Comvita's price target has been ramped up by brokerage Craigs Investment Partners after the manuka honey company posted a 68 per cent 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 per cent to $202 million as Australian sales jumped 62 per cent 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 per cent.
Adrian Allbon, an analyst at Craigs Investment Partners, lifted his 12-month target price for the stock by 43 per cent 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 per cent, and assume a 4 cent final [dividend] for 2016."
