Honey producer and retailer Capilano Honey Ltd (ASX: CZZ) has jumped more than 10% in morning trade to hit a record high of $8.90 as investors digest some impressive sales numbers. The company posted a net profit before tax of $5.1 million on revenues of $57.9 million, with net interest bearing debt reduced to $4.3 million.
Absolutely buzzing
The highlight of the result was the group's growing profit margins as it benefited from higher prices in a period of reduced domestic honey production. The subsequent wholesale price increases allowed the group to more than double profit before tax on just a 34% increase of revenues. This as the average domestic price for a kilo of honey increased to $4.61, compared to $3.49 in the prior corresponding period.
The business also grew its export markets strongly and said international interest in premium Australian honey continues to grow, with improving demand in the Middle East and Asia.
The company has also been busy acquiring smaller operators like Victorian honey packer, Yellow Pty Ltd. A deal recently completed where the vendor settled in exchange for equity in Capilano.
Risks
Clearly a business reliant on the general health of bee populations, alongside Australia's drought-prone climatic conditions carries more risk than many other companies on the stock exchange. Investors not clued-up on the finer details of hive management, swarming, re-queening, and the harvesting cycle will to a certain extent be relying on the support of Mother Nature.
The business also has more traditional risks like long-term borrowings of $6.5 million. However, this seems manageable given the company just posted a half-year profit before tax of $5.1 million and the group's balance sheet seems sufficiently strong to ride out any downturn in external conditions.
Earnings per share on a half-year basis were 42 cents. At $8.67 the stock is perhaps fully valued for now, although if the outlook for honey prices remains positive the company could have a bright future.
The company said it will continue its practice of only paying an annual dividend.
