Select Harvests Limited (ASX: SHV) has just reported its FY20 result. Should investors go nuts for its shares?
Select Harvests is one of the biggest Australian almond producers with various orchards. It also has processing facilities and retail brands.
The company said it has delivered a third consecutive year of increasing crop volume. Its 2020 almond crop was 23,250MT, up 2.5% from 2019.
However, whilst it delivered a stronger crop volume, the almond price was A$7.50 per kilo for the year, down from A$8.60 last year.
That led to total revenue falling by 16.8% to $248.3 million. FY20 EBITDA (EBITDA explained) dropped 39.3% to $57.8 million. This was driven by the lower almond price and the fact that its annual water cost increased by $8.7 million to $21.5 million.
Total Select Harvest EBIT was $38.7 million, which fell 51.6% to $38.7 million. Net profit after tax declined by 52.8% to $25 million.
Operating cashflow was just $13.2 million, down from $80.3 million. There was delays in some export shipments, which meant that an increased percentage of customer customers will fall in the first half of FY21.
There were various reasons for the poor result. The Australian drought caused water prices to rise. COVID-19 impacts hurt export demand to China and India. There was increased private label competition from domestic retailers which led to lower consumer branded margins.
Select Harvests decided to declare a final dividend of 4 cents per share, bringing the full year dividend to 13 cents per share – down 54% from last year.
Select Harvests said that monthly US almond shipment data shows that demand has responded strongly to historically low almond prices, with record monthly shipments to key world markets.
The company has been acquiring lease and temporary water with water prices moving back to long term averages.
Select Harvests said that the tree health and crop outlook remain positive, with good pollination and growing conditions to date.
Paul Thompson, Select Harvests Managing Director, said: “Select Harvests’ long term growth strategy is underpinned by a world class portfolio of almond assets. In the face of an uncertain external environment, Select Harvests remain committed to maximising the value of these assets by focusing on the key internal value drivers of our business, namely: yield optimisation, cost control, process efficiency and value-adding.”
The company should be applauded for its achievement of a huge crop. But the risks of being a commodity business showed in this year – almond prices do move around. The additional risk of being a agricultural business showed with the water prices. But FY21 could be a much better year and there could be a rebound.