Hello all,

I'm struck by how low the market is pricing agricultural stocks.

I review some of the cheapest stocks in this post:

Why Are Kenyan Agricultural Stocks So Cheap?

Any feedback would be much appreciated!

Thanks and Happy Investing!
Ryan

Thanks for taking the time to respond and for your kind welcome, Tony. Wazua looks like a great forum.

I can understand that unpredictable weather patterns would make investors cautious, especially if they were burned before. But this risk would seem to be adequately discounted at present levels.

Calculating book value for agriculturals is problematic, I agree. Biological assets fluctuate with the global market price, which results in big changes to the balance sheet each quarter. I wonder if accountants use the market value of the assets as of report date or if they use a historical average?

You're probably right on about liquidity. I failed to mention that in the article. It's rare for any of these stocks (apart from Mumias) to trade more than 1 million shillings in a day. That keeps a lot of the big guys away. But it offers us small guys some nice opportunities!

BTW, why isn't Mumias considered an agricultural?

Thanks again for the feedback!

Ah! Many thanks. I didn't realize that. Does TARDA seem likely to come to fruition?

Very helpful. Much appreciated, Cde!

Thanks, Sparkly. Very interesting angle. But why do these companies bother to remain listed on the exchange?

Its just a simple but effective way of going around the land laws.

In Kenya, the sale of Agricultural Land is regulated under the Land Control Act which came into force in December 1967.

Generally any sale, leasing, subdivision or mortgage of agricultural land must be approved by Land Control Boards.

In additional any issue, sale, transfer, mortgage or any dealing in the shares of a private company or a co-operative that owns agricultural land is controlled.

The Land Control Act was aimed at regulating sale of agricultural land to foreigners or to private companies owned by foreigners.

As a matter of principle, requests to sell agricultural land to a foreigner or a company controlled by a foreigner is refused!

A request to sell shares of a company owning agricultural land to a foreigner is also refused.

A public company or a listed company for that matter does not face this limitation. Hence the UK shareholder can sell his shares in WTK or Kakuzi to another investor in the UK or USA without any restrictions.

BTW on the TRANSFER PRICING, Kenya Revenue Authority KRA has been targeting the Agricultural Companies for Transfer Pricing violations.

This means that the companies are forced to report their true profits in Kenya or KRA will adjust their profits and tax payable in Kenya upwards. This explains why all the agricultural companies now seem to be making profits and their valuations based on Earnings are so low.

INVESTORS HAVE NOT REALIZED TIMES WHEN THE AGRICULTURALS USED TO REPORT CYCLICAL AND ARBITRARY PROFITS IN KENYA WHILE SHIFTING THE REAL PROFITS ABROAD ARE LONG GONE.

You know what that means right? just buy and wait for the market to realize the new changes! Stocks should be fully valued in 3-5yrs in my estimation.

@VVS I was simply pointing out that since the main shareholders are british/foreign most of the 450mn interim dividend must have been posted/transferred to foreign banks...

Oh but it does matter.. If the main shareholders are foreign then a foreign economy benefits from the proceeds of the 450mn and yet the money was earned on Kenyan soil..

As long as the divi is converted to a foreign currency and spent/saved/invested in a foreign economy then Kenya definitely loses..

BTW, we EXPORT out tea & the UK is a huge/major buyer so restrictions on trade/repatriation may mean we are not allowed to sell to the UK.

When Kenyan 'restricted' or taxed imports of rice from Pakistan [some COMESA thing], they 'blocked' our tea in favor of Sri Lanka (& even some from India). This hurt us as we had to fight back [after rolling back the COMESA restrictions] to gain market share. Some buyers never returned since they had found an alternate supplier.