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Comvita price target raised at Craigs on Australian, Asian growth prospects

Friday 13th May 2016

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Comvita's price target has been ramped up by brokerage Craigs Investment Partners after the manuka honey company posted a 68 percent jump in full-year profit on surging demand in Australia and China.

On Tuesday, the company reported net profit of $17.2 million for the 12 months to March 31, as Australian sales soared, overtaking New Zealand as the largest market. Revenue increased 32 percent to $202 million as Australian sales jumped 62 percent to $65 million, helped by third parties buying the company's products to sell in China. 

The Te Puke-based company's shares have tripled in the past year, hitting a record high $12.40 last month, on demand for products such as manuka honey, which accounts for about half its sales, and olive leaf extract which makes up about 10 percent.  

Adrian Allbon, an analyst at Craigs Investment Partners, lifted his 12-month target price for the stock by 43 percent to $14.30, saying the company's market of Asian health & wellness and tourism, along with its strong growth outlook and a business model which is now demonstrating operating leverage, had led to the upgrade.

"Key highlights for us: profit growing faster than sales, lift in its dividend and a material increase in raw honey inventory to support 2017 growth," he said in a note. "Our key valuation change, however, is assuming lower capital intensity (both capital expenditure and working capital) to realise Comvita's stated sales target of $400 million by 2020. As a result, we have also raised our dividend payout to 45 percent, and assume a 4 cent final [dividend] for 2016."

Comvita is currently trading at $12, having gained 43 percent this year. It joined the NZX 50 in April after Diligent's exit, having been the second-biggest gainer on the NZX All Index in 2015, up 129 percent to $8.40.

The company is changing its balance date to June 30, although it expects the 15-month operating result will likely be similar to the latest 12-month period given the June quarter is typically the quietest period due to seasonality of sales.

Comvita will pay a second interim dividend of 10 cents per share on June 24, taking the total for the 12-month period to 16 cents, ahead of its 13 cent payment a year earlier. A final dividend is expected to be paid in September.

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