Capilano Honey

About the author:

Author name:

By Belinda Moore

Job title:

Senior Analyst

Date posted:

31 July 2015, 10:51 AM

Sectors Covered:

Agriculture, Food & Beverage, Travel and Chemicals

Capilano Honey (CZZ) is vertically integrating with the acquisition of KirksBees Honey - one of Australia's largest active producers of the high margin manuka honey. The acquisition gives CZZ more control over its supply and is in line with its strategy of expanding in higher margin and highly sought after honeys.

Funded from cashflow and debt, CZZ has paid A$6.0m for the business. Given KirksBees is already a supplier with some of its production, the acquisition will reduce CZZ's honey purchasing costs. In FY15, KirksBees Honey produced over A$2m of bee products. Given there will be additional costs associated with CZZ running the business, we believe that it has paid about 4x EBITDA. There is the potential to grow production over time. We believe that the move to vertically integrate in the higher margin manuka honey should increase CZZ's margins.

Well placed for growth (FY15-18)

We forecast solid earnings growth from CZZ over the next few years due to:

• consumers increasing demand for honey;
• further market share wins;
• mix benefits from selling higher margin honey products (eg. Manuka and Jarrah);
• rising exports (beneficiary of falling AUD);
• improved seasonal conditions and therefore greater honey supply; and
• the integration of Chandler Honey and KirksBees Honey.

We have increased our FY15 NPAT forecast by 5.8% given our channel checks suggest that CZZ's Allowrie brand has continued to win market share from private label. Due to a higher FY15 base and the KirksBees Honey acquisition, our FY16 and FY17 forecasts have risen by 14.6% and 16.0% respectively.

Investment view

We believe that CZZ's move to corporatise beekeeping is strategically smart and expect there will be further acquisitions over time. We retain our positive view on CZZ given its:

• strong brand name;
• market leadership;
• strong supplier relationships;
• product innovation;
• growing export business;
• leverage to favourable industry dynamics;
• solid earnings growth; and
• strong management team.

We retain our Add recommendation and upgrade our share price target.

More information

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Disclaimer(s): Analyst owns shares.

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