Hi fellow posters. Just started looking at SHV after an article...

Hi fellow posters. Just started looking at SHV after an article in the AFR and the value at first glance seems very compelling. FF grossed up yeild close to 10% plus trading on a FY11 PER of under 7. On top of that given the ramp up in production volume expected in the next 2 to 5 years as I see it the company is looking at compound annual growth rates in production of almonds in excess of 20% per annum for a few years out - say 4 years+. That seems incredible given that the PER is dismally low. There has to be a reason for this right? I have slowly been reading through historical annual reports and trying to get myself up to speed on the model. I think maybe one area of significant uncertainty that is perhaps dragging on the SP is the Olam contract. Currently SHV manages the Olam owned orchards and has a three year contract ending at the end of calender year 2012. Given the profile of Olam what is the chance they are likely to pull the management and processing contract and set up shop on their own account from 2013 and try and capture more points on the value chain, as opposed to just the orchard owner/grower point. They certainly have the funds to finance entry into other parts of the value chain and they also have the scale given they have around 30,000 acres. My concern is that Olam account for nearly 85% of the management services aspect of the business so this sort of contract loss would pretty much wipe out that business line and the company would be left with only its orchards that it owns in its own right. This concern would seem to coincide with the decision by SHV management to aggresively ramp up interests in their own orchards in the last 18 months. Was the decision to do so prompted by the risk of contract loss from Olam. Even with losing Olam SHV does look like an interesting investment. However if this is not a risk and Olam will renew another multi year contract from 2013, then the current value is to me quite exceptional.

What do people think? Am I barking up the wrong tree here?