Why the Select Harvests Limited share price declined 3% on its report

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The Select Harvests Limited (ASX: SHV) share price has fallen 3% after delivering its half-year report.

Select Harvests is Australia’s largest almond producer and also sells packaged nuts.

Here are the highlights compared to the prior corresponding period:

  • Reported revenue fell by 11% to $112.9 million
  • Reported earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 20% to $20.1 million
  • Reported earnings before interest and tax (EBIT) fell by 32% to $12.1 million
  • Reported net profit after tax (NPAT) fell by 46% to $6.23 million
  • Reported earnings per share (EPS) fell by 49% to 8.1 cents per share.
  • Dividend declared of 5 cents per share

The company has estimated that the 2018 crop will be approximately 15,000 tonnes and that the first impression is that the quality and volume could exceed expectations.

The 2018 price estimate for the crop is AU$7.75 per kilo. This is against a backdrop of US shipments being up 10% year to date and the US uncommitted inventory is down 12%. However, Select Harvests believes that there is increased pressure on the 2018 US crop as a result of recent severe frost events.

Management estimate that the final pool price for the crop will be between AU$7.60 and A$8.20.

As readers may remember, Select Harvests carried out a capital raising for $90 million comprising of a $45 million institutional placement and a share purchase plan for $45 million. This improved the net debt position to $56.4 million at 31 December 2017, compared to last year’s $98.4 million.

Cash flow from operating activities increased by 124% to $13 million, mainly as a result of the reduction in taxes paid.

Select Harvests believes that there is increasing demand for almonds. There is ongoing research supporting improved health through consumption, there’s increased usage in cereals, confectionary, beverages and snacking and there’s a movement towards Mediterranean diets globally, with Asian diets shifting to Western diets.

However, almonds are a commodity and as vulnerable to the supply and demand effect as any other commodity. It’s hard to say that the almond price will dramatically increase in the coming years as there’s more supply being developed in US. Spain and Portugal are looking to expand their plantings too.

Foolish takeaway

Select Harvests has fallen a long way since its $13 share price in 2015. I’m not sure when the company will be able to get back there if its profit isn’t going anywhere, like in this report.

The company doesn’t have much control over the price that it can achieve for its produce, which is why it’s only a good idea to buy a cyclical stock at the low point. It’s impossible to say if this is the low point, which is why investors seeking to beat the market should probably look elsewhere.

These top blue chips would likely make a better investment than Select Harvests.

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Motley Fool contributor Tristan Harrison owns shares of Select Harvests Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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