shv vertical integration, page-11

http://www.theage.com.au/business/select-looks-forward-to-harvest-20091103-hvbu.html

Select looks forward to harvest
CHRISTOPHER WEBB
November 4, 2009
SELECT Harvests is all about almonds.

The company has been growing them for more than three decades and, for a while, the transformation of Select into a global player in the almonds game was embraced by small-cap investors.

The scrip was a 15-bagger for those who came aboard early: the share price appreciated from $1 to $15 in five years.

But over the past couple of years, events largely outside the control of the company's management, headed by John Bird, conspired to push earnings and the share price down substantially.

When earnings were $28 million a year the investment community was putting an 18 times earnings sticker on the stock. Nowadays, with earnings in the $17 million to $20 million range, the earnings multiple is less than 10.

The factors that put Select Harvest into the doghouse included a higher Australian dollar, poor food division results, water restrictions and costs, and higher farm expenses.

And one of the factors that helped Select Harvests in earlier years ended up biting it, with the result that one word starting with the letter T continues to affect the market's perception of the company.

As well as owning almond trees, Select set out to develop and manage almond plantations for other people. The idea was that it would provide a reliable annuity-type money stream not directly related to the world almond price.

A big chunk of earnings flow from these arrangements but unfortunately a close business relationship with the now-collapsed Timbercorp - which still owns a slice of Select shares - led to a substantial bad debt, coupled with continuing uncertainty.

The company doctors handling Timbercorp recently sold its almond orchards to Olam International, a Singapore-based, global supplier of agricultural products.

Select's supporters are confident the company will continue to manage the orchards and they ask who else has the capacity and experience to handle the contract.

Chairman Curt Leonard said at Select's annual meeting the other day he was confident the company was ''best positioned" to retain the management rights under the new ownership.

Time will tell, but in the meantime Leonard was one-eyed about the company's prospects, and it wasn't just due to detached retina surgery the previous day.

Noting that the fundamentals for almonds were very strong, with demand exceeding supply within five years, he declared: "We are truly in the right product, at the right place, at the right time."

And last month he proved he was a good short-term judge by spending $100,830 on Select shares, buying at $3.07 a share. The scrip is now about $4.

Long-time board member and big Select shareholder Max Fremder spent $180,464 at $3.11 a share. Two directors buying - usually a good sign.