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Cyclical agriculture shares lag behind market in NSE

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A farmer in Kenya sprays his coffee bushes. There has been a drop in the price of bushes at the international market. Photo/FILE

A farmer in Kenya sprays his coffee bushes. There has been a drop in the price of bushes at the international market. Photo/FILE  Nation Media Group

By JOINT REPORT The EastAfrican

Posted  Tuesday, February 26  2013 at  10:50

In Summary

  • External factors such as the fluctuation of the local currency, economic downturns in export markets, and high costs of inputs affect the profits of agricultural firms, and by extension the dividends they pay out.
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Agricultural stocks are projected to continue lagging in performance at the Nairobi Securities Exchange (NSE) with most investors expected to continue going after liquid counters, whose business is not affected by uncontrollable factors like the weather.

External factors such as the fluctuation of the local currency, economic downturns in export markets, and high costs of inputs affect the profits of agricultural firms, and by extension the dividends they pay out.

Data from the Nairobi bourse shows that shares of the seven listed agricultural companies — Sasini, Williamson Tea, Kakuzi, Rea Vipingo, Kapchorua, Eaagads and Limuru Tea — have been lagging behind the rest of the market since the beginning of the year, while other stocks prices have been going up.

Of the seven, the biggest gainer as at the close of trading last week was Rea Vipingo, whose share price had appreciated by 9.21 per cent since the end of December 2012. Its price averaged Ksh20.75 ($0.27) last week. On the last trading day of 2012, the company’s shares closed at Ksh19 ($0.29).

Stocks of Kakuzi, Williamson Tea and Kapchuroa Tea have gone up by 6.94 per cent, 5 per cent and 1.69 per cent respectively this year; Eaagads and Sasini Ltd stocks have dropped by 4 and 0.85 per cent respectively, while Limuru Tea’s share price remained unchanged.

Comparatively, shares of 25 of the 61 listed NSE firms have appreciated by more than 10 per cent this year. The NSE 20 Share and NSE All Share indices closed 8.95 per cent and 10.83 per cent up.

“Some of these companies have been converting to real estate, but investors also look at liquidity and most of them are illiquid,” said Ronald Lugalia, an investment analyst at AIB Capital.

Halima Saaida, an analyst with Old Mutual Securities, said business in the agricultural sector is cyclical, and that the depreciation of the shilling in 2011 helped push up profits. Ms Saaida said this changed last year when the currency was stable.

Sasini, which released its annual report last week ahead of its annual general meeting on Friday, reported a Ksh420 million ($4.77m) revaluation loss on its biological assets occasioned by poor weather and falling coffee prices.

It said that it had been forced to report a lower valuation price for its coffee bushes following a 35 per cent drop in price at the international market last year.

“The reduction in the fair value of biological assets was driven mainly by the substantial drop in the value of coffee bushes caused by the decline in the market prices… last year, the average coffee price per kg was $4.71 compared with $7.35 in 2011,” chairman James Boyd Mcfie said in the company’s annual report.

In 2011, the firm reported a revaluation gain of Ksh416 million ($4.73 million), due to high coffee prices.

The loss, coupled with a 70 per cent jump in operating costs, pushed the company into declaring a net loss of Ksh67 million ($760,000). In 2011, Sasini declared a profit of Ksh391 million ($4.44 million).

The company’s costs rose 70 per cent to Ksh2.87 billion ($32.6 million), up from Ksh1.68 billion ($19.1 million) last year.

Due to the volatile nature of commodities, Sasini has reduced its dependence on agricultural products, with the company said to be considering developing real estate in its Ruiru farm, located 35 km from Nairobi.

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