Camellia PLC (LON: CAM) – Generated net cash of £76.0 million and an investment portfolio market value of £48.7 million at 31 March 2021

Camellia PLC is an FTSE AIM All-Share Index listed international food producer Company, founded in 1889 and headquartered in Maidstone, United Kingdom. The Company has its operations in three segments, namely Agriculture, Engineering and Food Services. In the latest financial report (FY2020), the Company has generated revenue of £291.2 million. The Company operates across more than ten countries and is traded on the AIM market of the London Stock Exchange (LSE).

On 03 June 2021, Camellia Plc will hold its Annual General Meeting.

 

(Source: Company presentation)

Recent trend of dividend payments

Camellia Plc offered a final FY2020 dividend of 144.0 pence per share on 4 May 2021. This includes a special dividend declared in September 2020 of 102.0 pence per share. Thus, the total FY2020 dividend remained at the same level as compared to FY2019 dividend levels.

Growth Prospects and Risk Assessment

CAM would continue investments in the core crops of tea, macadamia and avocado with sustained focus on production efficiencies and expense management. It would collaborate closely with its buyers, logistics partners, suppliers and other stakeholders to manage the various restrictions on its business efficiently. The Company has solid liquidity position with net cash of £76 million and also have required resources to handle further disruptions. Also, despite a difficult year, the Company managed to grow its revenues in its agricultural division. There are also possibilities in increase in auction prices.

 CAM is undergoing several significant risks, such as associated with the loss of customers and liquidity risk arising from fluctuating interest and exchange rates. It also faces Covid-19 induced supply chain issues, long term political issues in African countries, increased cost of production and lower profitability and compliance risk arising from new regulations. Apart from that, agricultural division specifically faces risks like climate change, drought, flood, price volatility, risk of crop losses etc.

After understanding the growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of Camellia PLC.

 Financial and Operational Highlights for the twelve months ended 30 December 2020 (as of 4 May 2021)

(Source: LSE Website)

• Revenues were mostly stable in FY2020, which was due to growth in Agriculture.
• Due to increase in cost, underlying profit before tax from continuing operations was down 8% YoY in FY2020.
• However, due to cash saving, cash and cash equivalents was up by 7.8% to £98.5 million for FY2020.
• Meanwhile, the Company has maintained the final dividend at same level as FY2019 at GBX 144.0 per share.

Financial Ratios (FY2020)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 4 May 2021, at 08.05 AM GMT, Camellia’s shares were trading at GBX 7200.00, down by 2.04% against the previous day closing price. Stock 52-week High and Low were GBX 8,421.32 and GBX 6,350.00, respectively.

Camellia's prices are sustaining above a downward sloping trend line breakout for the past 4 months and indicating an upward direction for the stock. On the weekly chart, the momentum indicator RSI (14-period) is trading at ~53 levels, indicating an upside direction. The trend following-indicators 21-period SMA and 50-period SMA sustaining below current market prices with a positive crossover, further supporting an upward stance for the stock.

In the last twenty years, Camellia’s stock price has delivered a positive return of ~147.80%; and it has outperformed the FTSE AIM All-Share index with a return of around 12.99% and the FTSE All-Share Food producers index with a return of about 119.10%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

Camellia Plc had delivered resilient business performance during FY2020 despite several headwinds such as foreign exchange fluctuations and Covid -19 restrictions. Nonetheless, Camellia achieved stable revenues with growth in Agriculture. Net cash positions has improved due to cash savings initiatives. The Company would continue investments in core crops such as tea, macadamia and avocados. It also, wants to keep focus on production efficiencies and continue its cost saving initiatives. The Company has strong liquidity and significant resources to handle further period of headwinds. As the Company expects demand for its agricultural products to sustain and grow, it has decent growth prospects going forward.

We have valued the stock using the P/E based relative valuation methodology and arrived at a target price of GBX 8,186.36. On the technical chart, the next important support level is at GBX 6,449.00.

Considering the cash generative nature of the business model, robust balance sheet, good liquidity profile, the bright prospect of Agricultural division, strong financial performance, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Camellia at the current price of GBX 7,200.00 (as on 04 May 2021 at 08:05 AM GMT), with lower-double digit upside potential based on 69.20x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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