Update: Comvita (CVT.NZX)
Annual Accounts to 30th June, 2022 (Two Years Only)
All amounts are in NZ$ unless otherwise stated.
Data
The data set for this article can be found in PDF format here:
Date
25th November, 2022
Current Price
NZ$ 3.24
Key Points
Diluted EPS of 18.1 cents based on total earnings
Net debt of $38.3m is higher than the $25.5m published
Underlying earnings are $11.7m
Negative operating cash flow of $4.9m using our method
Equity ratio still strong but declined to 68.5%
Dividends per share of 5.5 cents carry full imputations
Total earnings return on shareholders funds of 5.6%
Gross margin 60.3%
The company often buys back shares and places them into treasury stock
Overview
The company is New Zealand’s largest bee products business with a turnover of $209m for the financial year ended 30th June, 2022 (FY22) and is listed on the NZX.
There has been takeover speculation about the company this calender year which appeared in a Bloomberg article (paywalled) on 30th May, 2022. The next day CVT denied there had been any approaches by anyone seeking to take over the company.
The FY22 interim accounts to 31st December, 2021 for the company were discussed here.
The company posted the ‘at a glance’ table below in its annual report. This is usually produced by companies to showcase their best figures and results.
There are significant differences between some recast figures and those published by Comvita (CVT) above.
Trading History
Source: Direct Broking
Since the beginning of last month CVT has been rangebound between around $3.15 and $3.30.
Source: Direct Broking
The company reached highs of close to $8.60 in early 2018 but has recently been trading in the low $3.00 range.
Recast Statement of Profit & Loss
Total earnings were up 34.9% to $12.8m on revenue up 9.0% to $208.9m. The company was still receiving some government subsidies and grants of $1.6m.
Gross profit is up 21.8% to $126.0m while the gross margin has improved from 53.9% to 60.3%.
EBIT increased 87.5% to $18.3m which produced a much improved funding cost cover although the company is not highly indebted.
EBITDA was $29.0m in contrast to the company’s published figure of $30.1m.
Operating profit after tax was up 204.5% to $11.7m which is the closest measure available here to what could be termed underlying earnings.
There was limited information in the notes to the accounts on expenses other than limited amounts on some administraive expenses and other operating expenses.
Consequently it was impossible to review all expense items for categorisation of some of them into extraordinary and unrealised items. This affected the calculation of underlying earnings.
Recast Statement of Financial Position
Shareholders’ funds increased 2.8% to $228.0mgiving an equity ratio of 68.5% which was down significantly from the prior year’s 77.4% but still a low gearing.
Net debt according to the company is $25.5m but they have left out the lease liabilities which when added increase the net debt figure to $38.3m.
Intangibles are not excessive at $40.4m given the total assets are $332.8m.
There was a notable increase in inventories in particular raw materials and finished goods which increased 34.8% and 27.7% respectively.
Creditors & provisions were up 51.0% while receivables & prepayments were up 23.7%.
Cash & cash equivalents stood at $17.8m at balance date on FY22.
Recast Statement of Movements in Shareholders’ Funds
The company paid $4.7m in dividends and made payments of $2.2m to buy back shares during the FY22.
Recast Cash Flow Statement
The company had a 75.2% decline to $7.2m in the difference between receipts from customers and payments to suppliers and employees.
This is interesting in light of the higher increase in trade payables as compared to trade receivables (accrual accounting items). In fact, the difference in the changes of these items is $5.2m which is the greater part of the difference between receipts and payments above.
Although aging is provided for receivables, no aging is provided for payables which would have been useful. Perhaps the company is paying its trade suppliers more slowly or the increase in payables is due to the increase in inventory levels.
Raw materials inventory increased by nearly $20m which is probably the main reason behind the growth in trade payables and the nearly $22m narrowing of the difference between receipts and payments at the top of the cash flow statement.
When dividends paid and lease liability payments are included using our method the company produced a poor operating cash flow for FY22 of -$4.9m which was much worse than the prior year.
As discussed above, the company has been building up inventories which probably accounts for the relative increase in payments to suppliers.
Removing the dividends paid from the operating cash flow shows that the company is not producing enough operating cash flow in FY22 to cover its dividend payments. Instead it must finance dividend payments from debt in this year.
In the prior year, FY21 the company produced a large surplus operating cash flow of $21.7m with similar lease liabilities (although no dividends were paid).
The negative FY22 operating cash flow is not one that should be seen on a regular basis once invesntory levels normalise.
An item of concern are the lower payments for capital expenditure (capex) in FY22 which declined by 48.6% to $5.5m from $10.6m in FY21.
Investment purchases payments of $9.9m were made in FY22 which was up significantly on the prior year.
To finance share buybacks, fixed asset and investment purchases and the negative operating cash flow the company raised a net $22.6m in additional interest bearing debt.
Ratio Analysis
Funding cost cover increased to 7.2 times from 4.3 times in the previous year. The current ratio declined to 3.8 times from 4.7 times.
The NTA/share at balance date improved slightly in FY22 to $2.70 from $2.62 in FY21.
EPS on a diluted basis were 16.6 cents based on operating profit after tax (our measure of underlying earnings) and 18.1 cents based on total earnings. This produced P/E ratios of 18.7 times and 17.1 times respectively at the balance date share price of $3.10.
Return on equity varied between 7.0% and 5.6% based on operating profit after tax (underlying earnings) and total earnings respectively. The latter figure is a little above what a bank deposit earns and not much above the RBNZ’s current overnight cash rate (OCR) of 4.25%. The OCR was, of course significantly lower at the company’s balance date.
Market capitalisation based on the balance date share price is $217.3m which is less than the previous year’s $245.4m.
Segmental Analysis
Australia New Zealand (ANZ) increased YoY revenue by 40.0% while North America was up 32.0%.
Unfortunately, the company didn’t provide any segmental information on their products which would have been very useful. Presumably there were valid commercial reasons for not doing this and not wanting competitors to see on what product lines made the most contributions to profit.
Providing non-current assets enables a ratio of sorts to be calculated but it has limited value.
Summary
The company has a solid, lowly geared business which produces an excellent gross margin.
Operating profit after tax (OPAT) which could also be called underlying profit was up strongly in FY22.
Total earnings were also up but less so than OPAT. They didn’t benefit from similar foreign exchange gains that had occurred in the prior period.
Diluted EPS had a large rise based on OPAT and a lesser rise based on total earnings.
The loss of government subsidies (and grants?) will negatively impact the business in the immediate future.
The company has a solid balance sheet with an unusually high equity ratio which doesn’t rely on a large intangible item to support it.
The negative operating cash flow may be largely explained by the increased inventory levels while capex cash payments were down on the prior year.
Overall, this is a conservatively run company in an interesting industry. The share price, however, has been much higher than it is now and a comprehensive analysis going back five years or more would be valuable. Time constraints, however have reduced the analysis to two years.