4 Agricultural Stocks And Key Investment Thematic: SHV, GNC, BFC, AAC

Summary

• While agriculture prices are expected to fall, favorable seasonal conditions are likely to drive agriculture sector production in the face of COVID-19 crisis.
• Looking at agriculture players in equity market space, GrainCorp is progressing well with its harvest readiness, including a large recruitment and training program for seasonal workers.
• While Select Harvest reported decent quality harvest with strong global market expectations, Beston Global Food recently completed capital raising to expand its lactoferrin production capacity.
• Solid year of international wagyu beef sales helped AAC to generate decent amount of profit in FY20.
• While farm production is expected to bounce back post drought conditions, export prospects, demand-supply scenario and output prices during COVID uncertainty need to be closely monitored in near term to gauge the recovery scenario of the sector.

Despite continued headwinds in terms of production impacts and supply chain disruptions in the face of COVID-19 health crisis, Australia’s agricultural sector outlook seems to be dependent on drought recovery scenario, according to Department of Agriculture.

During 2019–20, the gross value of farm production is estimated to be $60 billion, which is believed to be driven by a $1.5 billion increase in the estimated value of livestock production.

For 2020-21, a bounce back is expected in the farm production following three consecutive years of output dip. Despite the expected uptick in output, the gross value of farm production is likely to increase by only 1% to $61 billion in 2020–21 as a result of falling prices amid weaker demand and output expansion.

Considering the sector driven trends, we will look at the performance of some of ASX-listed agricultural stocks:

Select Harvests Limited (ASX: SHV)

Select Harvests is primarily engaged in the growing, processing and sale of almonds to the food industry from company-owned and leased almond orchards. In its last market update, SHV has stated that the harvest has been finished and 100% of the 2020 crop has been delivered to its Carina West processing facility.

The company estimates the crop volume to be around 23,000 MT on the basis of 60% of processed crop.

Do Read: A look the performance of these agricultural stocks.

The company added that while the wetter conditions have generated pleasing water price reductions, but it has adversely impacted the demand for almond hull from the stock feed industry.

According to SHV, underlying global demand is robust and it is optimistic that the consumption would continue to grow as distribution channels return to normal.

At the close of trading session on 8^th July 2020, the stock price of SHV stood at $5.910 with a fall of 2.31%. While the stock has generated returns of -7.49% and -18.02% during the last one and three months, respectively.

GrainCorp Limited (ASX:GNC)

GrainCorp Limited is a diversified food ingredients and agribusiness company with an integrated business model in three main grain activities i.e., supply chain, origination and processing. The company recently announced Norges Bank’s substantial holding changes with the current voting power of 5.34% as compared to the previous voting power of 6.43%.

During 1H FY20, the company reported statutory profit after tax amounting to $388 million, which indicates a significant repositioning of its portfolio, including the sale of the Australian Bulk Liquid Terminals business as well as the successful demerger of United Malt. The company has maintained a disciplined approach to capital management with total capex of $11 million during the period.

Do Read: Why these agricultural stocks are booming?

The company added that the market conditions have improved considerably, with widespread rainfall in much of eastern Australia providing optimism for a much larger crop later this year. The company progressing well with its harvest readiness, including a large recruitment and training program for seasonal workers.

At the close of session on 8^th July 2020, the stock price of GNC stood at $4.10, generating returns of -4.63% and 23.72% during the last one and three months, respectively.

Beston Global Food Company Limited

Beston Global Food Company Limited (ASX: BFC) is primarily in the marketing and distribution of dairy, seafood, meat, wine, water, health and nutrition products into local and international markets. As per the Chairman, the company completed Phase 1 of its Business Plan (Fix, Focus and Build-Out) in 2018 with the turnaround of the dairy assets acquired out of receivership at the time of the IPO. The company also installed a new state-of-the-art mozzarella plant and equipment and commissioned its dairy nutraceutical plant.

Equity Raising for Business Expansion: BFC is commencing a share purchase plan offer to raise $2 million from eligible shareholders. The SPP follows successful institutional placement which raised $10.0 million. The company would utilise the proceeds raised from Placement and SPP to expand its lactoferrin production capacity, through the construction of a technologically advanced skim milk facility as well as for working capital purposes.

At the close of session on 8^th July 2020, the stock price of BFC stood at $0.083, generating returns of 53.70% and 3.75% during the last one and three months, respectively.

Australian Agricultural Company Limited

Australian Agricultural Company Limited (ASX: AAC) is engaged in sales and marketing of high-quality branded beef into global markets. Recently, the company released its results for the financial year 2020 ended on 31 March 2020 and outlined the following:

• The company reported operating profit amounting to $15.2 million on the back of solid year of international wagyu beef sales generated by its branded beef strategy.
• Despite elevated seasonal related costs of $42 million, the company managed to achieve its strongest operating cashflow of $20.1 million in three years.
• The company reported statutory EBITDA amounting to $80.1 million, which was boosted by gains in the value of its herd.

Do Read: How Australian Agricultural Company Limited is swinging into Operating Profit in FY20?

At the close of session on 8^th July 2020, the stock price of AAC stood at $1.050, generating returns of -0.94% and -6.67% during the last one and three months, respectively.