Attempting to assess London’s quoted companies via the prism of conventional value investing might seem like stepping through a time warp. What could be more ridiculous? But if Agnetha and Anni-Frid, Bjorn and Benny can revive Abba, who’s to say that value investing can’t once more be the name of the game?
And, by happy coincidence, just as the Swedish super troupers were announcing a digital version of themselves to give concerts, along came an avatar of value investing, Camellia (CAM), with first-half results for 2021.
Actually, to compare Camellia with 1970s pop is to make the venerable company seem too modern. Being reminded that Camellia is still up and running is like being told TS Eliot is alive and well and writing poetry somewhere in Bloomsbury. Camellia belongs to a time when there were London fogs, trolley buses, the remnants of empire and, most of all, plantation companies whose shares provided annuities for the rentier classes. Because Camellia – there is a hint in the name – is chiefly a plantation company; 85 per cent of its approaching-£240m annualised revenue comes from its agricultural operations, mostly tea production in India, Bangladesh and east Africa.
To add to its authentic antecedents, Camellia was put together by a Canadian value investor, Gordon Fox, who is slightly older than Warren Buffett and who still owns slightly more than half the equity. Chiefly, though, Camellia’s value credentials lie in the fact that it is rich in tangible assets; so much so that its shares trade far below the pro-rata book value of those tangibles (£64 against £136 per share of book value). The group is also rolling in cash – £62m of the stuff, net of debt, in its end-June balance sheet against a market value of £177m.
Camellia even gets a decent way to achieving the ultimate of value investing – that its current assets minus all of its liabilities are worth more than the market value of its equity. Achieve that and it’s sort-of money, money, money all the way; at least, investors get their share of tangible assets thrown in for nothing. In Camellia’s case, £182m of current assets minus all of its £141m liabilities absorbs £41m of its equity market value. The remaining £136m of the market value ‘buys’ £380m of non-current assets, which means that almost two-thirds of them effectively come free of charge – not to be scoffed at.
So, voulez-vous shares in Camellia? The chief drawback is that Camellia is not your average value play. Sure, its shares trade far below book value. Then again, over half of the book value of property and equipment comprises its tea plants – £102m out of £198m at the end of 2020. There is no pretending that they have alternative uses for an enterprising asset stripper to exploit. They are only good for producing tea, a commodity that arguably the world grows too much of anyway. As Camellia’s chairman, Malcolm Perkins, complains in 2021’s interim report: “The global tea market remains oversupplied and poorly priced.”
Granted, there is diversification in Camellia’s idiosyncratic collection of assets. It grows macadamia nuts, avocados and various speciality crops; has interests in rubber plantations, livestock in Kenya, engineering and food services companies, finance and insurance; earlier this year it bought 80 per cent of the UK’s second-biggest apples grower. Its bosses aim to add to that diversification while shaking out the weaker parts of its portfolio.
Their efforts to liven up the share price have been hindered by allegations of violence against employees in Camellia’s Kenyan operations but, when all is said and done, Camellia’s fortunes – and thus those of it share price – are tied to the price of tea. This may explain much of the discount to book value at which the shares trade. After all, it means Camellia’s average return on equity for the five years 2015-19 (excluding 2020’s odd year) was just 3.2 per cent. With equity performing as poorly as that, small wonder it’s worth less than book value.
Granted, Camellia is something of a dividend champion. The payout has grown by 2.8 per cent a year in the 20 years to 2020. Combine that with the current 2.3 per cent yield and the implicit 5 per cent-plus total return is half-way attractive – not quite a dancing queen but better than meeting your Waterloo.
Meanwhile, perhaps Camellia’s chief function is to remind investors that even now there are half-way decent companies out there whose shares trade well below book value. Many are in property or oil, so they are hardly fashionable – the likes of British Land (BLND) and McKay Securities (MCKS) or Hunting (HTG) and Kenmare Resources (KMR). But, a bit like those septuagenarian Swedes squeezing into their platform soles, who’s to say their time is up?
