Why is Select Harvests up 238%?

Almond producer and marketer of nuts, dried fruits and natural health foods Select Harvests (ASX: SHV) reported a net profit of $2.87 million, up from a 2012 loss of $4.47 million. Total revenue was down 23.9% from $253.1 million to $190.1 million.

This year saw the completion of the transition from operating as managers of almond orchards for third-party growers to being the owner and grower of the orchards. In total, 10,000 acres are currently under lease/ownership. This will give the company more direct exposure to the international almond market, which has recently been growing 8% per annum. Almond prices have been increasing overseas, and with the recent devaluation of the Aussie dollar, Australian almonds are more cost competitive, positively affecting company earnings.

The company has decided to leave a greenfield almond production area made up of about 4,000 acres in WA after projecting that it would not be economically viable to continue it based on the investment needed to develop the crop to maturity. A write-down impairment of $39.9 million was recorded, and the assets will be sold off.

However, it has expanded its presence in VIC by purchasing 1,286 acres of mature almond orchards, costing $5.7 million with projections that the acquisition will be positive accretive to shareholders. Including this acquisition’s crop, the company estimates the 2013 total almond yield will be 12,000 metric tonnes, up 106% from 5,830 tonnes in 2012. Almond prices are expected to rise by 26% from $5.08/kg to an estimated $6.38/kg. This is due to firm global prices, crop quality, and the Aussie dollar’s drop by over 10% in the last four months recently.

Paul Thompson, Select Harvests’ Managing Director, said: “The company continues to identify and evaluate opportunities to grow our almond orchard portfolio through acquisitions, leasing, and developing new plantings. This is important to ensure we maintain our market share of supply in a growing global market.”

The Foods division has seen more resistance in growth because of the competitive domestic trading conditions. Its EBIT contribution was down 9.6%, impacted by the loss of private label almond contracts with the major retailers. Branded business, including Lucky, and sales to food manufacturers, which have grown 40% year on year, have shown positive improvements.

The lost almond volumes from the domestic market have been compensated by higher exports sales, which have increased to 80% of sales in the almond division.

A final dividend of 9 cents per share fully franked was declared, bringing the full year dividend to 8 cps, similar to last year. The share price has risen 238% from $1.30 in July 2012 to about $4.40 currently against the approximate 22% increase in the S&P ASX All Ordinaries Index (ASX: XAO).

Foolish takeaway

The company is taking advantage of global supply and demand imbalances to improve themselves while the domestic market is still sorting itself out.  That shows smart business and foresight in action.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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