Williamson Tea Insights and FY 16 Estimates

Tea Industry

Profile

Williamson Tea Kenya Limited is a Kenya-based company engaged in the cultivation, manufacture and sale of tea; investment in property, and the sale and servicing of generators.

The Company offers a range of teas, including Kenyan Earth, Earl Grey, Green Earl Grey, Pure Green, Duchess Grey, Purple Blush, Mint Garden, Ginger Grove, Earl Grey Purple, Purple Matcha and Green Matcha.

The Company also offers a range of Elephant Caddies, which include MINI KIJANI ELEPHANT CADDY, MINI NYEKUNDU ELEPHANT, GREEN TRANQUILITY, PINK LOVE, KENYA SHIELD, PAISLEY, LONDON SKYLINE, SNOWFLAKE, SEASIDE, ART DECO, KENYAN EARTH, AUTUMN LEAVES and KENYAN CHRISTMAS.

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It offers loose leaf tea and loose leaf teabags.

The Company also offers gifts through its Website, such as Green Matcha Bowl, Enamel Mug, Emma Bridgewater Mug, Keeponwandering Pure Green Tea Gift Set, Matcha Whisk, Kenyan Savannah Gift Set and Green Matcha Kit.

The Company’s tea farms are located in Tinderet, Kaimosi, Kapchorua and Changoi as shown below. For the year ended 31st March 2015, Williamson Tea had 2,112 Hectares under production.

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Williamson Tea was listed on the Nairobi Securities Exchange in 1972.

Industry Data

According to the Economic Survey 2015 by Kenya National Bureau of statistics performance of the agricultural sector in 2015 improved against a backdrop of good weather and abundant rainfall, hence Gross Value Added improved from 3.5 per cent in 2014 to 6.2 per cent in 2015.

Tea production declined by 11 per cent from 448.8 thousand tonnes in 2014 to 399.4 thousand tonnes in 2015. However, the crop earnings increased by 39.5 per cent from KSh 84.9 billion in 2014 to KSh 118.4 billion in 2015 due to the strengthening dollar which boosted exports and higher tea auction prices in 2015 compared to 2014.

Tea production overall has been consistently on the rise over the years apart from a few expected dips. We have also taken note of the fact that in January 2016 a record 50.3 Million Kilograms were produced making it the highest monthly figure recorded since 2003, have a look at our Spreadsheet.xlsx. We expect overall 2016 production level to be high.

Annual Tea Production.JPG

Tea Exports

Annual Tea Exports also plummeted by 11.2% in 2015 compared to 2014 as shown below:

Annual Tea Exports.JPG

Kenya’s major tea export destinations in 2015 were:

  • Pakistan (earned Kenya KES 35.3bn worth of tea exports in 2015) – 26.29%
  • Egypt – 17.41%
  • United Kingdom – 10.18%
  • Afghanistan – 9.38%
  • United Arab Emirates – 8.52%
  • Russia – 5.14%
  • Sudan – 4.5%
  • Yemen – 3.06%
  • Kazakhstan – 1.97%
  • Poland – 1.7%
  • Somalia – 1.08%

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Tea auction prices have declined in 2016 due to the rise in volumes as a result of Q3 El Nino rains as shown below:

2016 prices and volumes.JPG

 

Industry Threat

Since the new Kenyan constitution was implemented in August 2010, major tea companies are awaiting confirmation on the outcome on the Freehold titles and 999 year land leases. The constitution stipulates that all those land titles were converted into 99 year leases without any compensation.  Local governors have mentioned that once those titles have expired, they will not renew those leases. There is a possibility that land would be given away to political and local communities.

The government has not yet given a confirmation on the commencement dates for the 99 year leases and this atmosphere still raises uncertainty on tea companies thus halting investment plans in the pipeline.

Share Price

Issued shares:   17,512,640

Free Float: 34.9%

Current Price (VWAP 17th May): KES 183

Price/Book: 0.49

Market Capitalization: KES 3,064,712,000

2015 Dividends/share: KES 40

The company had Bonus share issue of 1 for every 1 share held for shares that were on company registers as at 8th January 2016.

Have a look at the 3 Year chart below:

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Top Shareholders

As at 31st March 2015, the top 10 shareholders were as follows:

  1. Ngong Tea Holdings Limited – 51.46%
  2. Upstream Investments Limited – 3.71%
  3. Kirtesh P. Shah – 2.96%
  4. Amarjeet Baloonhai Chhotabhai Patel & B C Patel – 2.62%
  5. Garot International Ltd – 2.52%
  6. Standard Chartered Nominees Ltd A/C 9280 – 1.97%
  7. AAKS Nominees Ltd A/C 2014 – 1.38%
  8. Rakesh Prakesh Gadani – 0.98%
  9. Phoenix of E.A. Assurance Co. Ltd – 0.97%
  10. Bid Plantations Limited – 0.93%

The Shareholding composition is as follows:

  • Foreign Shareholders – 56.96%
  • Local Individuals – 28.05%
  • Local Institutional Investors – 14.99

Financials

Five year performance

5 yr track.JPG

The company made a surprise FY2015 loss of KES 227M due a serious and prolonged dry spell in the final quarter which significantly reduced the crop available for harvesting. The period recorded the driest spell for over 50 years with rainfall for the year being 20% down in volume over the previous year. The company has however already turned profitable for the HY2016 in posting profits after tax of KES 380M on the back of rise in interest income and the strengthening dollar.

HY 16.JPG

We estimate that the FY2016 which is the period ended 31st March, 2016 profit after tax will be in the range between KES 700M-840M and that dividend per share will be at least KES 7 based on historical DPS.

Peers

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Observations

  • Turnover and profit from operations went up by 22% and 93% respectively due to higher sales volumes and the weakening shilling in HY 2016.
  • Half year 2016 profit after tax was up 126% to KES 380M
  • Book value is KES 376 against current price of KES 183
  • The company could buy itself out of the NSE and still remain with KES 3.5bn
  • Directly owns 39.56% of NSE listed Kapchorua Tea

Sources: (Williamson Tea Annual Reports/filings, Kenyan WallStreet, KNBS, NSE, EATTA, Tea Board of Kenya, AFFA, Financial Times, NSE)

 

Disclaimer: The contents of this website have been prepared to provide you with general information only. In preparing the information, we have not taken into account your objectives, financial situation or needs. The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed. Any liability whatsoever is disclaimed.

 

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