Wet weather has dampened almond quality for grower Select Harvests (ASX: SHV) as its share price hovers around the 10-year low mark, with revaluations and write-offs for what remains of the 2022 crop.
Following a detailed assessment of inventory on hand for the remaining 15 per cent of the annual crop, Select Harvests concludes quality in 2022 is "the worst the company has experienced in the last ten years".
This is largely due to a higher percentage of "manufacturing grade quality" as the wet harvest necessitated mechanical drying for a large portion of the almonds.
"Challenging wet conditions for the 2022 crop harvest meant a larger than expected portion of the crop has been negatively impacted, requiring a downgrade in quality," says Select Harvests managing director Paul Thompson.
"At the same time global almond prices have continued to decline, impacting the value of product sold by the company since 30 September 2022 and the assumed value of the remaining 2022 crop on hand."
The group explains the combination of the weather and world prices reducing the fair value inventory sales price from $6.80/kg to $6.15-6.30/kg. This is despite a smaller crop from the world's largest producer, California.
With this price reduction and inventory write-off, Select Harvests is forecasting an $18-22 million cut to its 2022 crop fair value earnings before interest and tax (EBIT).
Pessimism around the impacts of La Niña on the crop appears to have been already priced in to SHV shares, as they actually rose this morning by 2.81 per cent, likely due to encouraging comments from the CEO about demand.
"While global market pricing remains at near historic lows there are positive signs emerging," Thompson says.
"The December shipments from the Californian Almond Board position report and the November shipments from the Australian Almond Board position report were strong."
The company notes the easing of COVID-related lockdown measures in China have stimulated demand in an important market, while buyers in Indian and Middle Eastern markets are becoming increasingly active.
"The peak of the recent floods has passed. All our orchard operations are focused on our pre-harvest programs," adds Thompson.
"There was no significant damage from the floods, but some minor tree losses occurred due to orchard inundation. The medium-term farming outlook is business as usual.
"We are planning to commence the 2023 crop harvest in February and the current harvest period weather forecast is favorable."
Select Harvests expects a $26 million non-cash write-off in its December half statements, while debt-to-equity levels are expected to be at 35 per cent.
Thompson says Select Harvests has a well capitalised and flexible balance sheet.
"The previously advised sale of the Mountview orchard is progressing but was delayed due to the recent floods in the Riverina," he explains.
"The company also has a portfolio of permanent water rights with a current market value of over $100 million which adds to the company’s financing flexibility."
Shares in SHV are up 1.28 per cent to $3.96 per share at 11.17am AEDT.
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