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The 2025 interims confirm further non-core asset sales which combined with lower capex spend allow us to increase the expected net cash balance at December 2025 from £46m to £68m. With respect to the P&L, we have kept our full year revenue and PBT forecasts of £282m and £0.8m essentially unchanged. As Camellia moves towards profitability in 2025, focuses on its core agricultural operations and re-engages with the investor community, we reiterate our BUY recommendation and target price of £100 as the benefits of the recently announced ‘Value Enhancement Plan’ start to emerge. These revolve around investments to support growth, reduce the risk profile and to improve the operating results over the medium term.
Camellia Plc
Our target price of £200 per share, set in 2022, was based upon a ‘notional’ break-up value. Since then, Camellia has returned to Adj. EBITDA profitability and is expected to move towards break-even profit before tax in 2025. It also restored the dividend in 2024. This has allowed us to revisit our valuation methodology leading us to adjust our target price to (a more realistic) £100. While lower, it still represents material upside to the current share price and represents the blended average of the following four valuation methodologies based upon a going concern basis, 1) price to book, 2) dividend discount, 3) EV/Hectare, and 4) a DCF approach. As such, we maintain our BUY recommendation and note the attractive dividend yield and the implementation of a ‘Value Enhancement Plan’.
Following a series of non-core asset disposals Camellia had over £120m of liquid net assets at December 2024. With the potential for more divestment over the next three-four years, Camellia has funds surplus to its current and future operational requirements.Following the restoration of the 2024 dividend at 260p (its highest ever) which implies a yield of 5% and an on-going £9m share buy-back programme (c£0.9m has been returned to-date), Camellia has now announced both a tender offer to return up to £18.9m to shareholders (350K shares @ £54), representing a 16.9% premium to the three month weighted average price and a ‘Value Enhancement Strategy’ which increases both maintenance and growth capex. With Camellia returning to profitability as it focuses on its agricultural operations and re-engages with the investor community, we reiterate our BUY recommendation.
Slowly, but surely following a change in leadership and a ‘comprehensive business review’ we expect Camellia to return towards profitability and to focus on its core agricultural operations as it continues its program of disposing of non-core operations. Underpinning the transition is the balance sheet. With cash of £99m and net liquid investments of £56m, this alone is greater than the market cap of £117m and completely ignores any value created by the 48K hectares of agricultural operations around the globe. We re-iterate our BUY recommendation and note the dividend at 260p (its highest ever) has been resumed implying a yield of 6%. This accompanies the £9m share buy-back which is in place until the end of June 2025.
Following the sale of the financial services associates in Q42024 (two in Bangladesh and one in the Caribbean), Camellia has received c£87m in cash such that we now expect it to end the year with a net cash balance of over £100m. This is expected to increase further as the disposal of non-core assets continues. We maintain our BUY recommendation given the balance sheet strength and the simplified investment case with a focus on agricultural activities.
Camellia has confirmed an improved outlook with the expected loss before tax in 2024 reducing from a range of £10m-£12m to £7m-£9m. This is driven primarily by pricing improvements in its Indian Tea operations. Accordingly, we have reduced our expected loss before tax in 2024 from £10.4m to £8.0m. That said, as previously argued, the investment case for Camellia revolves around its asset-backed balance sheet. At the interims, the combined value of net cash, liquid assets and the expected proceeds from the sale of the BF&M associate for c£80m equates to more than the current market cap. This implies the entire trading assets and other assets have a negative value – this is clearly not the case. We maintain our BUY recommendation with the balance sheet demonstrating significant value.
Camellia had already highlighted difficult markets in 2024 indicating an adj. loss before tax for continuing operations of between £10m-£12m (2023: a loss of £3.8m). Following the publication of the interims, the guidance remains unchanged. The P&L is currently not the strength of Camellia but with net cash and liquid assets of £52m at June 2024 and expected proceeds of £78m in relation to the sale of BF&M, the combined net liquid assets of the company alone equate to the current market cap. This implies the entire trading assets and other assets have no value. Despite the unchanged guidance, we maintain our BUY recommendation as the balance sheet has significant value.
While Camellia has taken the opportunity to separate out the losses incurred at Bardsely as discontinued in both 2023 and 2024, the revised guidance for 2024 for continuing operations is that they have ‘worsened from previous guidance’. Excluding the Bardsely losses, we now expect an adjusted loss before tax of £11.1m in 2024 (the guidance is £10m-£12m). This compares to the adjusted loss before tax for continuing operations of £2.5m in 2023. This is despite the fact that Camellia expects group revenues from continuing operations in 2024 to be above the levels reported in 2023. Issues in 2024 predominantly revolve around its tea operations: Whilst it is still early in the season, tea production in India has been ‘severely affected’ by ‘very’ dry weather and Kenya has seen a further reduction in prices due to oversupply. This has also impacted tea prices in nearby Malawi. Despite a ‘fair’ pricing mechanism being developed in Bangladesh with the objective of improving prices for producers, it is too soon to recognise upside from this. As such, we have lowered our forecast operating losses for tea. All the other crops are performing in line with the previous guidance. The strategic focus remains on selling non-core assets to support food production: Positive progress been made on the closure of the Bardsley operation in recent weeks with the winding up process expected to conclude before the end of the year. The sale of its associate, BF&M, is now expected later this year following a protracted regulatory process. With respect to food production the focus is on continuing investment in non-tea crops in diversified locations (i.e. Avocado and Macadamia) to mitigate the risks of adverse weather patterns, political instability, tea price movements, disease, and climate change particularly in water stressed climates. Investment case for Camellia revolves around its asset-backed balance sheet: While trading conditions are challenging, Camellia had net cash of £21m and an investment portfolio with a market value of £38m at March 2024 which is before any proceeds from the sale of BF&M or from the sale of other assets which are actively being marketed. We expect the BF&M sale to generate c£80m. As such, its net liquid assets alone are valued at c£140m, representing a 14% premium to the current market cap. In doing so, this implies the agricultural operations whilst currently underperforming, have a negative value. This cannot be the case as Camellia’s share of its holding in Goodricke (India/Tea) and Kakuzi (Kenya/Avocado), two listed subsidiaries in the agricultural division, have a combined market capitalisation of c£50m. Or, looking at the valuation in another way, Camellia is trading on a price to book ratio of just 0.4x. Maintain buy recommendation: While challenging trading conditions remain in several key agricultural markets and despite operations offering limited visibility (70%-75% of revenues are concluded in the second half), we argue, the strength of Camellia’s balance sheet means it is well placed to withstand the current market conditions. Accordingly, despite the poor trading outlook, we maintain our BUY recommendation.
Camellia reported an Adj. loss before tax of £9.3m for 2023 (2022: a profit of £4.0m) and has waived the final dividend. In line with the guidance that the Adj. loss before tax in 2024 will be significantly higher than that in 2023, we have increased our expected 2024 Adj. loss before tax from £8.4m to £13.5m. Clearly, the P&L is not the strength of Camellia but with substantial net cash and liquid assets of £63m at December 2023 and with additional expected proceeds of £80m to be received in relation to the sale of BF&M, its net liquid assets alone are valued at £143m, representing a 12% premium to the current market cap. In doing so this implies the agricultural operations whilst currently underperforming, have a negative value. This cannot be the case as Camellia’s share of its holding in Goodricke (India/Tea) and Kakuzi (Kenya/Avocado), two listed subsidiaries in the agricultural division, have a combined market capitalisation of £48m. Or, looking at the valuation in another way Camellia is trading on a price to book ratio of just 0.4x. As a result, despite the poor trading outlook, we maintain our BUY recommendation. New CEO continues to progress existing strategy but examining the composition of the portfolio: The immediate focus remains on selling non-core assets, supporting food production and continuing investment in non-tea crops in diversified locations (i.e. Avocado and Macadamia) to mitigate the risks of adverse weather patterns, political instability, commodity price movements, disease, and climate change particularly in water stressed climates. In relation to asset sales in 2023, Camellia sold several investment properties and part of its heritage collection which combined realised £3.7m and its 37% stake in BF&M (a provider of a range of financial services across the Caribbean) for US$100m. This latter disposal is still subject to regulatory approval with the proceeds expected this year. Challenging trading conditions remain in several key agricultural markets: While agriculture operations offer limited visibility (70%-75% of revenues are concluded in the second half), the weak market conditions will likely continue into 2024. For tea, oversupply has led to pricing pressure, for macadamia, COVID legacy inventories has led to heavy discounting and Bardsley, even though it is being closed down, it will still have a significant negative impact in 2024. The market for macadamia is improving and for avocados is expected to be flat, whereas for soya, volumes will be lower, cereal pricing will be lower and the impact on the shipping times in the Red Sea crisis is yet unclear. Finally, the strength of the Kenyan Shilling is providing FX headwinds. Investment case for Camellia revolves around its asset-backed balance sheet: While trading conditions are challenging in several key agricultural markets there is some upside over the medium term based on prior years investments. As such, with the ability to take a long-term view as dictated by the very nature of its core agricultural operations, and considering the value of its assets, we argue, Camellia is well placed to withstand the current market conditions and to continue both improving its operations and diversifying its crops and locations.
25th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: Smart Metering Systems (SMS.L) has delisted from the AIM market What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radical Limited for a consideration of approximately £1.3m, payable by the issue of new ordinary shares in Electric Guitar. The Acquisition constitutes a reverse takeover under the Listing Rules and therefore shareholder approval for the Acquisition is being sought at a general meeting of Electric Guitar to be convened for 1 May 2024. 17 April 2024: TGI Fridays, Inc. (TGIF) Hostmore plc announces that it has reached agreement on a non-binding basis for a proposed all-share acquisition of TGI Fridays, Inc. The Proposed Transaction would result in existing Hostmore shareholders holding 36% of the enlarged business upon completion (the Combined Group), with TGI Fridays shareholders holding a 64% shareholding. TGI Fridays is expected to be purchased for an enterprise value of £177m, or approximately 5.4x its FY23 underlying EBITDA. The Combined Group is expected to be renamed TGI Fridays plc, with its shares admitted to trading on the LSE’s Main Market. Completion of the Proposed Transaction expected to be by the end of Q3 2024. Change of Market: 8 April 2024: TheWorks (WRKS.L) a multi-channel value retailers of books, arts and crafts, stationery, toys and games, offering customers a differentiated proposition as a value alternative to full price specialist retailers. The Company is listed on the premium segment of the Main market of the London Stock Exchange. The Company has announced its intention to change to the AIM market on 3 May 2024. Currently the market capitalisation of TheWorks is £16m. Dual Listing: 23 April 2024: Wellnex Life Limited (ASX:WNX), an Australian consumer healthcare Company, has commenced the process to dual list on the LSE. The Company believes that a dual listing will increase its international profile, particularly in Europe where Wellnex has an existing supply agreement with Haleon into the UK. Currently, the market capitalisation of Wellnex is AUD$23.8m. Our daily digest of news from UK Small Caps If you would like to unsubscribe, please email enquiries@hybridan.com with “unsubscribe me”. Hybridan Chefs research@hybridan.com Banquet Buffet*** Camellia 4500p £124.6m (CAM.L) The Agriculture focused Company announces that Susan Walker, Chief Financial Officer has indicated her intention not to stand for re-election as CFO and director at the forthcoming AGM which is expected to be held on 6 June 2024. The Company announces the appointment of Oliver Capon as the new CFO. Oliver is an experienced and commercial CFO with thirty years of experience. Checkit 22p £23.8m (CKT.L) The augmented workflow and smart sensor automation Company for frontline workers announces its audited final results for the year ended 31 January 2024. Revenue increased 17% to £12m (2023: £10.3m), the loss before tax reduced to £4.6m (2023: (£12m) and net cash reduced to £9m (2023: £15.6m). Trading since the start of the new financial year has seen continued momentum in line with the Board's and market expectations. The Company continues to execute against the growth strategy and develop technology, while progressing on the path to profitability. Corcel 0.36p £6.7m (CRCL.L) The pan Angolan/Brazilian focused exploration and production Company announces Scott Gilbert will be interim CEO with immediate effect and joining the Board as an Executive Director. Mr. Gilbert, who has been acting as a consultant to the Company developing opportunities in both Brazil and Angola, brings with him 15 years of experience in the oil & gas sector. Ms. Jennifer Ayers will no longer be joining the board, but will remain as the Company's Exploration Director. Destiny Pharma 14.5p £13.8m (DEST.L) The clinical stage innovative biotechnology Company focused on the development of novel medicines that can prevent life threatening infections announces its audited financial results for the year ended 31 December 2023. The loss before tax reduced to £6.4m (2022: £7.7m), year-end cash and cash equivalents was £6.4m (2022: £4.9m). The Company today provides an update regarding licencing for XF-73 nasal. The Company has engaged with a number of potential partners and has received some strong and positive feedback on XF-73 nasal. However, no potential licencing deal has, to date, been forthcoming that we believe would provide fair value to the Company and its shareholders. Hornby 33p £56.1m (HRN.L) The international models and collectibles Company today announces the following changes to the Board of Directors of Hornby. For personal, health related, reasons Lyndon Davies will formally step down from his position as Non- Executive Chairman on 30 April 2024 and continue to serve on the Board as a Non-Executive Director. At this point, John Stansfield, an existing Independent Non-Executive Director, and past Chairman of Hornby PLC, will step into the role as Interim Independent Non-Executive Chairman while the search for an Independent Non- Executive Chairman is underway. Norman Broadbent 9.5p £6.4m (NBB.L) The Executive Search and Interim Management firm announces a trading update for the quarter ended 31 March 2024. Net Fee Income came in at £2.15m, down 12% against a record breaking Q1 2023 and 47% up on Q1 2022 (£1.46m). Five additional fee earners are starting in Q2 & Q3 2024, covering Digital and Technology, Investor Practice (PE/ VC), Life Sciences and Industrial (Energy and Aviation). Skillcast Group 38.5p £34.4m (SKL.L) The provider of SaaS compliance platforms and off-the-shelf e-learning announces its audited results for the twelve months ended 31 December 2023. Revenue increased 15% to £11.3m (2022: £9.8m), LBITDA increased £0.6m (2022: £0.3m), whilst the cash decreased 6% to £7.2m (2022: £7.7m). Skillcast entered the new financial year in a good financial and operational position. Recent product enhancements and new go-to-market strategy have increased enquiry levels from potential customers, which the Company is working to convert into additional subscription revenues. Smartech247 20p £22.7m (S247.L) The provider of AI-enhanced cybersecurity services providing automated managed detection and response for a portfolio of international clients announces that it has signed a new contract with a large banking and insurance organisation, worth EUR 720k over three years. The contract encompasses both Smarttech247's VisionX Managed Detection and Response capability as well as its customised governance, risk, and compliance services. Smarttech247 will offer its client round-the-clock monitoring and rapid incident response, information security and risk capabilities, as well as data loss prevention solutions to ensure regulatory compliance and protection against imminent cyber threats. Vianet Group 108.5p £31.9m (VNET.L) The provider of actionable data and business insight through our ecosystem of connected hardware devices, management software platforms, and business insights portal announces a notable strategic contract win with Wilcomatic Wash Systems, the UK's leading provider of commercial vehicle wash systems for petrol forecourts. Vianet and its key partner Suresite Group Ltd, the forecourt retail payment specialists, have strengthened their presence in the UK Car wash and Valeting market by securing the rollout of their contactless payment solution on a 5-year agreement with Wilcomatic. Zinc Media Group 77.5p £17.6m (ZIN.L) The television and content production Group announces its audited results for the year ended 31 December 2023. Revenue increased 34% to £40.2m (2022: £30.1m), an Adjusted EBITDA of £1.0m (2022: £0.1m) was reported, and there was a cash balance of £4.9m (2022: £3.6m). The Group is trading strongly with £24m of revenue already booked and expected to be recognised in FY24.
CAM CRCL NBB SKL VNET ZIN DTTYF HNB
Camellia has confirmed the proceeds of c£80m from the sale of its 37% interest in BF&M (insurance company based in Bermuda), are now anticipated to be received in Q12024 rather than in 2023 due to regulatory delays, that it will close Bardsley England (Apple Orchard) and that it has raised a further £2.6m from the sale of Heritage assets. In summary, there will be no impact on our 2023 expectation of an adjusted operating loss of £13.7m though with proceeds from the sale being pushed into 2024, our interest income expectations will be slightly lower. The update should be welcomed as it confirms the strengthening of its balance sheet and that the losses of c£5m at Bardsley will reduce. We maintain our Buy recommendation. 2024 operating loss assumptions unchanged...for now: There is no update on its other operations so for the time being we assume trading in 2023 is consistent with its last update in October. We are also leaving our 2024 forecast of another operating loss of £10.6m unchanged despite the fact it currently includes a c£5m loss from Bardsley. This is because losses will be incurred at Bardsley from trading in 1H2024 as well as costs related to the wind down of operations. In addition, its agriculture operations offer limited visibility (70%-75% of sales are concluded in the second half), and challenging trading conditions remain in several key agricultural markets. Sale of BF&M – regulatory approval. The sale of its stake in BF&M for US$100m was first disclosed in 2Q2023 with the completion date anticipated by the end of the year subject to regulatory approvals. This has now been delayed until Q12024 for reasons outside the control of Camellia. The terms of the deal remain unchanged but the delay means Camellia will be entitled to further dividend income and with the cash proceeds of c£80m being delayed until 2024 we have had to adjust our expectations for net cash at December 2023 leading to reduced expectations for interest income. That said, despite the delay we still expect Camellia to remain in a net cash position. Bardsley’s losses to cease: Bardsley was acquired in 2021 and has never returned a profit with limited scope for improvement. In 2023 we expect it made trading losses of c£6m on revenues of c£19m as it suffered from a combination of muted selling prices and increased costs. There will be no impact on our 2023 estimates as the closure is being initiated in 2024 though looking at 2024, operating losses will be incurred for as long as it takes to close down operations but clearly not as material as those incurred in 2023. We await further updates before changing our estimates. Value of Camellia is in the balance sheet: The investment case for Camellia continues to revolve around its asset-backed balance sheet and its ability to crystalise value as it disposes of loss-making non-core assets. The current share price bears no relation to the net book value of Camellia with a material divergence between the realisable value of assets and the share price. Our target price of £200 per share is based on a sum-of-the-parts methodology and is substantially higher than both the current share price and the net book value of c£140 at June 2023. With it also offering a dividend yield of c3%, Camellia offers considerable value and we continue to argue that it should be viewed on a long-term basis due to the nature of its earnings rather than through the prism of quarterly updates.
In line with its recent trading update we have lowered our 2023 forecast for revenue from £296m to £283m and increased the adjusted loss before tax from £4.8m to £10.3m reflecting difficult trading across its several agriculture operations. While it still remains difficult to predict the outcome for the full year due to the seasonal nature of the crops (typically 70%-75% of sales are concluded in the second half), there has been ‘a significant deterioration’ in expectations for key crops.
We resume coverage on Camellia with a BUY recommendation (previously ‘under review’) and a price target of £200 per share. With an expected adjusted trading loss of £11.5m on revenues of £296m in 2023, the P&L is not its current strength. Rather, the balance sheet with net cash of £27m, cash receivable from the BF&M disposal of £81m, liquid and listed investments of £50m and other investments (mainly property) with an estimated market value of £60m provides significant asset backing before allowing for value within the core agriculture business which we estimate to be worth £465m. While there are challenging trading conditions in several key agricultural markets there continues to be a material divergence between the realisable value of assets and the share price. It also offers a dividend yield of c3% and trades on a price to book of 0.4x.
A further significant increase in the pay rise granted to tea workers in Bangladesh means that CAM now expects PBT for FY22 to be below last year’s level of £8.8m. Reflecting this, and the market update from last week, we reduce our FY22 PBT forecast from £11.5m to £6.0m, and our FY23 PBT forecast from £14.8m to £10.0m. Although our FY23 forecast should hopefully be conservative, we are conscious that CAM is facing rising labour (and other) costs across much of its business.
Following yesterday’s trading update from CAM we reduce our FY22 PBT forecast by 25% due to the weak financial performance of BF&M in Q1 and our expectation that this will continue at least into Q2. However, our FY23 PBT forecast reduction is far more modest (6%) as there is no reason to assume that BF&M’s weak financial performance will persist into next year. The performance of CAM’s operational businesses is ahead of previous expectations despite some headwinds. Although the timing of BF&M’s strategic review is unfortunate given the impact of stock market volatility on its financial performance, it could develop into a positive for CAM if it helps to highlight some of the “hidden value” of its assets and increase the focus on its core agriculture business.
Last Friday’s positive trading update from CAM offers reassurance that the resignation of its CEO was not due to operational issues. The fact that the Chairman, who previously served as CEO, will assume executive responsibilities until a replacement is found, offers further comfort. We do not expect the change of management to result in any change of strategy. We leave our FY21 forecasts unchanged and increase our FY22 PBT forecast by c.20%.
CAM has released a positive FY21 trading update, helped by the performance of several of its agricultural businesses, strong results from BF&M, and efficiency programmes across the group. This more than offset lower tea volumes in India, lower avocado prices, and some Covid-related disruption. In line with the new guidance, we increase our FY21 PBT forecast from £4m to £8m, in the middle of the expected range of between £7m and £9m. However, given the weak current trading in UK Foodservice and Engineering, we think it prudent to reduce our FY22 PBT forecast from £15.1m to £12.9m.
With CAM having already released a detailed trading update on 20th July, its H121 results were largely as expected. The underlying loss before tax was, at £7.3m, slightly better than the implicit guidance of £8.2m, driven by the very strong contribution from BF&M. Elsewhere performance was as previously indicated. We leave our FY21 forecasts unchanged, with an increase in the expected contribution from BF&M being offset by slightly more conservative assumptions in agriculture and foodservice.
CAM’s two recent deals, namely the acquisition of Bardsley and the disposal of Abbey Metal Finishing, reflect its strategic commitment to increase its focus on the core agricultural business and to diversify geographically. Both deals are positive for CAM’s financial outlook. Bardsley has the potential to grow its revenue strongly and become solidly profitable under CAM’s ownership, while Abbey Metal Finishing was loss making with no immediate prospect of improvement. These two deals provide clear evidence that CAM’s strategic changes are delivering improved financial performance, with many opportunities still ahead.
Yesterday's trading update from CAM disclosed sharply higher wage costs in the Assam tea business and several other adverse developments. It has required a £2m (18%) cut to our FY21 PBT forecast and a £1m (7%) cut for FY22E. However, we are encouraged by CAM having committed to a review of its non-core investments "and other options" to maximise value for the Group. We assume that this review will cover all of CAM's non-agricultural operations and assets.
CAM's financial performance in FY20 has been ahead of expectations and we upgrade our FY20 clean PBT forecast by 40%. Just as importantly, CAM has settled the legal claims against it and is putting in place measures that will hopefully avoid any future claims, thus drawing a line under the matter. We expect the shares to respond positively to these two developments.
Camellia : Strong tea (07-Dec-2017)
Camellia Flash : Strong tea
Today’s solid H1FY17 results are encouraging as they delivered a profit compared to the more historical pattern of first half losses. Whilst the Headline PBT (for continuing operations) of £1.9m was down from H1FY16’s unusually strong £6.8m, we nevertheless think H1FY17’s profitable performance demonstrates (again) the merit of management’s strategy to measuredly reorient focus and resources towards its Agriculture division and address the performance of its loss-making non-agricultural business. The interim dividend is raised +5.7% to 37p and net cash increased substantially to £98.7m (H1FY16: £53.0m), largely due to the proceeds from the sale of the non-core DLAM business. To reflect the better-than-expected H1 financial performance, we raise our FY17 Headline PBT (for continuing operations) to £21.5m from £19m. We reiterate our BUY and TP of 12500p.
FY16 headline PBT of £26.5m (from continuing operations) is slightly ahead of our expectations (i.e. our existing £18.5m forecast, crudely adjusted for the -£7.5m trading loss from the discontinued Duncan Lawrie business). Management reaffirms its view that, post its withdrawal from Duncan Lawrie, the Agriculture division (c.80% of FY16 group turnover, and majority of group trading profit) will likely be the focus for future investment. We reiterate our BUY, raising our TP to 12500p, post the strong share performance (+47%) since late June which has meant that our previous TP 9995p has now been comprehensively beaten. Our positive stance reflects our view that CAM’s attractive Agriculture Division looks particularly well placed to continue to benefit from strong long-term industry fundamentals, backed by CAM’s strong balance sheet and anchored by CAM’s long-term sustainability-oriented vision/strategy.
CAM has announced the sale of most of its non-core, loss-making Duncan Lawrie (DL) private banking business in two separate transactions; 1) the bulk of the DL loan book to Arbuthnot Latham for £42.7m (95% of outstanding loan balances subject to the sale) and; 2) subject to regulatory approval, an agreement to sell the DL Asset Management business to Brewin Dolphin for £28m (at an attractive c.3.8% of AUM). We view this move as strategically and financially sound. Strategically, and consistent with management’s stated strategy, this decisive move further optimises the CAM business portfolio following on from last year’s disposal/closure of two other non-core businesses experiencing declining competitiveness with little prospect of acceptable financial returns in the medium- to long-term. Financially, the sale of DL represents the removal of an important drag on CAM’s group profitability (DL delivered a £(3.6)m PBT in FY15 with an even worse loss likely in FY16 given the stepped-up investment in systems/people).
H1FY16 headline PBT of £4.9m vs H1FY15’s £(3.1)m (restated) is better than expected, reflecting, in our view, the positive combination of (1) CAM’s diversity of customers, regions, products and services as a real competitive strength; and (2) management actions to address the performance of lossmaking businesses. H1FY16 dividend of 35p (vs 34p) is declared. We continue to view CAM as an attractive group of businesses which should reward the patient investor over the medium- to long-term. We maintain our BUY and TP of 9995p.
FY15 finals were published on April 28th so it is only 5 weeks since the new management team presented these to the investment community. Unsurprisingly, therefore, there is an absence of any new developments or surprises with today's AGM trading update which covers the period from January 1st to date. The update rather elaborates on some of the patterns observed at the underlying businesses in the 2016 Outlook statement contained within the FY15 results. We maintain our headline FY16 PBT* of £12m, our BUY and Target Price of 9995p to reflect the new management's team strong strategic direction, and actions to create and capture future value across the CAM portfolio, particularly in agriculture where, despite weather-induced challenges, CAM looks well placed to continue to benefit from strong long-term industry fundamentals.
FY15 results are in line with our expectations. Volatility in CAM’s portfolio, particularly around pricing for “critical-for-group-profits” crops such as tea is, however, causing near-term profit disruptions, but favourable long term, sustainability-oriented strategies and decisive actions from the new management team should reward shareholders over the long-term. We are therefore lowering our headline FY16 PBT* to £12m (from £25.1m) but maintain our BUY (with a lowered TP of 9995p vs. 11700p) to reflect the new management’s team strong strategic direction and actions to create and capture future value across the CAM portfolio, but particularly in agriculture where, despite challenges, CAM looks well placed to continue to benefit from strong long-term industry fundamentals.
Today's pre-close trading update is solid, stating that “Headline Profit before tax for the year to December 2015 is anticipated to be broadly in line with market expectations.” This will reassure, particularly as H1FY15 results were problematic, principally reflecting adverse weather conditions affecting crop production combined with poor financial results in engineering. We retain our Buy recommendation and TP of 11700p, giving 29% upside potential.
Camellia is a global agriculture and horticulture group whose activities also extend to engineering, food storage and distribution, banking and financial services. It is one of the world's largest private tea producers. Interims to June showed revenues virtually unchanged at £102m (£101m) and a ‘headline' loss before tax of £8.7m (£3.4m). The interim dividend has been maintained at 34p. The loss before tax reflected ‘one-off' factors resulting in increased losses in engineering, reflecting the impact of closure costs of AKD Engineering. Production in India and Bangladesh was lower than the prior year due to drought conditions and margins were squeezed in India. Its other horticulture activities have performed in line or marginally ahead. Food storage and distribution has delivered an improved result. Following a management review, the group has decided to retain and invest in Duncan Lawrie, its private banking business. The outlook for the second half remains dependent upon the outcome of the harvest for a number of its crops, which highlights the group's inherent seasonality and notable second half bias. Recent tea auction prices show some positive trends over last year, particularly at Mombasa (Kenya) auctions where prices in the last six-eight weeks have been 30%-50% ahead of last year reflecting reduced levels of market production. We have upgraded our FY2015E ‘headline' PBT forecast to £15.9m, including the losses from AKD Engineering. It was previously £15.5m excluding the loss of £4m. Given the volatility in profitability and long term approach by the management, we have adopted an asset-based valuation. Interim net assets total £353m, the equivalent of £127 per share. Our price target of £117 represents a discount of 8% to this, upside of 22% to the current share price. We reiterate our Buy recommendation.
Camellia is a global agriculture and horticulture group whose activities also extend to engineering, food storage and distribution, banking and financial services. It is one of the world's largest private tea producers. Interims to June showed revenues virtually unchanged at £102m (£101m) and a ‘headline' loss before tax of £8.7m (£3.4m). The interim dividend has been maintained at 34p. The outlook for the second half remains dependent upon the outcome of the harvest for a number of its crops, which highlights the group's inherent seasonality and notable second half bias. Recent tea auction prices show some positive trends over last year, particularly at Mombasa (Kenya) auctions where prices in the last six-eight weeks have been 30%-50% ahead of last year reflecting reduced levels of market production. We have upgraded our FY2015E ‘headline' PBT forecast to £15.9m, including the losses from AKD Engineering. It was previously £15.5m excluding the loss of £4m. Given the volatility in profitability and long term approach by the management, we have adopted an asset-based valuation. Interim net assets total £353m, the equivalent of £127 per share. Our price target of £117 represents a discount of 8% to this, upside of 22% to the current share price. We reiterate our Buy recommendation.
