Capilano Honey
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 28 June 2016, 10:59 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Acquisitions, a new product, a joint venture and a capital raising
Capilano Honey (CZZ) recently raised A$16.8m at A$19.50 per share via a 1:10 entitlement offer. Proceeds will be used to retire debt, fund acquisitions, new product development and capital equipment.
In the 2Q17, CZZ will launch a new high margin honey product. We understand that it is an innovative 'industry-first' therapeutic product which offers health benefits beyond those of regular honey. This product will be exclusive to CZZ. It should increase CZZ's overall market share, expand the honey category and has great potential in China. Importantly, for the first time in many years, CZZ will actively market this new product.
CZZ and Comvita recently formed a 50:50 joint venture to secure greater manuka honey volumes in Australia to develop medical and natural health products. CZZ recently acquired additional beekeeping enterprises and other licensed apiary sites. With these acquisitions, there is also the opportunity to materially grow production over time. CZZ have also said that they have a strong pipeline of further acquisition opportunities.
Forecast implications
CZZ has issued FY16 NPAT guidance of A$9.3-9.8m, up 18-25% on FY15A. This was below our previous forecast of A$10.5m. We have consequently reduced our FY16 NPAT by 9.5%. The difference reflects one-off costs associated with new product development, the acquisitions and increased investment in sales and marketing to support international growth.
CZZ have suggested that better rainfall should produce favourable honey supply conditions in FY17. We expect strong profit growth in FY17 and FY18 with a better season, a contribution from recent acquisitions, a new healthy honey product, the Comvita manuka honey joint venture and the ramp-up of CZZ's China strategy.
Investment view
We rate this company highly and believe CZZ is attractively priced when compared to its peers. Capilano Honey is household brand and market leader in a high margin, growth category. We believe there is a big opportunity to leverage its position in manuka honey, and the new product launch also has great potential and the associated media campaign should create a 'halo effect' across CZZ's existing products.
Share price catalysts include the successful launch of the new product and further acquisitions. We note that CZZ has a track record of buying highly EPS accretive acquisitions at attractive multiples. In a consolidating sector, we believe that CZZ also warrants corporate appeal in its own right.
We upgrade to an Add rating with an upgraded share price target.
More information
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Disclaimer(s): Analyst owns shares.
Morgans was a Joint Underwriter to Capilano Honey's recent entitlement offer and received fees in this regard.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.