A man picks tea leaves at a farm in Bomet County. The Tea Board of Kenya has pointed to a global production glut as the cause of low prices of the commodity. PHOTO | FILE
What you need to know:
Low commodity prices hit listed companies dealing in tea and coffee the most.
Agriculture stocks at the NSE have cooled off in the last three months as effects of low commodity prices ate into company incomes.
The share price scorecard shows half of the six actively traded agriculture firms have seen prices fall in the last three months. Those dealing in tea and coffee have particularly been hit.
Share prices of Williamson Tea, Sasini, and Kapchorua Tea have declined by 2.9, 13 and 7.6 per cent respectively to Sh270, Sh14.70 and Sh133 over the past three months.
Limuru Tea has remained flat in the period at Sh670 with the company last week announcing a 42 per cent half-year drop in net profits to Sh7.6 million attributed to a 19 per cent fall in the price of its tea sales.
“The crop was boosted by favourable rainfall distribution in the first half of 2014 but turnover was adversely impacted by low tea prices. If this price trend persists, we expect revenues in the second half to be lower compared to 2013,” Limuru Tea said in a statement.
The firms issued a profit warning earlier this year, projecting lower revenue mainly due to tea prices and higher operation costs. Tea prices have been dropping since last year having fallen as low as $2 (Sh174) per kilogramme in June.
The Tea Board of Kenya, which regulates the market, has pointed to a global production glut as the cause of the lower prices.
Last year, 4.8 billion kilogrammes of tea were produced globally against consumption of 4.6 billion. On the other hand Kakuzi, which combines tea growing with livestock farming, fruit, horticulture and forestry development, has seen its share price gain 36 per cent in the last three months, with an overall year-to-date price increase of 102 per cent to Sh170.
Eaagads, which deals in coffee, is the only other gainer in the segment at 4.2 per cent in the past three months, standing at Sh30.75. Analysts say the fall in share price of tea firms is expected given that investors factor in potential revenue before committing.
Pay high premium
“So long as commodity prices are down, investors take it as a pointer towards lower revenue triggering reluctance to take up these stocks,” said ABC Capital corporate finance manager Johnson Nderi.
Agricultural shares however benefit from low liquidity due to a small number of issued shares, protecting them from wild price swings.
Sasini leads the segment with 228 million issued shares, with Limuru Tea (1.2 million) and Kapchorua Tea (3.9 million) leading the entire market in terms of fewest shares issued.
Investors have also been looking at the potential value of land held by the companies, especially following the serious bids for Rea Vipingo which have seen both Centum and Rea Trading Company willing to pay a high premium on the firms trading price.
“The land factor would become bigger in case of a takeover possibility of the company, or if any of them indicates a change of model to include real-estate development,” said Mr Nderi.
Rea Vipingo Plantations owns nearly 70,000 acres of land in Mombasa and Tanzania.
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