Financial Performance review
Kakuzi Limited, East Africa’s largest listed (in both Nairobi and London Stock Exchange) producer of avocado, reported a 12.4% rise in sales to KES 2.377 Billion from KES 2.114 Billion.
Profit after tax rose by 68.25% from KES 385.4 Million to KES 648.4 Million. This was due to the favourable exchange rate together with reasonable prices attained on both tea and avocado production. The operating profits rose by 40.4% to KES 763.4 from KES 539.8Million reported in 2010.
Operating environment and outlook
The Kenya Shilling seems to have stabilized (exchanging at an average of KES 83 for every $1) which will make forecasting both on income and expenditure a little easier. World recessionary forces however continue and are likely to take a long time to resolve. These have, to-date, had no significant impact on the export production but we must always be aware of the fact that there could be an adverse impact in the future. Local inflationary trends are of real concern; they hit 17.32% in September 2011. Kakuzi however moves forward with a satisfactory cash balance of KES 897.3 Million which places them in a strong position to proceed with both present and on-going investments. Their main liability is deferred income tax which stands at KES 652.6 Million (Kakuzi Limited, 2011).
Investment Analysis/Recommendation
The Company’s share price closed (on May 11, 2012) at KES 82.00 just about the same value of its 52 week high.
The share is not expensive, trading at a PE of 2.92 compared to that of Sasini, 7.55. The price to book value is 0.64 which is cheap and also underprized.
The dividends proposed in the year amounting to KES 3.75 translate to a yield of 4.57% of the price.
Recommendation:
The share is a long term buy and expected to grow in value bearing in mind that it is underprized. Demand for their products (pineapples, livestock, avocados, forestry and tea) is generally expected to rise with the anticipated growth in income and population locally and in the export markets.
Major risks include changes in climatic conditions and exchange rate fluctuations. A major drought or steep appreciation in the Kenyan shilling will impact negatively on Kakuzi’s performance.
Kakuzi Limited, (2011). Annual report and financial statements for the year ended 31st December 2011, Nairobi: Kakuzi Ltd.
