Markets

Agriculture shares lose steam as ‘Rea Vipingo’ effect wears off

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Brokers on the trading floor of the Nairobi Securities Exchange. PHOTO | FILE

Summary

  • Analysts attribute 2015 trend reversal to price correction after investors bought into counters for speculation.

Agriculture stocks have this year lost the momentum that saw the sector buck a bearish trend at the Nairobi Securities Exchange (NSE) in 2015, with three of the six listed firms losing half their value as the “Rea Vipingo” effect wears off.

Shares of Kakuzi, Kapchorua Tea, Williamson Tea, Limuru Tea and Sasini were the standout performers in the market in 2015, when investors bought in with an eye on the potentially valuable land assets held by the firms.

This year, analysts say the rush to buy with an eye on speculation has slowed down while a price correction has also come into play for some of the counters.

“After the takeover of Rea Vipingo at a premium due to the land aspect, we saw these counters gaining significantly, but that has cooled down this year,” said Sterling Capital head of research Eric Munywoki.

“From a fundamental point of view, the likes of Sasini, Williamson Tea, Kapchorua and Limuru Tea have seen some price correction.”

Kapchorua Tea is the worst performing of the stocks with a year-to-date price decline of 58 per cent from Sh200 in January to Sh84 last week. It had recorded a gain of 46 per cent in 2015.

Williamson Tea, which had ended 2015 with a 55 per cent gain, has reversed that to a 52 per cent decline this year, with its share price dropping from Sh384 to Sh183.

These two firms, which share common directorship, however, issued bonus shares last year (a new share for each held) meaning that their prices were always due for a dilution as they doubled the number of shares in issue.

Limuru Tea has also seen a significant drop in share price of 55 per cent this year, dropping from Sh1,085 to Sh490 a share.

READ: Agriculture stocks chalk up huge price swings at the bourse

Kakuzi had led the segment in gains in 2015 at 76 per cent after billionaire shareholder Kibunga Kimani signalled he was increasing his stake in the firm.

This year the share has fallen back by 16 per cent, from Sh317 to Sh265, mainly on the back of disappointing financial results.

The firm reported a big decline in half-year to June 2016 earnings, with a net loss of Sh35.2 million compared to a profit of Sh2.3 million the previous year.

“This somewhat disappointing result has been mainly due to lower tea prices, lower livestock sales and the delay of macadamia sales due to waiting for completion of the cracking facility construction,” said Kakuzi in its half-year financial statement.

Sasini has performed the best in the sector in share price this year, with a decline of four per cent to Sh18.

Coffee producer Eaagads, which was the only one of the six firms to record a price decline in 2015 (-36 per cent), has continued on the same trend this year, shedding 30 per cent year-to date to stand at Sh18.80 a share.

The firm, like Kakuzi, has recorded a decline in its financial performance.