Stock Watch: Limuru Tea Company Limited

Limuru Tea Company Limited announced their audited results for the period ended 31st December 2014 on 08^th April 2015:

Recommendation: SELL

95% Decline in Pre-Tax Profits, 100.80% decline in Profit after Tax (PAT)

Limuru Tea Company Limited recorded a 95% decline in its Pre Tax Profit at KES 2.08 Mn from 41.56 Mn in FY13. Profit after Tax stood at KES -0.331 Mn, a 100.80% decline from KES 41.56 Mn recorded in the previous financial year. The loss was attributable to a decline in the tea prices at the auction due to increased global production largely from increased supply emanating from Vietnam, enhancing competition. The company also indicates that the loss on revaluation of biological assets in line with declining tea prices also dented its growth. This represents the company’s biggest profit decline in over five years.

11.46% Decline in Revenues

Turnover declined by 11.46% to KES 92.25 Mn from KES 104.192 Mn the previous year. This represents the lowest turnover seen in over five years by the company. Though production of green leaf tea increased by 14% to churn 3.4 Mn kilograms in 2014, lower tea auction prices affected return margins.

Declining Dividend Payout

Total Dividend per share stood at KES 1 down from KES 7.5 the previous year. Earnings per Share (EPS) declined by 100.80% to KES -0.28 from KES 34.63 in FY13, registering a closing price of KES 1,124 (07/04/2015).

Outlook: With improved rainfall patterns settling in as the rainy season sets in better prospects arise that the company’s production of tea can increase, noting that the first quarter of the year witnessed a dry spell throughout the country affecting tea bushels and production capacity. Prices have begun to rise slowly at the auction, adding greater prospects towards increased tea prices, translating into greater growth for the country’s tea sector this year.