Sold All: Camellia (CAM)
Global agricultural group(ish) in deep value but chronically poor performance
Sell date : 5th January 2024
Sell price : 5050p (-9.0% loss, bought in Aug23)
One of my shorter holdings, as I have decided to cut my losses here. I bought before I started this Substack, so there is no buy writeup to point you to. But the gist is that it was trading at a deep value (I estimated NTAV at 12200p) and significant value (£100m+) was imminently being sold/realised, on a market cap of just £150m. Also, I had a macro belief that food commodity inflation would be sustained, and investor apathy for soft commodity would switch to a warmer mood, given that climate change havoc will continue to wreak havoc on supply in the short term, while demand continues to grow globally. Supply in agriculture takes time to ramp up, so upward pressure on soft commodities over the next few years look likely.
My investment thesis was that Camellia were doing the right things to diversify in a very cyclical industry (multiple crops, multiple geos). The balance sheet was strong enough to sustain them through to success, and their disposals would give them the cash liquidity they need to do so. Also, new CEO (Sep23 - Byron Coombs) and new Chairman (Dec23 - Simon Turner) might just be the fresh blood they need to change their flagging ways?
What they do
Description: Maruque Farm in Brazil, part of the Camellia conglomerate Image source : Camellia LinkedIn page
Camellia is a sprawling global conglomerate. Mainly agricultural activities - rooted in tea growing in India, Kenya, Malawi, etc. They have pursued a diversification strategy over the last few years - different geos (mainly Africa, South America, but also UK) and different crops (avocados, macadamia, apples, rubber). They also own a minority stake in a Bermuda based reinsurer (BF&M), an oil engineering company (now sold), and some end consumer food brands (Jing Tea).
Why I’ve sold out
The latest update by the new CEO seems like more of the same old. The title was “refocussing investments”, yet there was nothing there to indicate they have a strategy and path to get to success. Granted, he’s only been there for 3 months, but at least by now he should have some idea the areas of opportunity for the company to get back to growth and profitability.
Instead, we get the update that the BF&M stake sale is still at a stalemate with the board. The board is now digging their heels in; it looks very likely this sale might collapse. So when will Camellia see the $100m? Who knows. It is the same with the other big investment they are trying to sell - their property - which is still on the market for £32m. Since Apr23. Granted, the UK property market has been extremely sluggish; but still, stinks of management that are really not motivated and/or competent and can’t get things over the finish line.
At least the new CEO is kitchen sinking and taking a radical step to stem some of the losses, from Bardsley apple. This was an acquisition not too long ago; the writedown is likely to be big. Again, this suggests management at Camellia are terrible, how can a performing, non-risky, mature industry company now be in such dire straits in just a few years time after acquisition? That it needs to be wound up completely?
For me, there are too many red flags in this trading update. On top of that, tea prices have continued to soften in the last few months, one of Camellia’s most important categories. Whilst input costs (labour, fertiliser, etc) are probably continuing to rise.
The Continuing Bull Case
While the high NTAV still means they won’t have to do any fundraisings or run into any cash problems, it looks increasingly that the turnaround still have no momentum, the simplification of the group will drag on till later in CY2024. It is very likely no good news, no green shoots will emerge at least until Q4 CY2024, given the second half weighting of most of their agricultural divisions.
I still find the macro-environment attraction of investing in a diversified, agricultural global group. There are not any others on the UK market that I know of. Also, the sales of BF&M and the property should unlock either some meaningful shareholder returns, or a transformative acquisition into an even bigger global agricultural company.
Lets say from 12200p NTAV (Jun23) they end up squandering 30% of it before they turnaround the company - that’s still 8540p NTAV. If they manage to stabilise, get back to profits, one can see a group like this trading at maybe a 25% discount to NTAV, which is 6405p. A conservative 28% gain on the current SP. And that is before the NTAV uplift from the property sale (which is held on the books at cost price from a long time ago).
Conclusion
I will be keeping Camellia on my watchlist, to evaluate whether there is another opportunity to get back in towards the end of 2024. A few things will need to happen before that - disposals finally done, a good solid new strategy from the CEO put into motion, and firming up of prices of their commodities outstripping cost inflation. The shares are likely to drift down; there is no catalyst for bulls here. This is as unloved and ignored as you can get, judging by the liquidity. Below the 4000p share price mark, would be too cheap to ignore; that would be the value of only the BF&M and property, with the rest of the business thrown in for free!
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