Daily ShareChat: Turners and Growers

Fruit and vegetable company Turners & Growers is leveraging off its industry distribution operations to become more involved in growing produce, says Forsyth Barr analyst John Cairns.

"Whilst we believe this is the correct strategy, it increases the climatic and commodity price risk profile of the business," Cairns says.

Turners has extensive interests in growing a range of produce including tomatoes, apples, lemons, mandarins and kiwifruit.

"Most of these are in the development stages and will only reach full production over the next three to four years," he says.

"By controlling its own supply of produce, Turners is able to leverage off its supply chain infrastructure from packing, crates and transport into both domestic and export markets."

Turners' commission-based Enza division is New Zealand's largest exporter of pip fruit, accounting for 35% of apple exports.

"Enza remains focused on the global development of its proprietary apples, in particular Jazz. Enza controls both the production and marketing of the proprietary varieties."

In the meantime, the main issue facing Turners is its low 4.3% return on equity forecast for calendar 2010. Its 66% shareholder Guinness Peat Group's future direction is under review which could result in some of its investments, including Turners, being divested which could "act as a catalyst for change," Cairns says.

Recommendation: Hold.

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