Kakuzi Ltd had a trading price of Kshs 34.00 as at February 4th 2010. With 19,599,999 outstanding shares, this translates to a market capitalization of Kshs666,399,966.00. Five weeks later, on March 10th 2010, the prices had gone up to Kshs 78.00, translating to a market capitalization of Kshs 1,528,799,922.00
For the period ending December 31st 2009, Kakuzi Ltd reported revenues for the year as Kshs2,008,157,000.00, which was a 24.5% improvement on 2008 reported revenues. Comparing the market capitalization to the company’s revenues gives us the Price-to-Sales Ratio… for every shilling of revenues, how much are the investors paying? The lower the ratio, the better the investment.
The Price-to-Sales ratio of Kakuzi as of February 4th 2010 was 0.33. For every Kshs1 in revenues, investors buying the Kakuzi Ltd share were paying 33Cents! The Price-to-Sales ratio as of March 10th 2010 was 0.76. The investors were trading the share at Kshs78.00; for every Kshs1 in revenues, they were paying 76Cents.
The bottom line of doing any business is making profits. The question on this then becomes, how much of every Kshs 1 that Kakuzi Ltd collected as revenues actually turned into profit, hence wealth for the shareholder?
Of every Kshs 1 in revenues, Kakuzi Ltd made in 2009, it retained Kshs0.17 as shareholders’ profits in 2009 compared to Kshs0.16 in 2008… a 6.3% improvement.
Fundamentally, nothing changed in Kakuzi Ltd within the month of February. Why then are the investors paying a 130 % more for the share now than they were a month earlier?
There are three explanations to this:
•Fundamentally... Kakuzi Ltd had not yet disclosed its financial results for the year 2009 as of March 10th 2010. As such, any interpretation of the company’s performance was based on investor expectations,
• Technically... The demands for the share in the market outweighs the supply of the share thus forcing those who want to buy the share quote higher prices for it.
•Bahaviour..ally.. Emotions; fear of losing out in making quick gains, or greed.
I bet the last one has more relevance than the other two.

@sparkly.. where on earth do i get the cashflow statement???

@mufasa.. my point has nothing to do with stock trading,speculating or gambling..so for those joy riding kakuzi..have fun....note also sasini projections for next 2 years
this it's about that investor huko nje bila idea what cuts what in stock market..investor education.

@ ProverB: your analysis could be right, am not disputing that. My point is in answering your question" Why then are the investors paying a 130 % more for the share now than they were a month earlier?" @mkonomtupu: you'd better jump into the Agri's before the foreigners get into them.

17+ EPS...

What effect will the start of the commodities exchange have on agri stocks? I expect man Jimnah to do good work of selling this concept to the masses.

While everyone out there is celebrating, I regret the following:
a) having sold at Ksh. 37 and
b) having ignored Sasini at Ksh. 6

@vvs... the market will generally correct itself..on all shares... to you is kakuzi a buy based on historical performance..hence EPS of 17..or based in growth potential?
..last year's EPS was 16.. i think.. based on year on year growth..what makes kakuzi a better buy than sasini..
if you ignore speculative appeal..why should i buy Kakuzi? assuming i'm interested in counters i have no qualms holding should the share price tank.

@ proverb kakuzi is the way to go....with this good rains...high grobal tea prices...the future looks rosy...the p/b of kakuzi is ksh 72 thus at this prices kakuzi is fairly priced unlike some stocks like scom and eabl trading 4x their book value yet people viem them cheap.

upon much thinking..and rethinking.. i came up with this...Kakuzi Ltd Income Statements over time
graphics on wazua do not allow tables so
column one is of market yesterday,the 2nd for 2009,the 3rd for 2008,the 4th for 2007

EPS 17.34 17.34 13.12 9.68
Rev growth 23.94% 23.94% 7.15% 8.07%
Op.Pro Growth 30.97% 30.97% 37.42% 26.94%
E Growth 37.95% 37.95% 47.66% 42.46%
Op Margin 28.80% 28.80% 27.25% 21.25%
E.margin 19.43% 19.43% 17.46% 12.60%
Price 96.00 78.00 30.00 39.75

PSR 0.94 0.76 0.36 0.52
P/E 5.54 4.49 2.28 4.10

 =As of march 16 price had gone up to 96. ..rising PSR from 0.76 for every shilling of revenue to 0.94…

I think the moment PSR crosses 1.0 mark the probability to earn back investment shifts from fundamental to speculative…that price is 102.45..at that price however p/e is 5.9.. still low???

 =P/E of 5.54 on march 16 means for every shs 1 worth of earnings you are paying shs 5.54… or that should Kakuzi remain earning shs 17.34 every year… it will take 5.5 years to earn back the 96 you paid for the share… of course part of the 96 is what they’ll be giving you as dividends while the rest will be retained as shareholders’ equity. Atleast we know it will most likely do better than 17.34 this year… (hope the management doesn’t get stupid to do some daft thing like bonus, rights, split etc...)

Analyzing Kakuzi Ltd’s Income Statement
What to look for;

1. Fundamentally,
• Growing revenues over time has been less than 10% generally with exception of 2009. Improved revenues in 2009 likely to remain sustainable in 2010.
• Growing operating income and earnings informs you that Kakuzi has overtime managed to reduce costs of operations as well as improve on profitability.
• Increasing operating and earnings margins indicate that management continues to improve on operational efficiency of Kakuzi Ltd as well as retain a bigger portion of revenues as profit. For the year 2009, for every Kshs1 of revenue, it managed to keep 19Cents as profit
• A Price-to-Sales ratio of 0.76 means that at the price of Kshs78.00, investors were paying Kshs 0.76 for every kshs 1 Kakuzi Ltd collected in Revenues
• A P/E of 4.5, investors are paying Kshs 4.50 for every Kshs1 of earnings
2. Technically,
• Scarcity of the share. With 19.6 million shares, Kakuzi Ltd is fairly a small company compared to the overall stock market. This limits the number of shares readily available for trade on a given day.
• Demand and Supply of the share in the market. As long as the demand of the share exceeds the supply, the share will continue to increase in price
• Liquidity of the share. The current demand of the share makes it easy to sell the share. There is always someone willing to buy. However, since fewer shareholders are willing to sell, buyers are forced to quote higher prices.
• Human behavior. As investors watch the price trend of the shares, it is easy to give in to emotion to define the decision to buy or sell the share
Conclusion;
• Do not rely on the Income Statement alone though it is a good indicator of the performance of Kakuzi Ltd. It is important to consider the Balance Sheet and the Cash Flow Statement as well to evaluate intrinsic value of the share
• Compare the performance of Kakuzi Ltd with that of its peers as well as in relation to overall agricultural industry in Kenya
Try as much as possible NOT to act on emotion concerning action to buy or sell Kakuzi
Still a buy…as long as it’s trading under 102.00