Select Harvest reported 1H19 underlying NPAT well ahead of our expectations at $20.0m (vs. BPe $14.0m). Key operating statistics of the result include:

Operating results: Revenue of $100.0m was down 12% YOY (vs. BPe $127.7m). Operating EBITDA of $38.5m was up +92% YOY (vs. BPe of $31.0m). Operating NPAT of $20.0m was up +219% YOY (vs. BPe of $14.0m). 1H19 results are predicated on a crop of 20,750t (vs. BPe of 17,350t) and an almond price assumption of A$8.50/Kg (vs. BPe at A$8.55/Kg and guidance of A$8.40-8.70/Kg).

Cashflow and balance sheet: Operating cash outflow of $14.4m compares to an inflow of $13.0m in 1H18 and reflects a materially higher crop size. Reported net debt of $93.4m (inclusive of $38m in finance leases) compares to $70.8m at FY18.

2019 outlook: 80% of the crop is at in excess of $8.50/Kg and our observations are prices ex-US and Australian ports are at the upper end of previous guidance (A$8.40-8.70/Kg). Crop forecast of 20,750t is ~23% above theoretical levels and we note there appears upgrades to outward years, with theoretical crop forecasts up ~5% in FY20e and ~7% in FY21e. SHV have noted that mature orchards are now consistently yielding closer to 1.3t/acre versus industry benchmarks or 1.2t/acre and this has formed the basis for the stronger theoretical production outlook.

Following the result, we have upgraded our NPAT forecasts by 40% in FY19e, 0% in FY20e and 2% in FY21e. Upgrades have been principally driven by stronger yield outcomes. Our target price lifts to $8.35ps (prev. $8.00ps) reflecting higher orchard NPV values.

Investment view: We see SHV as having greater operating leverage to elevated almond prices in this cycle than the last, with production at its peak (FY24-26e) forecast to exceed FY15 levels (the previous peak in almond prices when SHV generated EBITDA of $100m) by ~65%. We retain our Buy rating and increase our price target to $8.35.