Real estate prospects push agriculture counters’ valuations to Sh14.9 billion

What you need to know:

  • The firms have registered impressive capital gains even as their financial performance remains underwhelming amid low commodity prices and erratic rainfall.
  • In the year to date, the agriculture firms have collectively seen a 34.1 per cent increase in valuation to hit total capitalisation of Sh14.61 billion.
  • Concern though remains over the continued conversion of fertile agriculture land to real estate due to food security issues in the country.

Agriculture stocks are ending the year on a high as they attract increased attention from investors alive to the potential of their land holdings.

The firms have registered impressive capital gains even as their financial performance remains underwhelming amid low commodity prices and erratic rainfall.

In the year to date, the agriculture firms have collectively seen a 34.1 per cent increase in valuation to hit total capitalisation of Sh14.61 billion.

The listed agriculture firms own prime land in places like Thika, the coastal region and the Rift Valley.

Investors’ eyes were opened to the hidden potential value of the land holdings on watching the high-stakes battle between Centum and Rea Trading for control of Rea Vipingo, which holds prime land, especially at the Coast next to the high end Vipingo Ridge golf estate in Kilifi.

“Their land is an asset that they can do quite a bit with. All it would take is a change of strategy to take advantage of the potential of the land if it were used for real estate,” said ABC Capital corporate finance manager Johnson Nderi.

GOOD RETURNS

Concern though remains over the continued conversion of fertile agriculture land to real estate due to food security issues in the country.

The leading gainers in the segment have more than doubled in the year to date. Kakuzi leads the way with a 126 per cent gain to Sh215, the third highest in the market after that of Kenya Orchards which is up 5,900 per cent at Sh180, and the NSE share which is up 131 per cent to Sh22 since its September listing.

Limuru Tea gained 104 per cent to Sh1,020 to join BAT as the only stocks to have secured a share price above Sh1,000. Eaagads is up 85.3 per cent to Sh44, Kapchorua Tea 12 per cent to Sh140 while Williamson Tea has gained 12 per cent to Sh280.

As a sector, agriculture is third behind insurance (70 per cent) and investments (55.2 per cent) in the year-to-date capitalisation growth.

According to Old Mutual Securities analyst Geoffrey Maina, agriculture counters in international markets also tend to perform well as they are deemed attractive due to good returns and the guaranteed market they enjoy for their produce.

“In the local setup, they are also attracting interest from investors who have shown a renewed push towards diversification of their stock holdings,” he said.

“There has been challenges however especially for institutional investors due to the lack of liquidity on these counters that means there aren’t sufficient volumes to sustain institutional demand. It has made those holding these stocks demand an extra premium before selling.”

Only Sasini has bucked the sector trend to lose 6.8 per cent to Sh13.65, coming in a year when the company has been quiet on the corporate front following change of management.

The stock benefits less from low liquidity of other agriculture stocks, given it has a relatively higher number of issued shares compared to peers, in addition to a more accessible share price.

It is the largest of the listed agriculture stocks with 228 million shares and a market capitalisation of Sh3.12 billion.

The article first appeared in The Business Daily.