Camellia: an unusual tea producer that rewards patient investors

Camellia (Aim: CAM) is an unusual business, often flying under the radar as a throwback to a bygone age. This British holding company, incorporated in 1889, once boasted a sprawling empire. Now, it’s streamlining into a focused agricultural player with a clear strategy, substantial cash reserves, and still trading below its book value. For investors willing to embrace its quirks, Camellia offers a rare opportunity: a modernising business with a robust balance sheet, actively working to close the gap between its market price and intrinsic worth.

Camellia has a storied past

Camellia has a history that stretches back to the Victorian era and the British Empire. But much of its greatest expansion occurred between the 1960s and 1980s when it grew into the world’s largest private producer of teas. Today, it employs more than 78,000 people across its global estates that produce a variety of agricultural products. Tea accounts for roughly 80% of group turnover, complemented by other crops, such as avocados and blueberries.

Beyond agriculture, Camellia’s past was eclectic, encompassing private banking, a Bermuda-based insurance company, small engineering companies and an extensive collection of fine art, manuscripts and stamps. Its former headquarters, Linton Park in Kent, bears little resemblance to a corporate office, having once been a stately home, which has been on the market since 2022. This sprawling, diversified portfolio diluted focus, and management struggled to translate its assets into shareholder value. By the early 2020s, the share price was languishing, trading around 4,000p, well below its book value, which included both cash and tangible assets.

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Camellia's global footprint

Camellia’s tea operations are vast and geographically diverse, reflecting its long history in the industry. It owns some of the world’s most iconic tea estates, spanning more than 34,000 hectares of mature tea plantations. Its operations are spread across two continents. In India, its estates produce both whole leaf and CTC black teas and include renowned Darjeeling gardens such as Castleton, Margaret’s Hope and Badamtam. Neighbouring Bangladesh is another key tea-producing region for the group. In Africa, the firm has a large presence in Kenya and Malawi. This global spread helps mitigate regional risks, such as adverse weather and political instability.

Camellia's modern overhaul

In recent years, Camellia has embarked on a determined modernisation programme, formalised in its “value enhancement plan” (VEP). The company is shedding non-core assets to focus on sustainable agriculture. This transformation began with the disposal of its art and stamp collections. It moved to a regular business park to offload its property portfolio, including Linton Park.

The most significant divestment was the agreement to sell its 37% stake in insurance group BF&M for $100 million (£75 million), strengthening the balance sheet significantly. These moves have left Camellia with net cash and liquid investments exceeding £100 million. The aim is to improve operating results, reduce risk through diversification and invest in agricultural growth opportunities.

Despite these efforts, Camellia’s share price remains stubbornly low, trading at a fraction of its book value. This discount is partly because of broader challenges in the Aim market and the company’s complex structure – the Camellia Foundation charity, for example, is the majority shareholder, which previously owned 52% of the common equity.

Yet management is committed to closing this valuation gap. The VEP is specifically designed to generate value and sustainable profitability, including a restarted dividend and a return of £18.9 million to shareholders by acquiring up to 350,000 shares at £54 per share. The Camellia Foundation did not tender any of its shares and consequently has seen its ownership of the business rise to almost 60%, entrenching the minority status of the remaining shareholders.

Risks and rewards

Camellia faces inherent risks. The tea market is volatile, swayed by weather, labour issues and global supply chains. A 2020 lawsuit alleging human rights abuses by its Kakuzi division, settled for £4.6 million, highlighted emerging-market reputational risks. Currency fluctuations and political instability in Bangladesh and Malawi also pose challenges. Furthermore, its unusual ownership structure, tied to the Camellia Foundation, raises questions about governance.

However, these risks are arguably priced into the current valuation. The VEP actively aims to mitigate operational and climate-related challenges. With a considerable cash position and management executing a formal value-creation plan, Camellia offers a compelling risk-reward profile. This cash pile provides flexibility for investments in high-margin crops and efficiency projects (such as solar and mechanisation), alongside direct shareholder returns. The decentralised model fosters resilience, allowing subsidiaries to adapt swiftly to local challenges.

Camellia is a rare opportunity for patient investors. Management’s explicit commitment to narrowing the valuation gap, combined with exposure to growing markets for tea and speciality crops, makes it an intriguing prospect. Camellia promises outsized returns as its modernisation strategy bears fruit.

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