The Best Value Share I Know

Published in Company Comment on 26 April 2012

This company is tremendous value -- but are the shares worth buying?

Camellia (LSE: CAM) is probably the best value share I know of. It's one of those companies most people have never heard of but most of us have tried its wares. You may even be doing so right now. That's because Camellia is the second biggest private tea producer in the world.

And it doesn't stop there. Camellia is a UK-based international group employing over 75,000 people with interests in agriculture and horticulture, private banking and financial services, food storage and distribution, engineering and insurance around the globe. But its origins lie in tea growing, and many companies in the group are over 100 years old.

It generates just over a quarter of its revenues in India, a further 25% in the UK, and 11% in each of Kenya and continental Europe.

The group's final results for 2011 show a pre-tax profit of £58.6m, quite a bit down on the previous year. But this includes an unrealised gain of £7.3m due to changes in the fair value of biological assets. The more relevant trading profit of £39.2m was £9m down on 2010, which was an exceptionally good year for tea production. And Camellia's earnings tend to be erratic due to exchange rates and asset valuations, disposals and acquisitions.

A business of living entities

So whether you value this company on earnings or net asset value (NAV) as you would an investment company is a moot point. Either way, it looks good value to me.

The slightly downbeat results have knocked the price back at the time of writing to 9,513p, valuing the company at £270m. But the group has no net debt, net cash of over £72m, net current assets of £121.7m, over £361m in net assets and £354m in net tangible assets.

So the valuation seems to make little sense. But this isn't a company that plays a short-term game. To say it takes a long-term view would be an understatement. Camellia's fundamental ethos is to treat most of its business assets as "living entities".

It's defensive, diverse and it grows steadily. It also has a stated intention never to overreach itself "so that our base becomes vulnerable to the changing circumstances of the banks". Indeed, its own UK private bank (Duncan Lawrie Ltd.) is conservatively run. Its loans are never allowed to exceed the bank's share capital and reserves. And depositors' funds are placed with only the highest rated financial institutions or with the Bank of England.

If all companies were run like this one, the world might well be a better place.

So what's the problem?

So what's the problem? In a word, it's income. The total dividend per share of 114p (up from 110p last year) makes the yield around 1.2%. This will cost Camellia £3.24m. Yet its net cash flow from operations was £31m.

This begs the question of whether it's worth buying the shares. And we aren't likely to see any likely outage of the inherent value as the company is 51%-owned by Camellia Holding AG, which in turn is owned by The Camellia Private Trust Company Limited; a charitable foundation incorporated in Bermuda that supports educational and humanitarian causes. The foundation takes no part in the day-to-day management of the business, but is unlikely to sell either.

So is there really any point investing today and having our money tied up for years while getting a very small return? The answer's probably yes as the business will grow steadily and the shares will keep pace with NAV and earnings. But it would be nice to see a commitment to a significantly improved dividend. As Stephen Bland pointed out last year, this is a share for the patient investor.

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QuantumDealer 26 Apr 2012 , 3:11pm

I cannot stop to ask the following question: WHY does the charitable trust hold an asset in which there is a minimal opportunity for capital growth and an apparently minimal opportunity for growth in the dividend (and competitive yield)? There are tens, if not hundreds, of other global companies that they could hold with a better divi yield and better opportunity for capital appreciation so why do they hold so much of this somewhat eclectic company?

As an aside, since discovering this company via a stock-screen I run, I have sent two emails to the company over the past week or so and to date not received any reply with regards to their current dividend policy. I am as bemused as you sound in this article about their lack of a decent dividend (in spite of robust cashflows) but given their lack of response I am wondering what they are all actually up to?!

sageofyork 27 Apr 2012 , 8:24pm

Forget the dividend this is a share for capital growth, I remember when it was sub £4, and I have no reason to suppose it has stopped.

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