valuation

1.78 to 2.35 in two weeks does not happen often....and as Rosy put it, as I alluded to my need for Gorden Gekko's 'jetskis behind yachts'....what exactly is the value....Well, that is a good question with no short answer....(this is my longest hotcopper manefesto yet)

Long time posters will know I have valued this business at a high price for a long time.....the share price graph will tell you I have taken a bath....in truth I tell you, I have taken a bath....so why am I now holding 4 times more shares than I ever had.

Well, I'm an investor with a high risk tolerance, not a trader, I have owned something in this since,um, 2007 and this stock is now quite a special situation...it's value is clouded by leverage through debt and leverage to cyclical factors and operating business risks....but it is a basic food.

EPS, the stock earned 14.8 operating earnings cents in the first half..Operating profit before interest, tax of $14.4m matches ok with operating cashflow after tax of round 11ish..traditionally, each half has been roughly equal but don't take anything for granted....Full year earnings are at roughly 30 cents, this places Shv at PE 10 on a $3 stock price. Hardly an undemanding valuation at $3 but a query on 30 cents, upside and downside risks....this is a different bundle of assets since Olam hit the exits

But you say, what about assets V debt maybe you don't like PE....well, first I tell you, 'cashflow' is king and cash earnings are king..... go buy a piece of gold if you want value without earnings...

But let's be serious...forget about NTA....the issue is only debt....the PE of course takes into account debt maintenance but that's not good enough.....the debt is a fundamental issue of company stability and balance sheet flexibility....it needs to managed proactively, as it is.

So what is this really about...well, almond farming in Australia does appear to be a lucrative business....yes, there are cyclical factors and yes, management needs to be sensible..check out the profitability metrics from the company owned orchards say in 2005 for a hint. Maybe you are convinced enough by the 260% rise of company orchard profit this half as acquisitions and more attentive crop management and price shone through....Select is quite a formidable vertical integration and Olam may regret not acquiring it as they will obviously compete for future acreage.

What am I saying? I'm saying this is a growth story disguised as a train wreck. Why? There is some growth in earnings from the maturation of existing trees more efficient management and almond price and Aussie dollar and so on....how about the fact that every single acre shv acquires from the land title up, feeds margin and efficiency right through it's chain....and in Jan/Feb Shv picked off about 1300 acres for about $7 mill....you might say, well, so what? Well, if this was a normal stable bus. you would say, good god, they just increased their entire vertical integration by 15% for $7 million (they already managed I know)...depending on the cycle and economics of the moment, that 15% expansion net anything between 10% and maybe 30% npat contribution (15% expansion of vertical integration with a relatively fixed cost base)..cost base: head office, idle manufacturing, horticulture group, food processing, marketing and so on...it's already there.

Until the value of almondable farms and land adjusts, such acquisitions are extremely lucrative....but outside Olam, there can't actually be much of it left now (shv and olam used to be about 70% of the industry)

But few see all that right now...and if management stuffs up nobody will see it...there are not many fund managers in this country that can take Shv's share price graph of 5 years to their manager and say, yes, let's pull the trigger on this small cap....no matter, share price appreciation matters little...I'm patient enough for the divvies to roll but hopefully they won't pay much of them until this growth story has played itself out, against the backdrop of willing banks and low interest rates.

Do your own research: this is a fragment from my imagination. I have no idea what Shv is worth but I'm certain that it is not $2.35