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

Comvita's [NZX: CVT] price target has been boosted by brokerage Craigs Investment Partners after the manuka honey company posted a 68% 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% to $202 million as Australian sales jumped 62% 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%.

Adrian Allbon, an analyst at Craigs Investment Partners, lifted his 12-month target price for the stock by 43% to $14.30, saying the company's market of Asian health and 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%, and assume a 4c final [dividend] for 2016."

Comvita is currently trading at $12, having gained 43% this year. It joined the NZX50 in April after Diligent's exit, having been the second-biggest gainer on the NZX All Index in 2015, up 129% 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 10c per share on June 24, taking the total for the 12-month period to 16 cents, ahead of its 13c payment a year earlier. A final dividend is expected to be paid in September.

(BusinessDesk)