Ghana: Produce Buying Company : Year ended 30 September 2011

Analysis:

PBC recorded an impressive increase of 106% in its total revenue, having grown from 633M in 2010 to 1.3B in 2011. Though there was an equally great increase in cost of sales figure for 2011, it did not affect the profit after tax, which rose to 27.7M from the previous year’s 14.1M. However, the gross profit and net profit margins fell slightly by 1.68 and 0.16 percentage points respectively.

The company’s earnings per share rose by 96%. The share price experienced the most fluctuations in the year ended 30 September 2011, ranging between GH¢ 0.14 to GH¢ 0.30 towards the end of the financial year. The highest volume of shares traded was in September when 8.05M shares were traded, compared to normal trading of less than 200,000 shares per month. This was probably in anticipation of the announcement of good results for the concluded financial year.

PBC has a fairly low P/E ratio of 4.34, based on a share price of GH¢ 0.25 as at 19 January, 2012.

Outlook:

PBC has been experiencing high demand at the GSE following its notable financial growth over the past few years. It announced in May 2011 that it would be seeking a strategic investor to take up a 12.24% stake in order to finance its expansion projects. It also issued a statement that it would be buying more cocoa from farmers in the year, raising its purchases from 274,000 tonnes to 380,000 tonnes so as to further increase its market share to about 45%.

Like all other companies dealing in commodities, PBC felt the impact of the crises abroad but still maintained its revenue growth for the year. It enjoyed high prices from February 2011, but those dropped as the year progressed. However demand for dollars by traders had a negative impact on the local currency, causing it to drop, particularly in towards the end of 2011. Ghana enjoyed a record harvest of 1.01M tonnes in August 2011, though this figure may have been inflated by cocoa smuggled in from neighbouring countries. PBC benefited greatly from this bumper harvest.

In September 2011 PBC revealed its plans to open its US$10M sheanut processing plant under a subsidiary, PBC Shea Ltd, which was set up to diversify its operations and boost its stake in the market both locally and internationally. This is part of its Medium-Term Corporate Plan running from 2010 to 2013. The company also intends to expand further by improving its ICT facilities.

Markets Review: Quarter ended December 31, 2011

Select Global Equity Index Movements

	30-Sep-11	31-Dec-11	Change
Developed
S&P 500 (USA 500 Share)	1,131.42	1,257.60	+11.15%
Nikkei (Japan 225 Share)	8,700.29	8,455.35	-2.82%
FTSE 100 (UK 100 Share)	5,128.48	5,572.28	+8.65%
Advanced Emerging
Sensex (India 30 Share)	16,453.76	15,454.92	-6.07%
SSE (Shanghai, China All Share)	2,359.22	2,199.42	-6.77%
Bovespa (Brazil 50 Share)	52,324.42	56,754.08	+8.47%
JSE (South Africa All Share)	29,674.20	31,985.67	+7.79%
Emerging Africa
NGSE (Nigeria All Share)	20,373.00	20,730.63	+1.76%
GSE (Ghana All Share)	1,098.38	969.03	-11.78%
NSE - 20 (Nairobi 20 Share)	3,284.06	3,205.02	-2.41%

The last quarter of 2011 marked the end of a tumultuous year for most countries, following economic upheavals in Europe and Asia, as well as political changes that led to the Arab Spring. However, a good number of the global indices improved in the period as a result of steps taken by the European Central Bank and EU finance ministers to control the issue of sovereign debt, particularly in Italy and Spain. Talks are currently underway between European leaders and Greece’s creditors on how best to reduce the country’s debt and mitigate the impact it has had on the European economy. It is hoped that these efforts, together with a five-year plan to implement austerity measures, will aid in the Greek economy’s recovery.

In light of the events on the European front, Asian indices fell towards the end of 2011 due to a drop in exports to western markets, major scandals such as the case of accounting fraud at Olympus Corporation in Japan as well as an overall decline in investor confidence.

The African indices also felt the impact of the economic crises around the world which, coupled with fluctuating prices of the vital commodities, led to their poor performance.

Select Commodities Price Movements

	30-Sep-11	31-Dec-11	Change
Agricultural
Tea - Mombasa Auction $/kg	3.14	2.92	-7.01%
Tea - Mombasa Auction Volume 000's/kgs	4,905.00	6,452.00	+31.54%
Coffee (NYBOT) cents/lbs : Closest futures	228.90	226.85	-0.90%
Wheat (CBT) cents/60lb: Closest futures	609.25	652.75	+7.14%
White Sugar LIFFE USD/Tonne	663.30	602.00	-9.24%
Palm Oil $ Malay Spot	1,010.00	1,040.00	+2.97%
Cocoa  £/Tonne LIFFE: Closest futures	1,699.00	1,380.00	-18.78%
Crude oil
Brent Blend(dated): Spot	102.76	107.71	+4.82%
Metals
Gold COMEX $/100oz: Closest futures	1,620.00	1,566.80	-3.28%
Copper COMEX (High Grade): Closest futures	310.35	343.15	+10.57%

There was a notable drop in the prices of tea, coffee, white sugar and cocoa, which fell hardest. Cocoa export volumes from Ghana and Ivory Coast remained high despite economic uncertainty in Europe, a major consumer. This led to the fall in prices as traders adapted to the situation.

Sugar prices also dropped in anticipation of improved climatic conditions in Brazil, which would result in increased supply.

Other commodities like copper went up driven by renewed demand from China, the world’s leading consumer of the metal. In December the country imported over 500,000 tonnes of the metal, an indication that the positive steps in Europe have buoyed investor confidence in Asia. Oil also experienced increases attributable to tension in major oil producing countries such as Libya, Iran and more recently Nigeria, which drove the price up due to limited supply.

Ghana Stock Exchange: Biggest movers

	30-Sep-11	31-Dec-11	Change
Gainers
Benso Oil Palm Plantation	0.82	1.10	+34.15%
HFC Bank	0.36	0.45	+25.00%
Mechanical Lloyd	0.10	0.11	+10.00%
Losers
PZ Cussons	1.40	0.24	-82.86%
Total Ghana	30.00	19.83	-33.90%
Cocoa Processing Company	0.03	0.02	-33.33%

Benso Oil Palm Plantation

The company’s profit after tax rose to GHc 8.3M from GHc 1.9M in the previous year, representing an impressive increase of 338%. The company was able to achieve these results under the new management of a Singaporean company, WILMAR.

Production of palm kernel also went up by 30% from 2,271 tonnes to 2,572 tonnes.

Nairobi Securities Exchange: Biggest Movers

	30-Sep-11	31-Dec-11	Change
Gainers
Williamson Tea	185.00	282.00	+52.43%
City Trust	210.00	280.00	+33.33%
Kapchorua Tea	99.50	125.00	+25.63%
Losers
CFC Insurance	10.00	6.55	-34.50%
Housing Finance	16.45	12.40	-24.62%
Olympia Capital	30.00	24.00	-23.81%

Williamson Tea

Williamson Tea reported a strong performance for the six months to September 30, 2011. Earnings per share rose by over 100% from 24.18 to 50.50.  The good performance was attributable to increased crop, a favorable exchange rate (weak Kenya shilling) and sustained high prices for tea: Kenyan tea traded at between USD 2.8 and USD 3.00 per kilo for of the year.

All tea stocks performed well in the year, posting gains while the market as a whole dropped.

At the current price the share is very cheap; trading at a PE of 2.77 based on the six months to September 30, 2011 results. However agricultural stocks have tended to trade at low valuations at the NSE over the years with share prices being very volatile.  It remains to be seen what impact the recent wave of destruction of tea by frost will have on the company in the current quarter.

CFC Insurance

Like several other companies listed at the NSE, CFC Insurance was affected by inflation, rising interest rates and general bear market conditions.

Insurance companies are expected to post weak results due to underperformance of the NSE in 2011 which is bound to hit investment income. 

CFC’s rival British American announced (on January 10, 2012) that 2011 profits will be at least 25% less than those for 2011. The sell-off of CFC Insurance appears to be overdone: the current share price translates to a market value of Kshs 3.3 Billion which is less than 50% of the Kshs 8.7 Billion and Kshs 8.4 Billion market values of Jubilee Insurance and British American respectively.

Quote

“People are always blaming their circumstances for what they are. I don't believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can't find them, make them.”

George Bernard Shaw