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Comvita may not increase earnings in 2014 as higher honey prices bite, Craigs says

Monday 14th October 2013

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Comvita, which produces health products from manuka honey, may not increase earnings in the current financial year as higher honey prices crimp margins, brokerage Craigs Investment Partners said in a note.

The brokerage reduced its expectation for net profit in the year ending June 30, 2014 by 15 percent to $7.7 million, little changed from profit of $7.4 million in 2013. Its forecasts for 2015 and 2016 were also both reduced by about 5 percent.

"While the FY12/13 honey season was above average, it will take two consecutive seasons of average production to relieve the supply constraints within the sector," analysts Chris Byrne and Bryant Cheong said in the note. "We expect the pricing pressure to alleviate in FY15 on the assumption of two consecutive seasons of normalised raw honey supply."

Comvita said on Friday that it expects a first half loss will be made up in the second half of the 2014 financial year, allowing it to post a higher annual profit. The company said high honey costs, driven by a weather-related supply shortage, are expected to ease throughout the year as supply and demand are better matched.

Shares in Comvita were unchanged at $3.95, having gained 6.2 percent this year. Craigs lowered its 12-month target price to $3.64 from $3.84, reflecting the earnings revisions. The brokerage retained its 'hold' recommendation on the stock.

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