Financial performance review
Rea Vipingo, East Africa's leading sisal producer, reported a 594% growth in profits after tax. Net income climbed from KES 67.3 Million to KES 467.2 Million.
Gross Margin for the period was 58%. The Net Profit Margin was 22%.
Operating environment and outlook
The firm’s recent success is attributed to favourable weather conditions that led to a bigger and higher quality sisal yield from its farms in Kenya and Tanzania, along with the weakening of the Kenyan shilling against the dollar translating into higher income in the local currency.
Operating costs have been climbing but with the now stable exchange rate and favourable weather conditions the performance of the company is expected remain strong in 2012.
The company plans to diversify into horticulture production; a high potential income stream which should shield the company from volatility in the prices of sisal.
Investment analysis and recommendation
The share is cheap on a PE basis, and in the long term the global demand for sisal is expected to grow. At the current price of KES 16.15 Rea Vipingo’s trades at a P/E ratio of only 2.07.
The proposed dividend payout of KES 1.10 a share translates to a dividend yield of 6.8%.
Recommendation:
The share is a long term buy
The main challenges are the low liquidity of the shares (daily traded volumes are less than 50,000) and volatility of the share price.
Rea Vipingo, East Africa's leading sisal producer, reported a 594% growth in profits after tax. Net income climbed from KES 67.3 Million to KES 467.2 Million.
Gross Margin for the period was 58%. The Net Profit Margin was 22%.
Operating environment and outlook
The firm’s recent success is attributed to favourable weather conditions that led to a bigger and higher quality sisal yield from its farms in Kenya and Tanzania, along with the weakening of the Kenyan shilling against the dollar translating into higher income in the local currency.
Operating costs have been climbing but with the now stable exchange rate and favourable weather conditions the performance of the company is expected remain strong in 2012.
The company plans to diversify into horticulture production; a high potential income stream which should shield the company from volatility in the prices of sisal.
Investment analysis and recommendation
The share is cheap on a PE basis, and in the long term the global demand for sisal is expected to grow. At the current price of KES 16.15 Rea Vipingo’s trades at a P/E ratio of only 2.07.
The proposed dividend payout of KES 1.10 a share translates to a dividend yield of 6.8%.
Recommendation:
The share is a long term buy
The main challenges are the low liquidity of the shares (daily traded volumes are less than 50,000) and volatility of the share price.
