Almond grower Select Harvests Limited (ASX: SHV) is weathering the market storm with the stock rallying after management posted a big uplift in earnings and a record full year profit.
The stock jumped 1.8% to $11.60 in early trade even as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) tumbled 1%.
Investors were impressed with Select Harvests' 175% surge in underlying net profit to $59.4 million, which fundamentally puts the stock on an undemanding trailing price-earnings (P/E) multiple of 14x.
However, the company's 2014-15 performance is difficult to compare as it moved to a new accounting standard and had to restate the previous year's profit numbers.
Agriculture companies have until next financial year to adopt the new standards and as a result of the change, Select Harvests' net profit for 2013-14 has been cut by $7.4 million, while 2014-15's bottom line has been lowered by $3.8 million.
What this means is that the profit growth for 2014-15 has been exaggerated as net profit would have "only" grown by 109% instead of 175%. The company's full year profit is also slightly below what analysts on Reuters were tipping.
But all this doesn't really quite matter because it still doesn't change the fact that the stock looks good value, particularly since the outlook for almonds is strong due to growing demand and constrained supply.
The US is a major exporter of the nut and crop estimates for that country are 4% lower than last year. There's also little inventory held by growers and processors and favourable weather (if it continues) is expected to boost Select Harvests' output for the year.
Analysts are also expected to upgrade their earnings forecasts for the company after it signed an agreement with First State Super to underwrite a 960 hectares increase in new almond plantings in the Riverland and Sunraysia regions
The deal, which involves the sale and leaseback of three properties will inject $67 million into Select Harvests' coffers and expand its productive capacity to over 20,000 tonnes by 2024-25.
Select Harvests produced a record 14,500 tonnes of almonds in 2014-15, which is a 38% increase over the previous year.
The almond price has also increased significantly due to the factors discussed above. The average price for the crop in 2014-15 was $11.45 a kilogram compared to $8.50 a kilogram in the previous year, and further falls in the Australian dollar bode well for the company.
Select Harvests has surged 91% over the past year but I think the stock still looks tasty and I am expecting further upside.
