The buy case in Tanganda
Guessing how share prices will move in the next week, month or year is not an easy task.
However, investors seeking to avoid blow-ups and make money in the process should always pay special attention to our research. As has been published through circulars and news releases, Tanganda Tea Company has been unbundled from Meikles Limited and will soon be listed separately on the Zimbabwe Stock Exchange (ZSE) by way of introduction. This will be done through a dividend in specie which means that existing shareholders in Meikles Limited will receive shares in Tanganda Tea Company.
The rationale of such transactions is hinged on price discovery, the need to unlock value and the idea that the sum of parts is always greater than one combined entity. In this article, we provide brief insights on why we think Tanganda would be a good pick once it starts trading on the local bourse.
Firstly, and most importantly, folks should know that Tanganda Tea Company is not small. It is the largest producer, packer and distributor of tea products in Zimbabwe. Tanganda started in the 1920s as a tea growing experiment and has since grown to become an export-oriented business with two main operating divisions – Agriculture and Beverages. Below are some important highlights;
• The company has invested behind its brands such as Tanganda Tea, Stella, Tips and Fresh Leaves;
• Tanganda commands 70-75% of the local black tea market;
• In terms of the revenue split, about 70% are exports and about 30% are local sales;
• Tanganda embarked on a diversification strategy in 2010 into other agribusiness sectors such as coffee, avocado and macadamia;
• The New Crops (Avocados, Coffee and Macadamia) currently constitute 50% of export earnings; and
• Tanganda exports to more than 25 countries, including Iran, Germany, UK, Egypt and South Africa. Piggy is more concerned about the future earnings potential of the business. Management has highlighted some growth drivers for 2022 and beyond detailed hereunder;
• Growth will be driven by in (i) Packed Tea Markets (South Africa and Zambia) and (ii) Own Brands such as Holy Tanganda Tea (Local Partners);
• Growth in Herbal Teas (Roibos, Zumbani and Muringa);
• Growth in new crops (Macadamia Nuts and Avocadoes);
• Joint Ventures (Land Deals) - Scope for M&A;
• Farm Mechanisation Programmes and Solar Project (Financed through the sale of the Meikles City Hotel) to reduce opex and improve efficiencies;
• I mproved disposable incomes on the local market as economy recovers (Per Capita Consumption of Tea in Zimbabwe is below 1 cup).
Overall, Piggy has come up with a valuation model for Tanganda which makes use of earnings projections as well as net asset value (NAV) and estimates a value of US D101 million or US 39c per share. Investors should watch the listing price against this valuation given that there is scope for share price appreciation for holders. Learn more about investing on the stock market by downloading a copy of the Investor 101 Handbook from www.piggybankadvisor.com