump in boots n all - trouble is I am not confident and neither is the market by the look of it.

 

[RandR]

Negative cash flows are the worry for me to. Often these types of businesses post profits but they are based on depreciation, amortisation and increasing debt / contributed equity.

The above description perfectly fits Olam, SHV im not so sure.

SHV 2010 annual report shows Positive Operating Cash Flows for the Years 09 and 10.

I am interested in your interpretation of SHV cash flow robusta. To me cash flow looks positive and good, (certainly from operating activities) but you might be better at reading and analyzing the statements and associated notes then me.

The big problem moving forward for me is the increasing level of debt, and a more then likely lowering of ROE over the next 2 years before the WA greenfield project starts to produce. Important for SHV moving forward imo is the management of the WA project. Its going to be a fair drain on there cashflow until it starts to produce.

Another big key for me is the careful nature of any more orchard acquisitions, management need to play this very well to get the best use out of the equity and debt facilities raised recently.

I recently did buy back into the stock.

 

[rcm617]

I dont know where the PE of 3.65 comes from, but last year (FY10) profit was $17.3 million on a market cap of $106m, so a PE of just over 6. For this year they have forecast a decrease of 15 to 20%, so a PE of about 7.5.
The real problem will come in once they lose the contract for the managed orchards from which they are making a profit of about $12m per year. Subtract that from the forecast profit of $14m for this year and it doesnt leave a lot.
In the meantime company harvest will increase, however while the dollar is at these levels, not much will fall through to the profit line. The only salvation I can see is our dollar dropping, any decrease will flow straight through to profit.

 

[maffu]

I dont know where the PE of 3.65 comes from, but last year (FY10) profit was $17.3 million on a market cap of $106m, so a PE of just over 6. For this year they have forecast a decrease of 15 to 20%, so a PE of about 7.5.
The real problem will come in once they lose the contract for the managed orchards from which they are making a profit of about $12m per year. Subtract that from the forecast profit of $14m for this year and it doesnt leave a lot.
In the meantime company harvest will increase, however while the dollar is at these levels, not much will fall through to the profit line. The only salvation I can see is our dollar dropping, any decrease will flow straight through to profit.

A good question. I was the one who said they had a P/E of 3.65, and I got that straight from Commsec.
I just looked at how they calculate P/E Ratio and its as follows:

Price/Earnings (P/E) Ratio

The current price divided by the average of the last actual earnings per share figure and the projected EPS figure for the next year. The two figures are weighted based on the elapsed time between each period.

We use both forecast and historical EPS to give a more balanced P/E ratio than using either one alone.

 

[maffu]

The above description perfectly fits Olam, SHV im not so sure.

SHV 2010 annual report shows Positive Operating Cash Flows for the Years 09 and 10.

I am interested in your interpretation of SHV cash flow robusta. To me cash flow looks positive and good, (certainly from operating activities) but you might be better at reading and analyzing the statements and associated notes then me.

The big problem moving forward for me is the increasing level of debt, and a more then likely lowering of ROE over the next 2 years before the WA greenfield project starts to produce. Important for SHV moving forward imo is the management of the WA project. Its going to be a fair drain on there cashflow until it starts to produce.

Another big key for me is the careful nature of any more orchard acquisitions, management need to play this very well to get the best use out of the equity and debt facilities raised recently.

I recently did buy back into the stock.

When I flagged negative operating cash flows as a worry, I had only read the most recent interim financial report, in which the operating cash flow was negative 3.4mil, however this appears cyclical as in the last 10 years, 6 half yearly reports have had a negative cash flow, while all 10 full year results have had positive cash flows.

I am going to put this on a watch list, and as soon as the full year financial figures are released I will be doing a full valuation of this stock, its ratios have me intrigued, but I will be patient.

 

[RandR]

When I flagged negative operating cash flows as a worry, I had only read the most recent interim financial report, in which the operating cash flow was negative 3.4mil, however this appears cyclical as in the last 10 years, 6 half yearly reports have had a negative cash flow, while all 10 full year results have had positive cash flows.

Im pretty sure the almond harvest is undertaken in feb-apr sort of timeframe (end of summer, beginning of autumn) Which would probably explain the cyclical cash flow.

 

[maffu]

SHV is now under $2, reaching a low of $1.80 a few weeks back.
I am very interested in buying the stock, although need to do some more research regarding the future prospects. The current numbers look fantastic, so if I find the future looks good, I will hop in.

P/E of 3.65 - consistent profits over the last 10 years
P/B 0.73 -Market Cap lower than the Net Tangible Assets
Dividend Yield - 12%

The only poor thing I see is the often negative operating cash flows, which could be problematic, and the loss of that large contract in May.

I never ended up purchasing the shares, but they are now at almost $3.80 despite making a loss for the 2012 financial year the share price has skyrocketed.

RandR did you get back on board?

 

[Country Lad]

.............but they are now at almost $3.80 despite making a loss for the 2012 financial year the share price has skyrocketed.

SHV has upgraded its forecast for both harvest volumes (up about 100% over last year) and expected sale price (up 21%). On top of this, for every 1 ¢ fall in the $A adds around $0.5m to EBITDA on an annualised basis.

Apparently the upcoming Californian harvest looks like another annual production drop meaning even tighter global inventories.

A break again today but could be resistance a bit over $4.

Cheers
Country Lad

 

[Country Lad]

A break again today but could be resistance a bit over $4.

Or maybe not. This setup is usually very positive and market sentiment looked pretty good yesterday.

Cheers
Country Lad