In afternoon trade the Capilano Honey Ltd (ASX: CZZ) share price is lower following the release of its half-year result.
At the time of writing the honey producer's shares are down just over 3% to $16.80.
What happened in the first-half?
For the six months to 31 December 2017, Capilano Honey delivered a 5.7% increase in revenue to $70.3 million. This was largely the result of heightened domestic retail sales which rose 7% to $59 million. The diversification of its product range has been a focus and looks to have been a success. Sales from its portfolio of non-honey products grew 97% to $5.05 million.
On the bottom line the company reported a statutory net profit before tax of $5.99 million and earnings per share of 45 cents. This was a 20% decline on the prior corresponding period's profit before tax of $7.47 million. Though it is worth noting that the first-half of FY 2017 included a one-off non-operating capital gain of $2.07 million from the sale of beekeeping assets to the newly established joint-venture with Comvita. Excluding this one-off gain would mean that profit before tax grew approximately 10.9% during the half.
Pleasingly, despite its increased promotional activity, gross margins have been maintained thanks to an increase in its distribution of premium products.
Looking ahead, inventory levels have been increasing at a good rate. According to the release, inventory of premium Australian honey has increased by 1,997 tonnes during the period. Management has advised that this is sufficient stock to meet future sales demands and to facilitate expansion of export markets, whilst further reducing the requirement for imports.
It has also refuted any suggestions that it has been suffering from unhealthy bees. It has stated that the large production this season will result in some of the highest quality honey in the world, produced from commercial beekeepers who are committed to the welfare of their bees and the product they produce. It anticipates this year's honey crop to be the largest in over a decade.
Should you invest?
Overall I felt this was a solid yet unspectacular result from the honey producer.
Whilst I think the company does have a bright future ahead of it, a lot will ultimately depend on its success in the China market to fuel its future growth. Capilano has a newly appointed and experienced marketing executive team to help it crack the lucrative market and time will tell whether it succeeds.
In the meantime, I think its shares are about fair value at 18x trailing earnings. So I would probably hold off an investment and wait for a better entry point.
Until then I think other consumer staples shares that already have their foot in the door in China such as A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL) could be ready for investment.
