Kenya Orchards Ltd (NSE: ORCH), released their half-year results for the period ended 30th June 2015, with the following highlights:
- Kenya Orchards Limited announced a 12% increase in profit after tax; to the tune of KES. 1.65Mn. A healthy top-line growth of 12%-registering revenue at KES. 31Mn- sustained through increased administrative expenses and finance costs; that increased by 327% and 201%, respectively.
- Kenya Orchard’s ability to meet short term obligations decreased, as an increase in current assets was unable to outweigh an increase in current liabilities; the current ratio dropped from 2.33 to 1.82, a key financial indicator for a small-cap stock.
- Key financial indicators protend a positive six months for the company, exemplified by a 728% increase in cash generated from operations, to KES. 2Mn. A 145% decrease in trade payables, to KES. 0.8Mn, shows the company’s improvement in meeting obligations; however the 70% increase- to KES. 7Mn- in trade receivables, contributes to a worsening performance. The food processing company faced a 3411% decrease in cash and cash equivalent at the end of the period; thus raising a red flag on potential management decisions and the buffering position of the company, during more adverse market conditions.
Recommendation
The Kenya Orchard stock price managed to surge 20-fold in the previous year due to positive sentiment on plans to diversify and expand; the latter was achieved through completion of a manufacturing plant. The food processing company reaped significant advantages from the previous booming local stock market; as small cap stocks returned annual price gains of over 50% by the beginning of 2015.
We maintain a HOLD recommendation on the counter, which has a demure upside of 6%, to a target price of KES. 106. The recommendation is further illustrated by the financial ratios, as earnings per share increased by 11.72% but book value per share significantly decrease; by 643%.
