Profile
Kakuzi Limited is a Kenya-based company engaged in the cultivation of tea; growing, packing and selling of avocados; livestock farming; growing and selling of pineapples, and forestry and macadamia development.
The Company’s segments consist of Avocados, Tea and Forestry.
The Company’s other segments derive their sales from livestock, fresh pineapples and joint projects.
The Company operates in two geographical areas in Kenya: Makuyu and Nandi Hills.
Its products include tea, avocado, pineapple, macadamia orchards, livestock and forestry.
The Company’s livestock products and services include cattle breeding services, which consist of Boran and Boran Simmental crosses for dual purpose; beef and dairy cattle; halaal beef to Nairobi, offals and hides; cattle manure, and hay.
Its forestry products include poles, timber, flower supports, fencing posts, gates, wooden planting boxes, trellising, doors, door frames, heat treated pallets, charcoal and bee hives.
Subsidiary Companies
- Estates Services Limited (100%)
- Kaguru EPZ Limited (100%)
Key Facts
- Kakuzi is the largest producer of Avocado in East Africa and exports approximately 45% of the total volume from Kenya. Kakuzi is also focused on the development of Out-grower and Smallholder Avocado growers.
- The original site of the current Kakuzi originates from land acquired by Donald Seth-Smith in 1906. With his partner and principal backer, Lord Cranworth, some 10,117 Hectares were then acquired. Currently we estimate Kakuzi to be having around 12,000 Hectares.
- The central location for this estate was christened Makuyu, the native name for fig tree, which remains at the Head Office to this day.
Financials
Kakuzi recently announced its annual results for the period ending 2015 and we have to admit they were nothing short of spectacular, pre-tax profits were up by 228%. We summarize these results by the Chairman’s commentary below:
“The profit before income tax was Kshs 764.4 million compared to Kshs 232.8 million in 2014. The net gain from biological assets within the profits was Kshs 114.2 million (2014: Kshs 79.3 million). The earnings per stock unit increased from Kshs 8.17 to Kshs 26.92. The improved profit is considered satisfactory and was driven to some extent by the weather conditions as well as favorable market demand for our main export products. Avocado was dominant in returns but tea and forestry made useful contribution to profits. The weakening Kenya Shilling also worked in our favor as well as the fact that we could take advantage of high interest rates with our strong cash position.”
A dividend of KES 5.00 per share was recommended.
To put Kakuzi in perspective we have shown Revenues, Net Income and Net Asset positions over an 8 year period below:
Note that in 2015 Kakuzi hit the highest turnover recorded of around KES 2.481Bn. The breakdown of this is shown below (Segmental Analysis):
“The principal operating segments currently consist of Avocados, Tea and Forestry. Macadamia will become a reportable operating segment in future (currently under all other segments) as it is expected to materially contribute to Group sales in the future. The business activities of livestock, fresh pineapples, macadamia and joint projects and are included under “all other segments” as they individually fall below the threshold of 10% of Group sales.”
Top 10 Shareholders (31 Dec 2015)
- John Kibunga Kimani – 27.76%
- Bordure Limited* – 26.06%
- Lintak Investments Limited* – 24.64%
- Standard Chartered Nominees – A/C 9532 – 1.73%
- G H Kluge & Sons Limited – 1.22%
- Kenyalogy.com Limited – 1.10%
- CFC Stanbic Nominees Ltd – A/C NR1031143 – 1.02%
- HSBC Global Custody Nominee (UK) Ltd – 1.02%
- Joe Barrage Wanjui – 0.62%
- John Okuna Ogango – 0.53%
* Camellia Plc incorporated in England, by virtue of its interests in Bordure Limited incorporated in England and Lintak Investments Limited incorporated in Kenya, is deemed to be interested in these stock units thus Camellia Plc is the majority shareholder with an effective control of 50.7%
Camellia Plc the Parent Company is an international group, listed on the London Stock Exchange and employs over 73,000 people worldwide. Camellia’s interests include Agriculture and Horticulture, Private Banking and Financial Services, Food Storage and Distribution and Engineering. It is the second biggest private tea producer in the world. It has exposure in the following countries:
- United States
- Bermuda
- Brazil
- United Kingdom
- Netherlands
- Germany
- Switzerland
- Kenya
- Malawi
- South Africa
- India
- Bangladesh
Share Price
Kakuzi is listed on the Nairobi Securities Exchange and London Stock Exchange.
Kakuzi’s current share price is KES 316.00 (18/03/2016)
Total Shares: 19,599,999
Free Float: 39.35%
As it is our practice in looking at long term scenarios, we have maxed out a 21 year chart of Kakuzi. The share price in 1995 was around the KES 100 range, it later descended gradually from 1998 at a price of around KES 150 to a low of around KES 14.90 – 15.00, terrible period I must say.
Now interestingly between 2002 and 2010 huge volumes were transacted between that period, this represented interesting entry points, as we believe from our calculations that the share price was significantly undervalued by well over 50%. The shareholders who acquired positions during this time are now having a big smile on their faces. The current share price as of 2016 is well over the KES 300 mark. This undoubtedly is a phenomenal capital gain!
Kakuzi no doubt isn’t the most liquid counter on the NSE, however opportunities still present themselves. The best strategy here in acquiring a significant position is pyramiding your way up (buying small portions till you acquire your desired stake). This could have been or was the case between 2002 and 2010 when relatively reasonable volumes were transacted. Assuming you wanted to acquire 500,000 shares and made that acquisition in that 9 year period at an average price of KES 35.95 per share. Your initial investment would have been KES 17.975Mn excluding transaction costs. Now if you went in the open market and started liquidating your position gradually at the current market prices with an average exit price at KES 300.00 you would be making a profit of KES 132.025Mn well over +600%.
Conclusion
Going forward the Company expects considerable contribution to be made by Macadamia Nuts in the near future. The company expects it will contribute at least 10% or more of group sales. Currently Kakuzi has 856 Ha under Macadamia and wants to continue further development towards 1,026 Ha. The company has a new cracking facility and they expect to crack the 2016 season crop themselves. Developing macadamia nut production is strategic as it will add scale and customer service to the parent company’s existing operations in Malawi and South Africa.
In a research report done by Dyer & Blair Investment Bank titled “Sitting on a goldmine; Companies with Large Tracks of Land in their Books” it mentions Kakuzi as one of the listed companies holding large tracks of land. The method used to value land on its books is an historical cost method and has not been subsequently revalued. Effectively what the report insinuates is that Kakuzi has undervalued its land and the report argues that the value of their land may be way much more than reported on their books. Kakuzi currently trades 1.79 times to book value. This premium investors are paying may be due to the undervalued land. The question we pose is, has the current market price fully factored in the value of their land correctly?
Making predictions in the Agricultural sector are quite difficult as the company deals with various factors out of their control (demand & supply) as they are commodity driven. Agricultural companies should thus be viewed from an operational point of view i.e. whether they can be able to deliver consistent cash flows within a given operating environment.
Sources: (Kakuzi Annual Reports 2008 – 2015, Kenyan WallStreet, Financial Times, Camellia Plc)
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