Should shareholders buy into the capital raising that is currently being undertaken by almond business Select Harvests Limited (ASX: SHV)?
The capital raising
Select Harvests is looking to raise approximately $120 million to partly fund the acquisition of the Piangil Almond Orchard.
A 1 for 6.3 pro rata fully underwritten pro rata accelerated non-renounceable entitlement will aim to raise the $120 million at a share price of $5.20. That was a 4.8% discount to the last closing price of Select Harvests.
It’s being done with a fully underwritten pro rata accelerated non-renounceable entitlement and a placement to institutional investors.
What is it raising the money for?
Piangil Almond Orchard is in north-west Victoria, approximately 86km from the company’s Carina West Processing Facility.
It has 1,566 hectares of almond orchards, of which 1,177 hectares are mature plantings and 389 hectares are immature. It also has 641 hectares of unplanted land as well as plant and equipment.
In terms of water reliability, it has 1,877ML high reliability water entitlements and 622ML low reliability water entitlements.
Select Harvests will be entitled to the 2021 almond crop.
The total acquisition cost is $129 million as well as a reimbursement for the 2021 growing costs incurred to date of completion.
This deal is expected to add to profit/earnings per share (EPS) in the low to mid single digits.
Why is this farm so good?
The Piangil Almond Orchard is a high yielding orchard according to management. Select Harvests will immediately invest in equipment and infrastructure to improve the yield quality, mitigate harvest risk and improve irrigation efficiency.
The acquisition improves the company’s planted area by 20% and is expected to increase almond production by approximately 4,600 tonnes per year in the first full year, increasing to 5,400 tonnes at maturity in 2026.
It’s also helpful that the farm is close to its processing facility. It will also optimise the usage of the processing facility, which will increase economies of scale and lower the per-unit production costs.
Summary
Compared to the current share price of $6.57, the capital raising price is a discount of around 20%. That seems like a great price and I’d take part if I were a shareholder. The acquisition seems like a smart move and will help grow earnings.
However, I’m not sure if it’s a buy outside of shareholders able to take part in the capital raising. The last 10 to 15 years has been a pretty mixed performance. I prefer consistent ASX growth shares which have long term growth potential like Pushpay Holdings Ltd (ASX: PPH).
