Plantation stocks surge amid favourable market conditions

• Out of over 20 listed plantation companies, only three companies saw decline in share prices in the month

By Nishel Fernando 

Majority of Sri Lanka’s plantation companies have witnessed a significant upturn in stock prices from October onwards, driven by a combination of favourable global market trends, strong sector fundamentals and overall investor sentiment.

“During Oct-24 majority of the plantation sector companies which are exposed to major crops like tea, rubber and palm witnessed price gains driven by major global and local factors,” First Capital Research (FCR) highlighted in a recent sector report. 

In October, Maskeliya Plantations, Hapugastenne Plantations, Udapussellawa Plantations, Bogawantalawa Tea Estates, Madulsima Plantations, Kahawatte Plantations and Watawala Plantations saw price gains ranging from 61.3 percent to 70.5 percent over performing All Share Price Index (7.72 percent) and more liquid S&P SL 20 (11.90 percent).

Out of over 20 listed plantation companies, only three companies saw a decline in share prices in the month. 
Tea product rose to a 7- year high in September to 24.1 million kilos, up by 27.7 percent YoY and production increases at all elevation levels from a year ago, whilst cumulative output improved by 1.4 percent to 196.2 million kilos.

“Revenue from tea is expected to increase while production rises, with auction prices remaining relatively stable,” the report stated. 

Agarapatana Plantations, Kahawatte Plantations and Maskeliya Plantations have the largest land extent  exposed to tea production.

From October to 11th of this month, Maskeliya Plantations generated highest capital gains of 65 percent to its shareholders followed by Hapugastenne Plantations (52 percent) and Kahawatte Plantations (14 percent).
Meanwhile, rubber price soared by 38.8 percent YoY in October globally. However, rubber prices declined slightly at the last rubber auction held in October this year.

Kahawatte Plantations (14.3 percent), Agalawatte Plantations  (9.4 percent) and Kegalle Plantations (6.3 percent) were best performing stocks exposed to rubber from October to 11th of November this year. 

Similarly, rising oil palm also is also expected to benefit local companies exposed to palm oil production. Up to November, there has been a 143.3 percent increase in palm oil prices globally. 

Sri Lanka’s largest and only RSPO (Roundtable on Sustainable Palm Oil) certified palm oil producer, Watawala Plantations generated 20.4 percent in capital gains for shareholders from October to 11th of November this year. This was followed by Elpitiya Plantations (10.8 percent) and Agalawatte Plantations (9.4 percent).

In addition, Plantation companies have also moved to Coffee production.  For an example, Madulsima Plantations had around 20 hectares of coffee inter-planted with Tea and Kahawatte Plantations is aiming to plant coffee in 42 hectares by 2026. Coffee prices have been climbing up to record highs globally in recent times amid shortages. 
According to FCR, approximately half of Sri Lanka’s listed plantation companies have a Price-to-Book (PBV) ratio below 1, which signals that these stocks may be undervalued.