Business Overview
Camellia PLC (LON: CAM) is a United Kingdom-based international food producer company. The roots of the company were formed 131 years ago. As per the latest data, Camellia PLC employs more than 78,000 people worldwide. In the latest financial year, the company has generated revenues in excess of £300 million. The company is operating across eleven countries. The group is a public limited company, which is traded on the AIM Market of the London Stock Exchange (LSE) and domiciled and incorporated in Wales and England. The principal activities of its associated undertakings and subsidiary comprise of Engineering, Agriculture, Food Service and Investments. It is the largest producer of Macadamia in Malawi, the largest private producer of Tea globally, the largest producer of Avocados in Kenya, and have 59 Tea Factories across four countries.

Management

The current Chairman is Malcolm Perkins and he has been with the Group since 1972. Tom Franks holds the responsibilities of the Chief Executive Officer and he joined the group as Deputy Chief Executive in October 2014. Susan Walker holds the responsibilities of Chief Financial Officer.

Key Statistics



Top Shareholders

 

Business Segments

The company’s divisions are divided into four reportable segments being Agriculture, Engineering, Food Service, and Investments. The agriculture businesshas an exceptional collection of elevated quality assets scattered across a diversity of crops and geographies. The core crops are differentiated into three categories: macadamia, tea, and avocado. Macadamia is the 2^nd largest producer in the world and contributes 3% of global production. In Kenya, South Africa and Malawi, its nuts are grown in the company farms. The company is the largest exporter, grower, and cracker of macadamia nuts in Malawi with further operations in both Kenya and South Africa. Camellia Plc is the largest privately-owned tea producer globally, with 67 tea estates. Avocados are grown in Kakuzi, Kenya and is the largest producer in Kenya. The company has expanded its orchards by 80 per cent. The company also produce a number of speciality crops across 3 continents in 6 countries. In the Engineering division, the company is organised as Engineering South and Engineering North. This division operates in the UK and Europe. The Food Service business operates in the United Kingdom. In the investment division, the company has a number of investments comprising a portfolio of listed stocks, a collection of art, philately and manuscripts, and investment property.

In the first half of 2019, the tea production was marginally lower than the corresponding period of the last year at 43.2m Kg (H1 2018: 43.6m Kg), although this varied widely by geography. In tea, the production was increased in India and Bangladesh but decreased in Kenya and was similar in the Malawi region from the last year. In the market, the Macadamia prices are ahead of those seen the previous year. For the first half of 2019, the Avocado production volumes from the company’s avocado orchards were down by 8 per cent from the last year but average prices were increased.

In AJT Engineering division for H1 FY19, the revenue was up by 21%as compared with the same period of last year. Revenues from Abbey Metal Finishing and its subsidiary Atfin were down by 6 per cent in engineering division against the corresponding period of the last year.

In food service division, the ACS&T for the first half of 2019 traded in line with anticipations but has seen decent trading environment at the start of the second half of 2019. In H1 FY19, Jing Tea is on track with anticipations as the company maintain to invest in the brand and the progress of the business.

The investment portfolio includes principally of listed equities which is valued at 43.5 million pounds,an increase from the previous year (31 December 2018: £39.6 million). This increase was largely driven by the robust equity markets and the falling value of Sterling. The company’s share of profits from associates for the first half of 2019 was estimated at 3.3 million pounds, an increase from the same period of the last year (H1 2018: £2.2 million). BF&M’s enhanced results were driven by the robust performance of its Life and Health and Property and Casualty businesses.

Financial Highlights (for the six months ended 30 June 2019, £million)

(Source: Interim Results, Company Fillings, LSE)

In the first half of 2019, revenue from continuing operationsstood at £117.3 million (H1 2018: £127.6 million). Overall, the company’s profit before tax surged as the company signed a contract with the Agricultural Workers Union and Kenyan Plantation on the main terms of a settlement in regard of the earlier outstanding Collective Bargaining Contract for the financial year 2015, 2017 and 2019. The profit for the period stood at £3.6 million, a slight decrease from the corresponding period of the last year. The earnings per share for the first half of 2019 increased to 50.7 pence against the 18.1 pence in H1 FY18. For the current period, the cash and cash equivalents balance stood at £88.9 million (31 December 2018: £109.6 million). The interim dividend per share increased by 5% to 42 pence as compared with the corresponding period of the last year.

Financial Ratios



The reported gross margin in H1 FY19 remained the same at 21.4 per centagainst 21.4 per cent reported last year for the same period. Net margin reported was 3.1 per cent for the first half of 2019 and remained the same from the last year data for the same period. Return on equity for the first half of 2019 stood at 0.4 per cent, which was higher than the corresponding period of the last year of 0.2 per cent. On the liquidity front, Camellia Plc’s current ratio was higher than the industry median of 2.47, reflecting that the company has sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Camellia Plc stood at 0.06x and was lower than the industry median. This reflects that the company is less leveraged as compared to its peers.

Share Price Performance

 
Daily Chart as at January-07-2020, before the market close (Source: Thomson Reuters)

On January 7, 2020, at the time of writing (before the market close, at 11:31 AM GMT), Camellia PLC shares were trading at GBX 8,550, down by 2.01 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 12,000/GBX 8,500. Stock’s average traded volume for 5 days was 512.60; 30 days – 580.57 and 90 days – 483.00. The traded volume (average) for 5 days was down by 11.71 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index, based on the company’s beta of 0.31. The outstanding market capitalisation was around £239.50 million, with a dividend yield of 1.65 per cent.

Valuation Methodology
Method 1: EV to EBITDA Approach (NTM)



To compare Camellia PLC with its peers, EV/EBITDA multiple has been used. The peers are Carr’s Group PLC (NTM EV/EBITDA was 7), Wynnstay Group PLC (NTM EV/EBITDA was 5.5), Finsbury Food Group PLC (NTM EV/EBITDA was 5.01) and Devro PLC (NTM EV/EBITDA was 5.99). The average of EV/EBITDA (NTM) of the company’s peers was 5.88x (approx.)

Method 2: EV to Sales Approach (NTM) 
 


To compare Camellia PLC with its peers, EV/Sales multiple has been used. The peers are Carr’s Group PLC (NTM EV/Sales was 0.42), Wynnstay Group PLC (NTM EV/Sales was 0.15), R.E.A. Holdings PLC (NTM EV/Sales was 3.25), Finsbury Food Group PLC (NTM EV/Sales was 0.51) and Devro PLC (NTM EV/Sales was 1.67). The median of EV/Sales (NTM) of the company’s peers was 0.51x (approx.)

Risk Assessments

The company would face political uncertainty in several areas of operation. Also, Brexit uncertainties may have an impact on the business operations. In the Agriculture division, the first half of 2019 was a?ected by the lower prices at the auction and the international oversupply of tea. Some more risks in agriculture division are climate change, drought, price volatility, currency fluctuation, long-term political issues over land ownership in Kenya, Malawi, South Africa and Tanzania, civil unrest and political instability, and corruption.

Strategic Initiatives

In the first half of 2019, the company signed an agreement to acquire an additional 466Ha farm in South Africa and completed the acquisition of two tea estates in Assam. In the Agriculture division, the company continue to make a number of medium and long-term investments in order to diversify the supply base in crops and countries and leverage the expertise where the group believe there is potential.

Growth Perspective

In spite of the unfavourable effect of the performance of Agriculture division, the performance from the businesses in Food Service and Engineering division, together with an enhanced result from the associate (BF&M) resulted in the acceleration of EPS. The company’s financial performance remains robust, with substantial net cash, and have the resources to accomplish the development plans in line with the company’s strategy. In Kenya, the 10Ha trial of blueberries at Kakuzi is well-positioned. In the fourth quarter of 2019, the company expect the first harvest. In Tanzania, the company maintain to make growth with the registration of the land purchase.

Conclusion


(Source: Company’s Website)

As shown in the above image, the rate of dividend payment accelerated consistently from the past four years. Over the course of 4 years (FY14 - FY18), the company’s dividend per share surged from 125 pence in FY14 to 142 pence in FY2018. Compounded annual growth rate (CAGR) stood at 3.24 per cent.

In the second half of 2019, the company’s majority of agricultural production and sales will take place. In the current market scenario, the company will be facing difficulty in predicting tea price. 

From the perspective of the longer term, the company focus on achieving efficiencies and improving the existing operations, emphasis on the crop, product and origin diversification in Agriculture, and maintain the robust group ethos around ESG.

Camellia PLC witnessed a CAGR growth of ~6.71% in revenue over the period of FY14-FY18 while profit recorded a stellar CAGR growth of ~24.29% during the same period.

Based on the decent fundamental prospects and support from valuation done using the above two methods, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 8,550 (as on 7th January 2020, before the market close) with lower double-digit upside potential based on 5.88x NTM EV/EBITDA (approx.) on FY19E EBITDA (approx.) and 0.51x NTM EV/Sales (approx.) on FY19E sales (approx.). 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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