Tea shares rise on record forex earnings

Some plantation companies have posted the best ever profits this last quarter which their share prices are reflecting, but these prices may have run ahead of their earnings, according to industry analysts.

"Some companies such as Kotagala and Kelani Valley have posted the best ever results," the industry analyst pointed out.

Sri Lanka's tea exports crossed the US$ 1 billion value mark last year, for the first time in its 140-year old history. According to the Sri Lanka Tea Board, the value of tea exports last year recorded a 22 percent increase over 2006 to Rs.112 billion from Rs.91.7 billion.

Kotagala Plantations recorded Rs.244 million profits for the three month ended 31st December 2007 while Kelani Valley had Rs.200 million for the same period. Madulsima, made Rs.24 million for this period as opposed to the Rs.32 million loss for 2006. "However tea is a cyclical product and all depends on the weather patterns and also the global situation pertaining to tea. Therefore, the share prices may be running ahead of the earnings of some of these companies," the analyst said. "Over 90 percent of our plantations sell their produce at the Colombo Tea Auction and their prices have been rising during the last couple of months," he noted.

He said there are two contributing factors for the price hikes-namely the difficult ground situation in Kenya and world oil prices hitting record levels.

"Sri Lanka and Kenya are the largest exporters in the world. Kenya produce Cut, Torn and Curled (CTC) tea, which mainly come in tea bags whereas Sri Lanka produce orthodox teas. These two varieties are not directly substitutable, but when Kenya's productions decrease, the market needs to buy whatever is available," he explained.