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Select Harvests Limited in surprise announcement: Should you buy?

What: Leading Australian almond producer Select Harvests Limited (ASX: SHV) today announced its results for the 12 months ending 30 June 2014. The company revealed an impressive 27% increase in net profit after tax (NPAT) to $29 million (compared to underlying NPAT of $22.9 million in FY13) and an 11% increase in earnings before interest and tax (EBIT) to $41.8 million.

Select Harvests’ shares have also entered into a trading halt pending the announcement of an acquisition and capital raising.

So What: It’s been a mixed year for shareholders of Select Harvests. After its shares hit a high of $7.24 in March, they have since fallen back down to just $5.97 following the announcement of wet weather affecting crop production. Select Harvests today reported that crop production had fallen by 17%, although this was partially offset by a 33% rise in the price of almonds.

Here are some of the other highlights of the report…

  • Earnings per share (EPS) up 25% to 50.2 cents per share (cps), which beat Morningstar’s forecast of 47cps
  • Final dividend of 9cps (unfranked), taking full-year to 20cps
  • Operating cash flow of $23.1 million, compared to $4.1 million in FY13
  • Net debt of $94.8 million, with gearing of 52%

Capital Raising: The company hopes to raise $47 million in a fully underwritten placement to institutions and sophisticated investors at a fixed price of $5.35 (10.4% discount to closing price) in order to fund committed acquisitions and enhance Select’s capacity to fund further growth. Meanwhile, a share purchase plan (SPP) will also be extended to eligible investors in Australia and NZ, up to a maximum of $15,000 per shareholder.

Now What: Select Harvests is set to continue benefiting from a severe (and intensifying) drought affecting production in the United States as well as changing consumer health trends. Although the company faces a number of risks, including weather conditions, global almond prices and a legal dispute with Almas Almonds (of which the company does not expect it will be found liable), I believe it is posing as a strong prospect for long-term investors.

Another company I am even more bullish on is one that the Motley Fool's top analyst Scott Phillips recently identified as the "Motley Fool's Top Stock for 2014". Get The Motley Fool's #1 pick now in our newly updated investment report. It's yours FREE. Simply click here for your copy of "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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