If you are looking for good value ASX stocks, then read on.
That's because Bell Potter has just named one stock as a "compelling value play."
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Which ASX stock?
The stock that the broker is recommending to clients is Select Harvests Ltd (ASX: SHV).
It is an integrated grower, processor, and marketer of almonds, owning and operating farming and processing assets in Australia.
Bell Potter highlights that recent developments in the important Californian almond growing region could give the ASX stock a boost. It said:
The implementation of the Sustainable Groundwater Management Act (SGMA) in California has the potential to result in a multi-year reduction in Californian almond supply, kickstarting an upward price cycle that would be materially beneficial for SHV.
The affected acreage: California produces ~77% of global almonds and supplies ~83% of global exports. Counties deemed in chronically overdrafted basins account for ~80% Californian almonds production. The implementation of sustainability plans in 2020, looks to be already reducing yields and as we approach 2040, there remains the scope for an acceleration in orchard removals to reach sustainability targets.
In light of this, the broker sees Australia as a logical supply hub. It adds:
First derivative winners are established almond producers (and SHV is the best ASX listed exposure). But there is also likely to be a reallocation of capital towards Australian assets and this could create a growth narrative for SHV that is missing. This would likely be through development of new orchards and/or expanded third party processing and marketing opportunities. There would also likely be favourable gains in orchard values.
Should you invest?
According to the note, the broker has retained its buy rating and $5.30 price target on the ASX stock.
Based on its current share price of $3.89, this implies potential upside of 36% for investors over the next 12 months.
In addition, Bell Potter is expecting a 2.5% dividend yield over the period, boosting the total potential return beyond 38%.
Commenting on its investment thesis, the broker said:
While yields and prices are volatile year-to-year, we see the key implication being a long-duration upswing in the commodity value first and asset values second. Trading at a 28% discount to market NAV and 5.4x FY26e EBITDA we see SHV as a compelling value play on what could be one of the best global plays on a SGMA.
