Upside for Capilano Honey

This post formed the basis of an article which then appeared in the Australian Financial Review on 3 August 2016. Michael Gable is a regular expert contributor to the AFR. You can access the AFR version HERE.

Capilano Honey (CZZ) is Australia’s largest honey processor and their various brands command a domestic market share of 70 per cent. Through their recent joint venture with NZ based Comvita, things start to get more interesting. Comvita is the world leader in Manuka Honey, which is highly sought after for its medicinal properties. Increasing production of premium varieties such as Manuka to Asian markets should see margins increase over the next few years. With earnings growth already in the double digits, the stock is not expensive on a forward PE of 16.5. So with the company fundamentals looking interesting at these prices, we now need to look at the chart to see if price action backs this up.

CZZ weekly

Capilano Honey did very well throughout 2014 – 2015 as the share price climbed from $4 to $23. In the last year though, Capilano has made little headway as it drifted sideways. Instead of being a problem, this is actually a good sign. We have noticed that this sideways action in Capilano resembles that of an ascending triangle. This is known in technical analysis as a “continuation pattern”. This means that the shares are just taking a break from their previous uptrend and the probabilities point to Capilano resuming that uptrend soon. This continuation pattern will normally see a break to the upside to indicate a resumption of the uptrend from a few years ago. We can see price action tightening up now so the previous dip to support under $20 may be the last time we see it down there. We expect Capilano to now make a move back towards its resistance level near $22. If it breaks above that, then it should initially make a move equal to the base of this ascending triangle. That implies possible levels as high as $28 before it hits the next resistance level.

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