Capilano Honey
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 08 February 2016, 11:34 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Key points
- Capilano Honey's (CZZ) 1H16 result beat our forecast by 20%, with NPAT increasing 53%.
- We have made large upgrades to our forecasts and expect CZZ to deliver solid earnings growth over coming years.
- This household brand continues to go from strength to strength.
1H16 beats expectations
CZZ's 1H16 NPAT of A$5.5m (up 53%) beat our forecast of A$4.6m. The result benefited from A$1.2m stock revaluation due to:
- higher honey prices;
- increased demand;
- further market share wins;
- sales of higher margin honey products (eg. Manuka, Jarrak and Apple Cider Vinegar);
- rising exports (+32% on the pcp, sales to Asia up 53%);
- improved seasonal conditions leading to greater supply; and
- the integration of Chandler Honey and KirksBees Honey.
The EBIT margin increased to 12% (from 9.3%), benefiting from strong sales, a change in sales mix to more premium products and tight cost control. Weak cashflow was the only miss. At the end of the 1H16, CZZ had 4,288t of honey in stock compared to the historical low of 2,223t in the pcp. Increased stock levels will allow CZZ to meet its strong 2H16 sales commitments.
We make material earnings upgrades
As expected, no formal FY16 earnings guidance was provided. However the company did say that greater levels of inventory and strong interest in its natural wholesome products and the new product range, should see CZZ prosper over the remainder of the financial year and into the future. Management also said that the acquisition of Kirksbees Honey (manuka beekeeping operation) is progressing well and that the company remains committed to its security of supply chain strategies.
Following the strong result, we have upgraded our FY16 and FY17 NPAT forecasts by 19.0% and 22.9% respectively. We now forecast FY16 underlying NPAT to rise 53% to A$12.0m. Any further acquisitions provide upside to our forecasts. We also see a significant opportunity for CZZ to sell more of its product through Asian websites direct to consumers (higher prices and more margin).
Investment view
Capilano Honey reported a solid result and, following forecast upgrades, we believe CZZ is attractively priced for its growth profile.
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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