Ghana: Benso Oil Palm Plantation Limited, Year ended December 31, 2011

Financial Performance review
Benso Oil Palm Plantation Limited , reported an 80% increase in revenues from GHc 19.4 Million to GHc 34.8 Million. Profits after tax rose by 266% from GHc 2.7 Million to KES 9.8 Million.

The net profit margin rose to an impressive 28% compared to 14% in the prior year.

Operating environment and outlook
Benso’s growth in revenues was driven primarily by an increase in Crude Palm Oil Production and an upward trend in prices.

Wilmar International Limited, a Singapore headquartered agribusiness, acquired a majority of Benso’s shares from Unilever in early 2011. Wilmar’s core business is palm oil cultivation and processing; cost efficiencies enacted by Wilmar are already paying off as evidenced by the sharp rise in the net profit margin.

The good weather experienced in 2011 and the high world market price for palm crude oil are expected to continue into 2012. The operational efficiencies enacted by the new majority shareholder are likely to be sustained. The company is therefore likely to post a strong performance in 2012.

Investment analysis/Recommedation
The company’s share price closed (on February 14, 2012) at GHc 1.77; an all time high. The last period the company traded over GHc 1.00 was in the fourth quarter of 2008 when it a high of GHc 1.30 in October 2008.

With earnings per share of GHc 0.2808, the company is trading at a PE ratio of 6.3. On this basis alone the share is cheap.

The company has zero bank debt and has a huge and growing cash balance; the cash balance rose to GHc 7.47 Million up from GHc 2.5 Million in the prior year.

At the current market capitalization, the price book to value is 2, a fairly reasonable figure for a company that highly cash generative.

The dividend yield is 3%. The total dividend payout is up by 60%. While this is a significant increase it is much less than the growth in profits indicating that management wants to plough back funds to grow the company.

Recommendation:
The share is a buy even after the strong rally in share price in the year to date. The company is cheap as measured by the valuation metrics above

The main challenge with the share is the very low volume of shares traded on a daily basis making it difficult to build a significant stake.

Kenya: Sasini Limited, Year ended September 30, 2011

Financial Performance review
Sasini Limited , East Africa’s largest listed tea and coffee producer, reported a 16% rise in revenues  to KES 2.99 Billion from KES 2.66 Billion.

Profits after tax fell by 60% from KES 980.9 to KES 391.2 Million. Most of the drop was due to a fall in revaluation gains related to biological assets. The operating profits advanced by 9.91% to KES 387.5 Million from  KES 352.5 Million reported in 2010.

Operating environment and outlook

Sasini’s performance was helped by a favorable exchange rate (the Kenya Shilling weakened and stayed weak throughout the year).  Drought conditions caused a drop in production of both coffee and tea in the first three months of 2011.

The weather conditions from the last quarter of 2011 and early 2012 have been favourable. The volume of tea sold at the Mombasa auction in January 2012 was 28 Million Kilos compared to 18 Million Kilos in January 2011. The exchange rate is expected to remain above KES 80 to the dollar for the rest of 2012 which will be good for Sasini. 2012 prospects for the company look good.

Investment analysis/Recommedation
The company’s share price closed (on February 13, 2012) at KES 11.10; 26% below its 52 week high.

The share is inexpensive, trading at a PE of 6.47. The price to book value is only 0.37. Even after excluding the accumulated gains on revaluation of biological assets (un- distributable reserves) the price to book value is still a cheap 1.54.

The dividends paid in the year KES 1 (50 cents interim and 50 cents final) translate to a yield of 9.01%.

Recommendation:
The share is a long term buy. The recent steep fall in price following the shares going ex-dividend presents an opportunity to take a position cheaply. Demand for tea, coffee and for agricultural commodities in general is expected to rise with the expected growth in income and population in the region and in Sasini’s export markets.

There are major risks such as exchange rate fluctuations and change in climatic conditions. A steep rise in the shilling or a major drought will deal a significant blow to Sasini’s performance.

Link: Sasini Financial Data

Kenya: Rea Vipingo Year ended September 30, 2011

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.

 

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