Sasini targets real estate as half-year profit drops 19 per cent

Listed agricultural firm Sasini announced a 19 per cent drop in half year net profit and is eyeing the real estate market to reduce the influence of weather and volatile coffee prices on its earnings.

The company said its net profit for the six months to March stood at Sh160 million compared to Sh198.2 million in the similar half last year, but it maintained its interim dividend payment at Sh0.50 a share 

The company attributed the drop to lower coffee prices, poor weather that cut tea output and rising operation costs led by labour and input expenses.

Now, it is seeking a piece of Kenya’s booming real estate market in a bid to diversify further from the agro based business—which generates more than 90 per cent of its sales.

Mr James Mcfee, the chairman of Sasini, said the company is eager to build homes in a 100 acre piece of land in Ruiru Township, which he added is not ideal for coffee production.

Volatile performance

“The board decided that developing the land is a worthwhile venture and we are only holding back until commercial bank’s interest rates are favourable enough for us to borrow funds,” said Mr Mcfee at an investor briefing in Nairobi Thursday.

Its performance has been as volatile as its core business of producing coffee. Its net profit more than doubled in 2010 to Sh352 million in a year when coffee prices were on the up, before it slowed down last year to 9.9 per cent on poor weather. 

This forms the reason the company is widening its product range to include coffee lounges and sale of branded tea and coffee.

Premium returns

It signalled its intention to enter real estate in September when the Municipal Council of Ruiru granted its approval to change the use of nearly 1, 000 acres of land that is now under coffee.

Its quest for the property market is set to transform Ruiru Township which has been the focus of high net worth investors like Renaissance Capital, the Moscow-based investment bank and the Kenyatta family. Both the Kenyatta family and Renaissance Capital, through their project dubbed Tatu City, are planning to construct a new city of manicured homes, office blocks, shopping malls and industrial parks.

Rising rent and home prices, which is riding on nearly three decades of under investment, has seen real estate emerge as an asset class of premium returns relative to equities, bonds and bank deposits.

This is what is egging companies like Sasini, insurance companies, pension schemes and investment firms such as Centum to enter the regional property market.

The government estimates Kenya’s annual housing demand stands at 150,000 units.