Stock Watch: Williamson Tea Kenya Limited

Williamson Tea Kenya Limited announced their audited results for the period ended 31^st March 2015 on 15^th June 2015.

Recommendation: HOLD

28.68% Decline in Pre-Tax Profits, 30.73% decline in Profit after Tax (PAT)

Williamson Tea Kenya Limited recorded a 28.68% decline in its Pre Tax Profit at KES -298.57 Mn from 1.04 Bn in FY14. Profit after Tax stood at KES -227.64 Mn, a 30.73% decline from KES 740.71 Mn recorded in the previous financial year. Declined auction prices have been blamed on increased supply, thereby reducing overall auction rates. This was further exacerbated due to the semi drought situation that affected production levels towards the end of 2014 and early 2015. Increased international supply and bolstered competition from far flung regions such as Vietnam have added greater supply to traditional markets such as Pakistan.

26.24% Decline in Revenues

Turnover declined by 26.24% to KES 2.59 Bn from KES 3.51 Bn the previous year. This represents the lowest turnover in over three years by the company. Though declined auction prices due to domestic oversupply dropped earnings, the company attributes increased operating profits emanating from a strong customer base that commits to their teas on a forward basis.

KES 40 Dividend Payout

Total Dividend per share stood at KES 40, funded from the company’s reserves as there is no immediate major capital undertaking leads, thereby allowing the board to distribute the funds accordingly. Earnings per Share (EPS) declined to KES -23.77from KES 81 in FY14, registering a closing price of KES 265 (12/06/2015). The company shall also issue a share bonus amounting to one fully paid share for one ordinary share.

Book Closure is slated for July 1^st – 3^rd 2015, both days inclusive.

Outlook

Stymied price increases in the auction prices portends towards a slow uptake in revenue generation for the company. Continued repressed production levels have been experienced due to the semi drought onset that was prevalent throughout the country, which was subsequently followed by the onset of heavy rains that may have affected the production cycle. With the bush pruning season ensuing, production cycles are set to remain stifled. Enhanced global production from new players such as Vietnam also adds a greater degree of competition to Kenya’s traditional export base.

Significant downside risks remain prevalent in regards to the land titles tussle between the company and the Nandi county government as the expired 99 year lease agreement is set to be taken up by the county administration in an effort to develop the land tract under their own mandate. The portended loss of a large tract of land would significantly damage the revenue streams and asset base of the company.