Comvita & the Question of Public Equity

Following rejection of the takeover bid launched by Florenz Ltd for Comvita Ltd, the manuka honey flagbearer has announced its intention to raise NZD25 million in new capital, which means that Comvita shares will continue to be quoted on the New Zealand Exchange. But should they be? In this review of the record of Comvita’s performance over 20 years, Bruce Roscoe explains why the financing needs of the company are more suited to private than public equity.

By Bruce Roscoe

The risk of ownership of Comvita shares is now vividly seen as comparable to swimming in a deep ocean. Beyond a short distance from shore, ocean swimming is unsafe. The risk is red-flagged on the beach, except that the sometimes wide distance between the flags requires as wide a view of the mānuka honey industry, the markets into which Comvita sells, and of Comvita itself.   

Comvita co-founder Alan Bougen and former chair Neil Craig met with Comvita shareholders in the weeks leading up to the 14 November vote on the defeated Florenz takeover proposal. Their purpose was to persuade shareholders to vote against the proposal on the basis that they believed the NZ80c-per-share offer substantially undervalued Comvita’s assets, which Comvita over two reporting periods had revalued downward by NZD118.1m.

(The industry conditions that exacerbated Comvita’s near collapse are investigated in the double feature — A Honey Industry in the Dark, and The Honey in the Sheds, and the Sword of Damocles that led our October 2024 edition. In the second of those reports, we wrote, “The industry…is more walking the edge of a precipice than facing a crossroads”. Comvita now sits on the edge of that precipice.)

Comvita’s early years as a high-flying company mask a long-term trend of deterioration in a key measure that reveals how efficiently a company deploys its assets to generate sales. That measure is “asset turnover”. It is expressed as either a ratio of sales to assets or as the number of days taken for the value of assets to equal the value of annual sales.

Say your honey shed and extraction plant are valued at NZD500,000 the land on which they are sited, NZD1m; the 100 drums of honey in the shed, NZD600,000; and vehicles and bits and bobs, NZD500,000. Total asset value, then, is NZD2.6m. You rang up sales of NZD4,264,000. Divide sales by assets to arrive at the ratio of 1.64. (Best to use an average of the value of assets as recorded for your last two reporting years. That produces a value that more represents the year.)

Your business is doing very well. Your asset turnover ratio is 1.64 times. Within a year, you have sold goods to a value that exceeds the value of your assets by 1.64x. Your production prowess is the envy of the town. Demand for your products is runaway. You are doing so well that you could even list shares in your business on a stock exchange. Which is what Comvita did in 2002 when it achieved the same asset turnover ratio of 1.64x.

Table 1 reveals the trend of a worsening asset turnover ratio over the 22 years since Comvita’s share flotation. The ratio is also expressed in days. Just divide 365 by the ratio. At 1.64x, Comvita’s asset value was “turning over” in just 223 days. Inventory — mainly the raw material of honey and packed honey — in usual years has accounted for the queen bee’s share of total inventory. A marked declined in the ratio has foreshadowed profit declines or blowouts. In some years the ratio has sunk to 0.61x (601 days) or even 0.54x (674 days). The trend appears embedded as structural.

(The data are distorted in only four financial years — the two 15-month years that arose as a result of changes to a March and then June financial year, which inflated sales value, and the gargantuan asset write-downs at the close of the June 2024 and 2025 balance dates. The transition in the December 2007 year to NZIFRS [international financial reporting standards] does not materially alter the ratio trend.)

At the time of its flotation, Comvita had embarked upon a policy of building up inventory in response to the heavy rainfall of 2001 that was estimated to have halved 2001/02 season honey production volume. Ever higher inventory volumes later became needed for blending and temperature-controlled storage for the production of as many as six grades of mānuka honey. The need to freshen old honey with new through blending also contributed to inventory buildup. Scientific mānuka honey definitions launched by the Ministry for Primary Industries in 2018 further increased the need for blending and additional inventory.

The more entrenched in mānuka honey production Comvita became, the more tenuous its resolve to achieve “organic” growth. As Comvita reported in its June 2016 year: “Cashflow from operating activities resulted in net outflow of $32m…The increase in inventory is directly correlated with the increase in net debt”. And Comvita’s thirst for continual funding in the form of both new share issues and loans had become almost unquenchable. As Table 2 shows, funds from those sources reached NZD378m between Dec. 2002-Jun. 2025.

China and the Weather

Publicly quoted companies are expected to release statements of “guidance” about the earnings they expect to achieve in their current or next reporting period. They are also required to inform the market when they become aware of events that they judge likely to materially impact their share price. This is similar to a “no surprises” policy.

Prudent companies usually issue conservative earnings estimates that leave room for upward revisions later in the year. The ideal is to surprise on the upside and not disappoint on the downside. Comvita has tended to surprise on the downside. Actual results fell well short of the first forecast it issued (August 2002) as they did for the latest forecast (November 2023). Between those dates, Comvita has not done much better. As chair Neil Craig wrote in the June 2019 year annual report: “We acknowledge the current share price is the result of successively missing financial forecasts”.

WHAT ARE YOU DOING? some investors may have wanted to scream. On 7 May 2019 — about eight weeks before full-year results were to be announced — Comvita said it would record a net profit loss “in the order of NZD6m”. The actual loss was NZD27.7m.  

In early 2016 management spoke of a goal to double annual sales to NZD400m over five years. The only observable basis for this target was that Comvita had nearly doubled sales to NZD152.7m from NZD84.9m in the previous five years. The NZD400m target fell short by NZD208.3m.

Decisions by Mum and Dad investors in the case of a company such as Comvita are likely to be based more on the attraction of the theme of mānuka honey than company fundamentals. (Such investors, loosely identifiable by their holdings of fewer than 5,000 shares, numbered 1,871 and accounted for 74.4% of Comvita total shareholders at 30 June 2025.)

Comvita, as the only listed play of consequence in the mānuka honey industry, is often chosen as a proxy investment for that industry. Too, it is easy to get high on the hype, when news media publish headlines such as “Comvita’s Share Price Soars as More Honey Equals More Money” — several media outlets used this headline in January 2016.

Which makes the communication of reasonable guidance on earnings a duty, for both a listed company and the analysts that cover it. But when the company itself struggles to produce reasonable earnings projections, analysts cannot be expected to do much better. On the one hand, in Comvita’s case, an analyst needs to anticipate what China will do, and on the other hand, forecast what the weather will do. To date the guidance has been about as good as the smell of paraffin wax.

Fans With Keyboards

Eddie Jones, the irrepressible former rugby coach of the Wallabies, once only half-jokingly described New Zealand rugby journalists as “fans with keyboards”. It would be unfair to tag analysts who cover Comvita in that way. For several years only one analyst has covered Comvita in detail. There are now two. Their firms — Craigs Investment Partners and Forsyth Barr — attend to Comvita’s investment banking business for mainly the issue and marketing of new equity. Research is needed to support shareholders and maintain market share in the trading of the shares. A “Chinese wall” within the investment bank assures the independence of the analyst.

The danger is that analysts at other firms which wish to compete for Comvita’s business may feel compelled to self-mute and maintain a false positive view. Because of the illiquidity of the shares, it is doubtful that any other investment bank or stock brokerage would allow an analyst to spend time on a stock such as Comvita without the assurance that investment banking business would follow.

Comvita has increased the volume of research about itself by commissioning Edison Investment Research to provide coverage. The reports are detailed and useful, but it is clear the piper is paid. An Edison research note published in May 2016 not only believed that Comvita’s NZD400m sales target was achievable but based earnings estimates partly on the assumption that Comvita would exceed the target by 10.0%. A text subheading in the note states: “Increased raw honey inventory levels are a positive”. 

Notably absent in some research reports on Comvita is honey industry analysis. A positive view is presented about the prospects of the company as though it were operating in a vacuum. 

Private Equity

If not the pockets of Mums and Dads, private equity becomes the first alternative. Private equity funds take stakes in both unlisted and listed companies, where hidden value is seen and a pathway to profitable resale mapped out. If the target company is quoted on a stock exchange, the objective is to gain enough control to be able to delist from that exchange, restructure the business out of public view, and resell it whole or in parts.

(Florenz, which mounted an unsuccessful takeover bid for Comvita last year, represented private equity but did so as an owner and operator of a large-scale mānuka honey packing and export business that may have offered synergistic benefit to Comvita.)

Comvita is accustomed to the courtship of private equity. The most recent love call — the so-called “non-binding indicative offer” reportedly made by CVC Capital Partners PLC — represented a “significant premium to the current share price” Comvita said in the 22 February 2024 announcement. On that day, Comvita’s share price closed at NZD2.25. The withdrawal of the offer about three months later was not necessarily a vote of no confidence in Comvita. It could have more reflected a negative view of the industry as a whole.

Honey companies — or any food companies — do not appear on annual lists of Comvita’s top shareholders. An exception was Capilano Honey Ltd (now a brand of Hive & Wellness Australia Pty Ltd), which became Comvita’s third- and second-largest shareholder in 2008-2009 after selling Medihoney Pty Ltd for AD5.5m in Comvita shares and AD500,000 in cash. By April 2010, Capilano had sold its Comvita holding.  

Still, Comvita shares appear inherently unsuited to individual investors. Private equity funds have greater ability to understand and mitigate risk. Although the marketing of Comvita to such funds has yet to yield results, perhaps the efforts should be redoubled, so that Mum and Dad can deploy their savings elsewhere and get a good night’s sleep.   

Bruce Roscoe is a Japan-resident researcher and former foreign correspondent and securities analyst