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Select Harvests Limited, optimising the almond base

Team Veye | 02 Oct 2020 ASX - SHV
Select Harvests Limited, optimising the almond base

Select Harvests Limited (ASX: SHV)

Acquisition of the Piangil Almond Orchard and Capital Raising

Overview of Piangil Almond Orchard

Select Harvests Limited (ASX: SHV) (“SHV”, “Select Harvests”) on 1 October 2020 announced that it had entered into an Implementation Deed and Sale Agreements to acquire the Piangil Almond Orchard from United Almonds Limited (“UAL”), Bright Light Agribusiness Pty Ltd (“BLA”) and Lake Lucas Almonds Pty Ltd (“LLA”) (the “Acquisition”).

(Chart source: TradingView)

The Piangil Almond Orchard is located at Piangil in north-west Victoria, approximately 86kms from SHV’s Carina West Processing Facility. The Acquisition comprises:

  • 1,566ha of almond orchards, of which 1,177ha are mature plantings and 389ha are immature;
  • 1,877ML high reliability water entitlements;
  • 622ML low reliability water entitlements;
  • 2021 almond crop;
  • 641ha of unplanted land; and
  • certain plant and equipment

The Acquisition consideration is $129 million in cash plus a reimbursement of 2020/2021 growing costs incurred to the date of completion. The Acquisition will be funded via a combination of new debt facilities and the proceeds from a $120 million fully underwritten entitlement offer and placement and is expected to be low-mid single digit EPS accretive in FY2022, being the first full year of operation.

Compelling strategic rationale The Acquisition aligns with SHV’s strategy to grow and optimise its almond orchard base and the key strategic advantages of the Acquisition are as follows:

(Graphic Source – Company Reports)

  • Piangil Almond Orchard is a high yielding ‘top quartile’ orchard. SHV’s immediate focus will be to invest in equipment and infrastructure to improve yield quality, harvest risk mitigation and irrigation efficiency;
  • The Piangil Almond Orchard has an attractive maturity profile with 389ha (25%) of immature almond orchards, and a weighted average age of 10.9 years (SHV’s pre-Acquisition weighted average orchard age is 12.6 years);
  • The Acquisition increases SHV’s planted area by 20% from 7,695ha to 9,262ha and is expected to increase almond production by approximately 4,600 tonnes p.a. in its first full year, increasing to 5,400 tonnes p.a. at maturity in 2026;
  • The orchard is located on the Murray River, in the Sunraysia almond growing region at Piangil, approximately 86kms from SHV’s Carina West processing facility; and
  • The additional production is expected to optimise utilisation of SHV’s Carina West processing facility, with increasing processing economies of scale expected to lower per unit production costs. (Data Source – Company Reports)

 

Veye’s Take

The proposed Acquisition will add significant scale to Select Harvests orchard portfolio. The Piangil Almond Orchard has an attractive maturity profile with a weighted average age of 10.9 years and approximately 25% immature plantings. It has demonstrated consistently high yields in recent years and is a top quartile orchard. The recent bloom at the orchard was strong, indicating the potential for another above industry average crop in 2021. The Piangil Almond Orchard is expected to deliver volume growth to SHV of approximately 20% in FY21. Post acquisition the Company remains within its water strategy. The stock had been falling for some time on a channel. It faces immediate resistance at $5.52 beyond which it can have the potential of breaking the trend on the upside. Veye maintains a “Hold” recommendation on “Select Harvests Ltd” at the current price of $5.46

Disclaimer

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