Kenya: Crown Berger Kenya Limited, year ended December 31, 2011

Financial Performance review

Crown Berger, Kenya’s leading paint-maker having a 65 per cent stake in the market, reported a 26% increase in Revenue from 3.1 billion in 2010.

The pre-tax profit rose by 18% from KES 169.48 Million to KES 200.54 Million. The rise in profits was attributed to comprehensive campaigns in selling and distribution that had promoted the growth in sales.

Operating environment and outlook

Rapid growth of the Kenyan construction industry saw the sector emerge as the country’s top performing sector in the first quarter of 2011, according to data from the Kenya National Bureau of Statistics. The sector grew by 10.7% in comparison to the bleak performance of 0.3% in the same period of 2010. This remarkable growth is set to continue as a result of increasing population and major infrastructure projects. Consequently, the paint consumption in this industry is expected to mount in 2012.

Opening of a regional market through COMESA and East African Community will be an additional plus to do business across the borders more freely hence generate more revenue.

Investment analysis/Recommendation

The company’s share price closed (on June 11, 2012) at KES 34.75; 3.5% below its 52 week high of KES 36.00.

The share is priced fairly, trading at a PE of 6.39. The price to book value is 0.8. This is still among the lowest price to book values in its industry. Thus, Crown Berger presents a favourable investment for value investors.

The dividend per share for the year is KES 1.25 which gives a yield of 4.6%. Although the company does not offer the highest returns in the construction and allied segment, Crown Berger is still competitive and offers good return to its shareholders.

Recommendation:

The share is a good long term buy. Generally, the share price has had an upward trend over the last six months despite the small margin drop. Crown Berger is a stable share. As stated earlier, due to the continued construction boom, avenues for development of new markets are set to increase profits for the company.

Nevertheless, investors should have a keen eye on certain risks such as inflation rates risks that may alter the prices of raw materials and the prices of their products and in turn the profitability of the company.

Quote:

"In investing, what is comfortable is rarely profitable." ~Robert Arnott.

Kenya: Rea Vipingo, 6 Months Ended March 31, 2012.

Rea Vipingo is the largest sisal fiber producer in Africa.

Performance

	6 Months ended		6 Months ended
	March 31, 2011		March 31, 2012
	KES'000		KES'000		% Change
Revenues	974,725		1,250,034		28%
Profit after tax	153,402		208,402		36%
EPS	2.56		3.47		36%
12 Months
Trailing EPS			9
Closing share price
as at June 6, 2012			16.60
Trailing PE			1.91

Revenues increased by 28%, profits and earnings per share by 36%. This was a superb performance considering that in the year ended September 2011 earnings had risen by over 500% compared to the performance for the year ended September 2010.

Operating Environment/Outloook

The Kenya Shilling has been depreciating over the last few months and is likely to drop further in the course of the year because of the country’s yawning current account deficit.

The weakening shilling should translate into a favorable performance for Rea Vipingo since exports most of its produce and its earnings are therefore mostly denominated in US Dollars.

Investment Analysis

Rea Vipingo (like most other agricultural stocks listed on the NSE) is greatly undervalued. The current PE of less than 2 means that it will take less than two years for holders of the stock to earn the full value of the share. If the earnings momentum from the first half is maintained for the full year the valuation will fall even lower.

In the most recent financial year Rea Vipingo declared a dividend of KES 1.10. At current prices this translates to a yield of 6.63%.

Recommendation

The share is trading at a huge discount; it is a good long-term buy. As demand for agricultural products increases and as the level of sophistication of investors at the Nairobi Securities Exchange develops, agricultural stocks will become more fairly valued; patient investors will be rewarded accordingly.

The relatively low liquidity of the counter (very few shares trade per day) will however make it difficult for a high net-worth/institutional investor to accumulate a meaningful stake in a reasonable period of time.

Quote:

“One way to end up with $1 million is to start with $2 million and use technical analysis.”  ~Ralph Seger