Comvita's share price soars as more honey equals more money
By Fiona Rotherham
Jan. 22 (BusinessDesk) - Comvita, the manuka honey and health products maker, is riding the crest of a consumer push for
health and wellness products with its share price having risen 124 percent in the past year.
The Te Puke-based company attributes the soaring share price to its improved financial performance and a big surge in
demand for manuka honey products. Australia’s Capilano Honey and vitamin and health supplement company Blackmores have
also seen their share prices go through the roof in the past year - 151 percent and 424 percent respectively, on the
back of rising sales in China in particular.
Comvita now derives half of its revenue from China for its overall range, which includes products from manuka honey,
olive leaf, and fish oil.
It was only four years ago that Comvita’s board fought off a $71.6 million or $2.50 per share takeover offer from
Singapore-based Cerebos Gregg, which lapsed when the bidder baulked at an independent valuation in the range of $3.40 to
$4 based on forecast earnings. Comvita was trading today at $8.40 per share, having hit a record high of $8.80 on
Tuesday this week.
Comvita chairman Neil Craig argued at the time the offer was opportunist, given the company was emerging from a period
of under-performance and had strong prospects.
He said the company is finally starting to deliver on its forecast promises with first-half sales jumping 53 percent to
$91 million in the six months to Sept. 30, as it turned to a $3 million profit from a $3.3 million loss a year earlier.
In November it said full-year earnings would be at least 35 percent above the previous year to March 31 due to record
sales.
Craig, who is also a shareholder with a 3 percent stake, said the company now had a track record of delivering on its
forecasts after previously failing to do so, even though that was hard to do when the market was growing so rapidly.
“We spent a lot of money upfront and we’re now getting the returns and income starting to come in,” he said.
Only two firms have analysts covering the stock – Edison Research, which is paid by Comvita, and Craigs Investment
Partners, of which Craig is also chairman.
Comvita shares are currently trading at $8.40 and Craigs upgraded its target value by a whopping 75.4 per cent in
November from $5.70 to $10 while Edison shifted from $7.16 per share to $9.20.
Craigs analyst Adrian Allbon said one of the key drivers for the huge re-rating of the share price was soaring demand
for manuka honey products from Asian consumers in particular.
Securing supply has also been critical to building branded sales globally, he said. In 2010, Comvita produced only 5
percent of its manuka honey supply, which meant when world prices rose, it had to pay more to suppliers rather than
capturing that value itself. It also found itself in the embarrassing position two years ago of running out of honey to
supply its sales pipeline.
After investing heavily in vertical integration since, Comvita now produces half its supply, with the rest contracted,
and has focused on ensuring it diversifies risk by having a better geographical spread of supply and that it produces
more of the honey with a high-UMF factor, which costs the most and has the anti-bacterial activity required for its
health products.
Raw material inventories at Sept. 30 were also up 92 percent to $42 million, compared with $21.9 million at the end of
the previous corresponding period and Edison’s analysts said in a market where demand exceeds supply, increased raw
material inventory is a positive indicator – “more honey equals more money”.
“The question is what implications that has for second-half earnings and growth,” Allbon said.
Comvita has reaffirmed its five-year sales target of $400 million for the 2020/21 financial year. Allbon said he was
sceptical that the company would achieve its target for $120 million of that coming from its non-manuka honey products,
as it will be “harder to capture earnings” from this portfolio.
Chief executive Scott Coulter agreed it would be harder but customers had indicated they wanted to buy other things from
the company and the strategy was to broaden the range.
He’s confident the clinical evidence it has invested in to prove the efficacy of its olive leaf extracts will pay off,
and that the 19.9 percent strategic stake it invested last year in fish oil producer SeaDragon will show returns in a
few years.
“Our goal is to partner with them and help create value for them,” Coulter said. “There’s no reason why we can’t
replicate the manuka honey story with fish oil.”
(BusinessDesk)