The collapse of the Kenya Shilling is making the agricultural stocks look greener more than ever before.

Despite the associated rise in inputs (eg fuel, fertiliser etc), the depreciation of the Ksh by a factor of almost 30% ytd to the dollar is bound to positively impact the revenue of agriculturals.

In addition, the agriculturals have for a long time been trading at ridiculously low P/Es (some at below 2).

My main focus for the agriculturals is Williamson Tea because of the following:

1. The international tea prices have been on a consistent sharp upward trajectory since 2005 to now.($2 per kg in 2005 vs current year average of about $3 per kg).
2. The depreciation of the Ksh vs US dollar will most probably continue into 2012 (election year associated with economic paralysis as focus on politics takes center stage and political risk premium on investment rises).
3. Williamson is trading at P/E OF 1.9!!! For the past two years, it has returned an EPS of abt Ksh 96-97 with a rising dividend payment (currently trading at a dividend yield of over 8%).
4. The company is sitting on a huge Revenue reserve (as at 31st March 2011, the revenue reserve was Ksh 440 per share consisting of Ksh 108 biological assets and Ksh 332 as cash and cash equivalent)
5. At such huge revenue reserves, the company should ideally increase dividend payments to share holders as accumulating any further reserves does not make economic sense unless a land purchase/substantial investment is in the offing.

A further rise in dividend payment should raise the P/E of this company to a more realistic level of about 4, which would mean a substancial rise in share price.

The illiquidity of the share is however a disadvantage for short term traders but may be of benefit should long term investors set their eyes on it as the share has very limited shares on offer (only about 8.7 M shares issued of which almost 3/4 are held firmly and not for sale)

Happy hunting.

Good points All. Mr Rich (one of their top 10 shareholders) never ceases to complain about the perceived stinginess towards shareholders of WTK KAPCH, noting they are owned by the same . Could these negate some of the feel good factors?

On the other hand between WTK and KAPCH, which company has a longer track record of better returns?

KAPCH is a subsidiary of WTK, hence you are better off with the parent company (WTK). Also, WTK seems to have greater price stability and is more capitalised.

Happy hunting.

@stockmaster - yap, agri counters have been spared the heat by Mr. Market this year. And yes their P/E's have been ridiculously low for too long. Apart from the earnings, I see more of a real estate pricing not yet factored... Once this is unlocked you can imagine the price explosion...