Select Harvests launches $80m raise as improved almond crop boosts prospects

Select Harvests, which operates on a financial year ending 30 September, expects its underlying EBIT for FY24 to land between $17 million and $19 million, which would represent a $136 million lift on the previous year.

In today's update, the company attributed its forecast to record almond sales, a reduction in overall production costs per kilo, and robust pricing thanks to shortfalls from the world's leading export region, California, which is only just only starting to rebound from a previous challenging season. 

The Australian company's forecast is in stark contrast to its statutory loss of $114.7 million in FY23, attributed to one of its worst almond crops in a decade.

Select Harvests is offering existing shareholders the chance to buy one new share for every 9.2 shares they own, in a non-renounceable fast-tracked deal to raise about $50 million.

The remaining $30 million will be through a capital raise, with Select Harvests shares being issued at $3.80 each, representing a 15.6 per cent discount to yesterday’s close of $4.50 per share. This is the strongest the company’s shares have been all year, having initially traded around $3.98pc at the start of 2024.

The company says it is undertaking a capital raise primarily to repay debt and improve funding headroom, with $71.6 million allocated to cover the costs. An additional $5 million will be injected to increase processing capacity by 10,000 metric tons at the Carina West Processing Facility, while $3.4 million will be used to cover the costs of the offer.  

“The market conditions resulting from the lower than forecast California almond production, low carry-in and declining bearing acres in California are improving the price with the forecast 2024 crop to be in the range of $7.70/kg - $7.75/kg,” Select Harvests managing director David Surveyor says.

Four months ago, Select Harvests engaged with a new logistics provider in a bid to reduce costs, but the transition has not been “as smooth as planned”, with the company recognising a one-off $1 million provision in FY24 to cover costs associated with freight delays.

“Whilst there is much more to do, the strategic initiatives and cost reductions resulting from the company’s initiatives are expected to deliver a significantly better financial result than FY23. The logistics issue whilst transitory in nature will increase full year debt and has highlighted the prudence in undertaking a capital raise,” Surveyor adds.

“The company will use the funds from this raise to retire debt and progress the business strategy. We remain focused on growing, processing and selling almonds as efficiently as possible.”

Based in Melbourne, Select Harvests is one the country’s largest vertically integrated almond companies, with 9,262 hectares planted across 16 farms and three states in Australia, selling through its brands Allinga Farms and Renshaw. It also operates in the US under the name Select Harvests USA, distributing its almonds to 55 countries.  

In an announcement to the ASX today, Select Harvests says its 2024 crop is expected to be approximately 29,500 metric tons, with roughly 79 per cent of the crop already contracted for sale and strong demand for remaining volumes as almond prices improve.

Last year, the group’s Californian operations produced a total of 2.47 billion pounds of crops, starting with a low stock of 500 million pounds, majority of which was of low quality. For 2024, the forecasted crop target is 2.8 billion pounds.

“With the California harvest underway there are some early signs the crop may be smaller than expected and kernel sizes are also reported as being smaller. Whilst there remain some concerns over the quality of the crop from serious insect damage, we expect this year’s US crop will be better than the prior seasons quality,” the company says.

“The volume of almond inventory in supply chains also appears to be low across the key export markets of India and China.

“The Californian supply and demand dynamics appear favourable for SHV and are contributing to sellers taking a stronger position with 379 million pounds contracted for sale and reduced supply.”

The company expects FY24 reported NPAT to range from $2.5 million to $4 million, considering one-off items before tax: a $6.5 million impairment for its Yilgah orchard, an $8.7 million gain from rebalancing water licenses, and a $1.0 million provision for logistics delays.

Meanwhile underlying NPAT is expected to be between $1.5 million to $3 million, supported by a final almond price that is anticipated to be around $7.70 to $7.75 per kilogram.

Forecast FY24 net debt is expected to be $230 million to $245 million due to temporary cash collection delays driven by freight impacts and record crop volume.

As part of its strategic plan, the company is aiming to increase yields by up to 15 per cent from FY26 onwards, which will be driven by investment and improved management practices.