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Global tea glut dilutes Camellia’s profits

With a global oversupply of tea depressing average auction prices, the group has swung to an underlying pre-tax loss in the first half of 2019
August 15, 2019

Camellia (CAM) warned alongside its full year results back in April that it was seeing weaker tea prices in 2019. Indeed, with record global tea production in 2018, an oversupplied market saw “significantly lower” average prices across all regions during the six months to 30 June. As the Mombasa auction continues to see unprecedented volumes from stock carried forward from last year, Kenyan prices have fallen by 17 per cent.

IC TIP: Sell at 9,800p

As a result, the group has swung to an underlying pre-tax loss of £4.1m. Even including an £8m release of wage provisions following settlements in Kenya and India, statutory earnings were still down against the comparable period last year. Theoretically, diverse revenue streams should somewhat offset a weaker tea market. But bear in mind over three-quarters of sales are sourced from notoriously temperamental agriculture. An odd mix of businesses, the engineering division saw an (albeit narrower) £0.3m trading loss as Brexit stockpiling and uncertainty depressed aerospace sales by 6 per cent.

Bloomberg consensus of analysts places full year adjusted pre-tax profit at £19.9m and EPS at 4.4p, rising to £22.3m and 3.2p in 2020.

CAMELLIA (CAM)   
ORD PRICE:9,800pMARKET VALUE:£274m
TOUCH:9,800-10,000p12-MONTH HIGH:12,000pLOW: 9,100p
DIVIDEND YIELD:1.5%PE RATIO:10
NET ASSET VALUE:14,314pNET CASH:£89m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20181286.129.040
20191173.950.742
% change-8-36+75+5
Ex-div:29 Aug   
Payment:27 Sep