Lens Through Buzzing Stocks Amidst COVID Induced Market Turbulence- SHV, WES

  • Apr 29, 2020 AEST
  • Team Kalkine
Lens Through Buzzing Stocks Amidst COVID Induced Market Turbulence- SHV, WES

With contagious coronavirus casting dark clouds over global businesses and financial markets, equity markets have taken a toll marked by panic selling. Businesses are striving to stay afloat during financial crisis, while on their toes to undertake cost cutting initiatives, strengthen balance sheet and re-strategize their business model.

Market players are looking for potentially attractive pocket of opportunities while rebuilding their portfolio to safeguard their wealth amidst tough market scenario. Investors are closely eyeing businesses with strong balance sheet, decent cash position and robust business model.

Our readers may want to read through two buzzing stocks- Select Harvests and Wesfarmers in the consumer space, while making key investment decisions. The understanding of business positioning can be mapped with fundamental and technical analysis in order to take prudent decisions.

Related: Consumer Discretionary vs Staples - FLT, APE, CGC, RFG

Let us look at the stocks that hit the headlines recently:

Select Harvests - 97% Harvest Completed

Headquartered at Thomastown of Melbourne, consumer staples company Select Harvests Ltd (ASX:SHV) with orchards in North West Victoria, Southern New South Wales and South Australia has harvested 97% of its orchards and expects to complete harvesting in the next few weeks.

With 90% of the crop harvested in near perfect conditions, the Company’s residual harvest has been disrupted by rain events, but the quality has not been affected as the later harvest varieties are closed shell.

Additionally, the Company mentioned that 60% of the estimated crop has been delivered to its Carina West processing facility, while more than 25% of the crop has been processed.

Select Harvests is estimating a crop of a similar size to the previous year, and the Company is deriving benefits from the continued investment in its horticultural practices and new technology in the northern Victorian processing facility.

In addition to this, the immature orchards of the Company have continued to yield beyond its internal business case assumptions, and industry standards and the productivity levels at the Carina West processing facility have shown continued improvement.

Select Harvest comprises of a fully integrated almond business that is constituted by

  • Orchards that are company-owned, leased, joint venture and managed,
  • Primary processing like hulling & shelling,
  • Secondary processing like blanching, roasting, slicing, dicing, meal,
  • Trading in industrial products, and
  • Consumer products with brands like Lucky, Sunsol, Soland, NuVitality, Renshaw & Allinga Farms, as well as providing Retailer brands.

 

In addition to its almonds, the Company is also an importer of a complete range of nuts and a wide range of other ingredients for inclusion in their Consumer Products range.

While Australia is a significant almond producer across the globe, Select Harvests is one of Australia’s largest almond companies that supplies almonds domestically as well as internationally to supermarkets, health food stores, other food manufacturers, retailers and the almond trade.

The Year-on-Year exports for almonds reported by the February Almond Board of Australia in full-year Position Report reflected a 26% increase to 76,556MT and an increase of 214% in the North Asia market including China.

According to the March Almond Board of California Position Report, the almond crop was reported unchanged at 2.5B lbs, up 11.9% on last year and year to date shipments are up 5.9%, and forward commitments are up 19.58% on the same period last year.

The 2020 US crop is due to be harvested in August after experiencing near-perfect growing conditions.

The forecast larger US crop and the challenges relating to market access has seen a softening in pricing that has been partially offset by the weakened Australian Dollar.

Related: Short-term financial performance of Select Harvest marked safe from Coronavirus impact

However, over 70% of Select Harvests’ 2020 crop is committed for sale at prices at the previously provided range of A$8.00 - A$8.50/kg and the export shipments have been commenced by the Company including shipments of in-shell to China.

Select Harvests is confident about the strong underlying demand and is also optimistic about the continued growth in consumption with the distribution channels returning to normal.

SHV stock traded at $7.370, up ~7.4% on 29 April 2020 (12:50 PM AEST).

Wesfarmers Implements Covid-19 Measures

One of Australia's largest listed companies, Wesfarmers Limited (ASX:WES) has a diverse business with wide-ranging operations in :

  • Home improvement and outdoor living
  • Apparel and general merchandise
  • Office supplies
  • Industrials division with businesses in chemicals, energy and fertilisers, and industrial and safety products

 

WES’s Bunnings and Officeworks have witnessed significant growth in demand as customers, and their families spent more time working, learning and relaxing at home over the last two months. Hence, the sales growth in Bunnings and Officeworks for the third quarter of the FY20 and the first three weeks of April has increased compared to the levels achieved in the 1HFY20.

In addition to this, sales growth for Kmart and Target in the third quarter was broadly in line with the levels achieved in the 1HFY20 and was supported by strong growth in online sales. Further, Catch has continued to progress well with solid growth in gross transaction value in the marketplace as well as in-stock offering.

However, due to the broader decline in customer footfall in shopping centres and ongoing weakness in discretionary categories, the in-store sales momentum in Kmart has subdued while the same has declined significantly in Target.

The Company expects these trends to remain in place with the persistence of social distancing and isolation measures and the non-operating tenants and activities within major shopping centres.

Amidst the highly uncertain times due to covid-19, WES has implemented several measures in recent weeks to strengthen the Group’s balance sheet and maintain the liquidity, including-

  • 31 March 2020 - sale of a 5.2 per cent interest in Coles for pre-tax proceeds of approximately $1,060 million
  • 18 February 2020 - sale of a 4.9 per cent interest in Coles for pre-tax proceeds of $1,050 million
  • Extension of the available committed debt facilities by approximately $2.0 billion to approximately $5.3 billion secured at acceptable terms, with pricing quite below Company’s existing overall cost of debt

 

The Company Management is confident that these measures taken by the Company shall help to maintain a robust balance sheet and shall allow the ability to withstand and respond to a variety of economic circumstances while supporting the Company’s operating businesses and the pursuit of investment opportunities.

The Company is focused on taking prudent measures to sustain the performance of the business in an uncertain future. It has also implemented a number of safety measures to ensure the health and safety of team members and customers.

WES stock traded at $37.140 on 29 April 2020 (12:50 PM AEST).

 


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