1500 acre acquisition, page-6

Select paid $3.8M or $7,200 per acre for 530 acres at Lake Powell in Dec '10. On face value that makes the current acquisition at $13,000 per acre look pricy. However, the current crop is included, along with significant water rights and certain machinery. Hard to make a value assessment on limited facts. Management has proved to be relatively conservative over a long period so will back their judgement.

In the 2010 Annual Report Select quotes an EBIT of $6.8M from 3600 company owned acres. With that benchmark you could argue a further 1500 acres of near-mature trees may return an EBIT of $2.8M. You would need to back out the value of water rights and capital purchased to get an effective earnings yield, however even at the total $19.8M purchase price the EBIT yield is >14%. which would indicate fair value.

The caveat here is that there are numerous factors which affect EBIT. 2009, for example returned an EBIT of only $2.7M for the same 3600 acres. Of course the value of an asset is not based on one years earnings and the future outlook is bright.

Positives include the increased diversity of orchards (and growth pipeline), the higher proportion of higher yielding company owned orchards, gowing demand for the product and the potential for a supply/demand squueze over the next 2 years, not to mention the general uptrend in prices.

The exchange rate continues to bite and the company has forecast a slightly lower yielding crop (on a per acre basis). The US has had a good blossom and has so far predicted an excellent crop. The payoff might still be some time away but patience is a virtue! In the mean time I am happy to endure more than acceptable earnings and dividend returns and pick up further equity when the opportunity presents.