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

Kenya: Kakuzi Limited, Year ended December 31, 2011

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.

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.