CARBACID INVESTMENTS PLC (CARB): MEDIUM-TERM TRADE ANALYSIS

Target price  = Ksh 32.65

Carbacid is a niche industrial-gas and investment holding company. Its core earnings come from CO₂ gas sales (Kenyan and regional markets) and financial income (deposits, bonds, equity dividends). In FY2025 Carbacid reported KSh 1,002.9m PAT (EPS 3.94), up 18.9%. Revenue was KSh 2.100b, +1.6%, with gross margin rising to 65% (from 59%) due to new capacity and solar investments. Other income (~KSh 322.5m) was mostly interest on cash/bonds, while a KSh 121.2m unrealized equity gain boosted profit. On a recurring basis (ex-FV gains) earnings grew modestly. Key points:

• Drivers: Core volumes and price of CO₂ gas; regional expansion (East & Southern Africa); and financial portfolio returns (interest + dividends). Efficiency upgrades (solar, new CO₂ plant) cut costs.

• Recurring vs One-offs: Roughly 90% of FY2025 profit is operating/finance income (CO₂ sales + interest). Fair-value gains (~KSh 121m) and one-time items are ~10% of PAT. Without them EPS would be ~3.60, vs reported 3.94.

• Balance sheet: Very strong liquid assets. Cash + deposits ~KSh 1.01b (end-2025) plus listed equities (KSh 520m) and government/corporate bonds (~KSh 1.76b at Jan-2026). Total net assets ~KSh 5.14b (July2025) = BV ~20/sh. Debt is modest (KSh 500m) and falling.

Overall, the bull case is solid margin-driven growth and a fat financial cushion (yielding ~9% dividend). The bear case centers on market/exit risk: very low liquidity, election-year jitters, and any faltering of gas demand or investment returns (e.g. if interest rates/currencies turn). Core trade thesis: Carbacid is cash-rich and cheap on earnings, but stake concentration and illiquidity mean a wide bid-ask and execution risk. A medium-term buyer must believe EPS will stay near KSh4 and that even at KSh30 the price still undervalues its asset base. If instead margins fall or a market sell-off hits small-caps, the thesis breaks.

Bull scenario: Strong regional CO₂ demand and stable energy costs lead to 10%+ EPS growth; equity values keep rising; stock rerates to ~P/E 10 (35–40/sh).Bear scenario: Entry of competitors or weaker Southern Africa sales, plus rising fuel costs, cut margins; interest income drops; EPS stalls ~KSh3.0; stock languishes ~P/E 5–6 (20–24/sh).

Entry/Exit: At ~KSh29 today, dividend yield ~9%, the stock isn’t “obviously cheap” given risks. A prudent entry might be low-to-mid KSh20’s (7–8x EPS), with an exit target high-30’s (10–12x EPS) if the growth narrative holds. If fundamentals weaken or market conditions sour, trimming or avoiding further weakness (below ~KSh20) may be warranted. Overall, we rate Carbacid “Conditional Buy” for a 1-year horizon: the asset backing and growth catalysts justify buying on dips, but liquidity and event risk require caution.

1) Business & Earnings Drivers

• Core operations: Carbacid’s gas division (Carbacid CO₂ Ltd) sells liquefied food-grade CO₂ and related products (dry ice, cylinders, transport services). In FY2025, group revenue KSh 2,099.9m comprised KSh 1,314.2m gas sales and KSh 785.6m transport. Volume growth came from new markets in Southern Africa; pricing is partially USD-linked (carbonate byproduct from soda ash).

• Recurring earnings: The operating profit (gross profit minus admin) from gas was ~KSh 912.6m in 2025 (gross profit 1,352.7m less admin 440.0m). Finance income (interest on cash/deposits ~KSh 264m plus small rental/dividends ~KSh 36m) added another ~KSh 300m. Together these recur each year (barring big rate moves).

• Non-core/one-off items: The year’s standout extra was KSh 121.2m unrealized gain on equity investments (listed shares). By contrast, FY2024 had a loss of KSh 31.2m here, so 2025’s swing added ~KSh 87m to PAT. Other one-offs (e.g. KSh 0 in 2025 vs KSh (4.9m) from revaluation loss on property) are minor. No unusual revenue recognition is evident.

• Earnings trend: Excluding fair-value noise, recurring EPS grew modestly (~9% yearly). The published EPS jump was larger due to the equity gains. Management highlights that gross margin jumped from 59% to 65% thanks to cost savings (solar power) and the new CO₂ recovery plant. This suggests the operating business itself has recently become more profitable per unit of sale.

Key insight: About 90% of reported profit is from business + interest, with the rest from volatile market gains. Future profit hinges on maintaining high margins (energy costs, efficiency) and competitive sales. If market valuations retreat (e.g. DSE/NSE drop), some paper profits could reverse, though dividends from those investments are minor (~KSh 15m).

2) Financial Statement Quality

• Profitability & margins: Operating profit was KSh 1,356m (FY2025) on revenue KSh 2,100m (operating margin ~65%). (If we exclude the KSh121m FV gain, adjusted op profit ~1,235m ~59% margin). Net margin was ~48% (after finance cost 67.8m and tax) – inflated by the large investment income and gains. ROE was ~19.5% in 2025 (PAT 1.003b vs average equity ~5.0b) – strong, but reflecting the big investment base.

• Cash flow & capex: FY2025 CFO was KSh 920m vs PAT 1,003m (CFO/PAT ~0.92, good quality). Heavy capex ~KSh 426.9m (down from 705.6m in FY2024) funded a new CO₂ plant and solar infrastructure. The company is investing in a further 750 kWp solar plant (FY2026), which should lower future energy costs (already high margins). Cash interest coverage is very high (~20x).

• Working capital: Receivables rose to KSh 457m (gross) with KSh 43m allowance. Days sales outstanding ~70. Inventory is small (~KSh 159m, mostly spares). Payables are modest (KSh 60.9m). Net working capital use is low; operating cash conversion is robust.

• Leverage: Net debt is low. End-2025 borrowings KSh 500.6m (term debt), down from 655m in 2024. Cash/deposits were ~KSh 1.01b, so net cash positive. The current payout ratio (final dividend ~2.00/sh) is covered by FCF.

• Accounting quirks: No obvious big adjustments needed. The one note is the large financial portfolio: Carbacid correctly shows government/corporate bonds (amortised cost) and equity investments (FVTPL) separately. We should ensure not to double-count their income. For example, the interest on bonds is in “Other income” (not in core Ops). Also depreciation and revaluations (e.g. of property) are normal IFRS. No hidden reserves or off-balance issues are apparent.

Verdict on statements: Very clean. Key is to adjust out the equity FVTPL swings if evaluating core profit. All large items (bonds, deposits, listed shares) are transparently shown. The dividend (50% payout ratio) is fully sustainable from cash flows.

3) Balance Sheet & Hidden Assets

• Liquid assets: At July 2025, Carbacid held KSh 118.6m cash plus KSh 894.6m in 3-12 month deposits. Additionally, government/corporate bonds (amortised cost) KSh 1,846.0m and equity investments KSh 520.9m. Essentially ~KSh 2.48b of “financial” assets. Excluding these, net operating assets are ~KSh 3.55b (PPE + inventory + receivables ~3.25b + working capital ~0.8b).

• Excess cash per share: With ~255m shares, cash+deposits (~KSh 1.01b) equate to ~4.0/sh. The current market price (~KSh 29) suggests about 14% of market value is pure cash (and bonds, liquid). One should not simply add all liquid asset value on top of an EPS-based valuation, because the interest they earn is already in EPS. Instead, they underpin downside: even if gas ops falter, the company has a multi-billion-liquid buffer.

• Book value: As of 31-Jul-25, BV = KSh 5,141.6m (~20.17/sh). Tangible BV (ex revaluation) is similar since revaluation surplus became a deficit. Market cap ~KSh 7.4b (Apr2026) for 7.44/sh, so P/B ~1.5.

• Sum-of-parts perspective: We value the operating business on its earnings/DCF (see below). In addition, on top of that one could ascribe ~KSh 1,013m net cash and bonds (~4.0/sh) plus equity holdings ~KSh 520m (2.0/sh). The risk is overlap: the operating value is discounted on FCF which includes earnings from these assets. A true sum-of-parts would subtract that interest income from the operating FCF first.

• Hidden values: There’s no “hidden” asset (e.g. unreported land). All significant assets (factories, boreholes, brand) are on-book at PPE (KSh 2.22b) and investment property (KSh 222.9m). The leases (51m asset) carry no unusual contract terms. Net downside is cushioned by the liquid pile – a strong floor on value.

Downside buffer: If gas profits fell to zero, the remaining assets (bonds + cash + equity) and minimal PPE base would still be ~KSh 2.2b + financials ~2.47b = ~4.7b, or ~18.5/sh. That defines a “hard support” well below current price.

4) Valuation Analysis

We present three approaches: EPS multiples, DCF, and Sum-of-Parts. All assume a 1-year horizon and compare to today’s price (≈KSh 29). Key assumptions and sensitivity notes are in the table.

Method	Key Assumptions	Base Valuation Range (KSh/sh)	Upside/Downside	Sensitivity
EPS-Based (P/E)	FY2026 EPS 4.0 (5% growth), base P/E=8 (Kenya avg ~10 for industrials, small-caps cheap at 6–8). Bear P/E=5, bull P/E=12.	4.0×8=32 (KSh)	+10% from 29	EPS growth ±2%, P/E ±2 → ~±15% value
DCF (free cash flow)	FCFF: Start ~KSh 500m (FY25 CFO–capex), growth 3%–5% out to 5 yrs, discount 10%–12%, terminal g=3%. Debt netted; includes reinvestment in solar.	28–35	–3% to +21%	Discount rate ±1pp, terminal g±1pp affects ±10%
Sum-of-Parts	Op business valued at ~KSh 25/sh (present value of continuing gas FCF). + Add net cash/deposits (~4.0/sh) + quoted equity (~2.0/sh).	29–37	0% to +28%	Changes in WACC or asset values shift ±20%

• EPS/P/E: At KSh 29, forward P/E ≈7.3x (using our 2026 EPS~4.0). That’s low vs Kenyan industrial peers (avg ~10–12x) and far below historical Kenyan average ~15–18x. If sentiment improves or reported EPS exceeds 4, a P/E rerating is plausible. Conversely, any profit setback argues for a lower multiple (bear ~5x P/E yields ~KSh 20).

• DCF: Free cash flow into 2026 is buoyed by operating cash >900m minus capex ~400m (solar capex tapering). We assume conservatively that FCF stalls around KSh 500m in out-years (flat for bull, small growth base). Discounting at ~11% (Kenya’s equity cost plus small premium) yields an enterprise value ~KSh 4.5–5.5b, or equity ~5.0b (≈KSh 20/sh). A terminal 3% growth yields somewhat higher. In our model, price ~28–35 fits. If solar investments pay off faster, FCFs could rise, raising value. If growth disappoints, downside aligns ~25/sh.

• Sum-of-Parts: We derive the operating business value from a 3–6x EBITDA or similar rule (here 3x EBIT since mid-caps often trade low). Using FY25 EBIT1.356b→ ≈4.1b enterprise (≈3.1b equity = ~12/sh) plus net cash+invest (~6.5b = ~25/sh) gives ~37/sh. This simplistic method double-counts interest somewhat, but shows that at least half of MC (~7.4b) comes from liquid assets. If one excludes financial income from the business value, one gets a similar 30–35/sh range.

• Reconciliation: The methods roughly converge. The most reliable here is the sum-of-parts/asset view, because Carbacid is as much a holding company as an operating co. Traditional DCF might underweight the huge cash cushion; P/E is distorted by earnings volatility from finance items. Ultimately, the balance sheet implies a floor near BV (20/sh) while earnings suggest possible upside to mid-30’s if growth and rerating occur.

5) Market & Trading Considerations

• Liquidity: Carbacid is a small-cap. Average daily volume is extremely low (~20k shares/day, i.e. ~KSh 0.6m). Half the shares (~127m, 49.9%) are held by one investor (B. Patel via Aksaya Holdings), so free float is ~50%. The bid-ask spread can be wide, and large buy/sell orders move the price significantly. For a retail trader, buying 1% of float (≈1.3m shares) could cost ~KSh 30m, potentially moving the price a few percent. Exiting quickly can be hard.

• Volatility & Price Patterns: The stock is not very price-volatile in percentage terms (likely due to illiquidity). Over the last year it’s up ~50%, but that came mostly in bursts (e.g. share price jump after FY results). Dividends drive trading: the stock usually rises into the ex-dividend date (mid-November) then dips. Release of results (Oct/Feb) also often triggers swings. With elections looming, expect even choppier moves as foreign retailers may sell risky assets.

• Trading risk: Low liquidity means exit risk: if the market falls (or if one needs to sell in a hurry), getting a fair price isn’t guaranteed. Larger bid-ask and potential for share price jumps (as seen in late 2023-2024 runs) mean one must avoid being “stuck” on an order. A margin of safety could be to scale in/out small tranches and use limit orders.

Implication: For a 1-year horizon, market factors (liquidity, catalysts) may dominate medium-term fundamentals. Even if the business does fine, the stock could lag or overshoot on flows. Investors must be prepared for up to ±15–20% swings unrelated to fundamentals.

6) Catalysts & Risks (Next 12 Months)

• Earnings releases: H2 FY2026 Q3 (Jan ’26) results out ~April 2026; FY2026 full year (Jul ’26) around Oct 2026. Stronger-than-expected margins or volume growth could boost sentiment; any miss would hurt. Interim results (Feb) gave good top-line (4% YoY) but slightly lower margin (64%), signalling some cost pressure. Watch how solar and new plants (coming online mid-’26) improve costs.

• Dividends: Ex-dividend usually late Nov, pay mid-Dec. FY2026 final dividend will be decided in Dec ’26 (based on FY26 results). With cash pile, dividend may continue uptrend (FY25: 2.00/sh) if earnings hold. The high dividend yield (~6–9%) itself is a price driver each year.

• Macro costs: A big line-item is power/fuel costs. FY2025 saw low fuel prices mostly, but Q4 spiked. If global energy costs rise (e.g. oil/gas), or if the Shilling weakens (making diesel more expensive), margins could compress before solar savings kick in. Conversely, stable/low costs are a tailwind.

• Interest Rates & FX: Declining rates have already begun to reduce bond/deposit yields (Jan ’26 note: “Interest rates have continued to decline… impacting earnings of bonds/deposits”). If Central Bank cuts further, interest income will fall (bearish). A stronger Kenyan shilling (as in 2025) made USD sales less in KSh terms; continued Shilling strength could cap revenue growth.

• Electoral cycle: Kenya’s next general election is Aug 2027. Typically, foreign investors become risk-averse ~6-12 months before, pulling some capital out and flattening stock gains. Our 1-year horizon ends pre-election, so we may see early “de-risking” (like late-2026 caution). On the flip side, an incumbent-friendly outcome could spur local investing. Polls and political stability should be watched.

• Industry factors: New entrants or expansions by competitors in CO₂ supply (e.g. Ash returns to exports) could limit pricing power. On the plus side, regional market expansion (e.g. Uganda, Ethiopia) is a possible catalyst. Also watch: commodity prices (especially soda ash) and food/bev industry demand in Africa.

• Regulatory/announcements: Carbacid occasionally announces index inclusions (e.g. MSCI Frontier small cap in 2025) or board changes. No known M&A is pending. However, speculation about acquisitions (e.g. bids for other gas companies) could spur rallies.

7) Governance & Shareholder Alignment

• Ownership: ~49.9% is held by founder-investor Baloobhai (Ganesh) Patel via Aksaya Holdings. He has steadily increased his stake, signaling commitment. Aksaya’s moves (including transferring shares) are succession planning, not a lack of faith. The large single shareholder can be both positive (aligned long-term, likely to maintain dividends) and negative (less free float, potential large block trades).

• Board & management: Local Kenyan management, with a professional board including outside directors. No red flags found (no related-party deals reported, no regulatory issues). Capital allocation has been conservative: they retain enough to fund growth (new plants, solar) while paying ~50% of PAT as dividend. That yield is high, suggesting shareholder-friendly policy. The recent modest increase in admin expense (H1 +15%) was justified by customer retention efforts, not obvious waste.

• Corporate governance: No alerts on CMA or NSE sites. The company has maintained an unbroken dividend record since at least 1989, which speaks to shareholder respect. Accounting policies appear standard IFRS. The revaluation reserve flip in FY2025 (net deficit) shows conservative accounting (no hidden surpluses).

Potential concerns: The dominance of one shareholder means minority liquidity is low. If Aksaya ever offloads (unlikely short-term) or if conflicting interests emerge (Patel has stakes in multiple firms), that could be an issue. Also, management’s strategy to expand regionally carries execution risk, though no evidence so far of missteps. Overall, governance appears solid for a closely-held firm.

8) Investment Thesis & Key Risks

Bull Case (why buy): Carbacid is an established leader in Kenyan CO₂ gas with growing export markets. Recent capacity and solar investments have materially cut costs, lifting margins to mid-60%. The company has net cash and investments worth >50% of its market cap, which both cushions downside and generates ~10% dividend yield. If East African food/beverage demand grows and management continues to deploy cash smartly, the 3.94EPS could rise ~10–15%, allowing the market to rerate above 8–10x P/E (~32–40/sh). For a patient investor, the stock’s cheap valuation and cash backing make dips attractive (especially sub-25).

Bear Case (why sell or avoid): Conversely, Carbacid’s outsized reliance on external markets and energy inputs makes it vulnerable to economic swings. Competition or saturation in Southern Africa, or a slowdown in food/bev sectors, would dent volume. The Shilling’s strength (2025) and falling bond yields already hint at revenue and interest income headwinds. Critically, the stock’s severe illiquidity means even good news might not drive price up quickly, while bad news (or broad market selloff ahead of elections) could cause steep falls. A fixed-income focus is weak: if inflation rises unexpectedly, Kenya’s macro could hurt all equities. If one of these scenarios plays out – e.g. SunPower’s new plant has technical issues, or global bond yields plummet further – the earnings could underperform our base case.

Thesis-breaker: The single biggest risk is liquidity and exogenous shocks. If Kenyan markets turn really down (especially small-caps), one might not exit at anywhere near intrinsic value. Also, if management abandons dividends to fund new ventures that fail, or if a key market (say Zimbabwe) imposes new restrictions, the trade fails. The investment only works if Carbacid earns ~KSh4/sh and the market re-rates modestly.

Entry/Exit ranges: A conservative entry range is KSh 22–26 (yield 7–9%, P/E 5–7), providing a cushion if price falls. A tactical entry could even wait for a dip into the low 20’s given the balance sheet strength. The upside exit target might be KSh 34–38, where P/E ~8–9 with higher EPS. If the stock rallies above ~KSh 40 without fundamental change, some profit-taking is advised. Conversely, if the market dips and Carbacid falls below KSh 20, revisit the thesis – unless proven company deterioration, it could rebound or else be avoided.

Holding into election-risk: If markets weaken into late 2026 for political reasons, Carbacid’s yield will cushion it somewhat, so it may still be worth holding through year-end even if price dips. However, new buying should be paused during that period.

9) Summary Tables and Verdict

Scenarios: Bull / Base / Bear

Scenario	Sales Growth	Gross Margin	Other Income	PAT (KShm)	EPS (KSh)	Price Action
Bull	+8–10%	~65%+	+20% (markets+)	~1,200	4.7	P/E expands to 10 (≈47/sh) on upgrade to “growth + yield” stock
Base	+3–5%	~63%	flat	~1,050	4.1	P/E ~8–9 (≈33/sh), dividend yield ~7% keeps support
Bear	0% or -5%	~60%	-20%	~750	2.9	P/E ~6 (≈17–18/sh), sell-off into safe assets/double panic

(All numbers annualized, reflecting outcomes 1 year ahead. Bull case assumes new plant and solar fully boost profits; bear case assumes energy costs spike or markets shrink.)

Valuation Summary

Model	Key Inputs	Valuation (KSh)	Notes
Earnings Multiple	FY26 EPS 4.0; P/E 8 (base), 5–12 range	32	Lower P/E if rates rise or small-cap risk persists; higher if outlook bright.
FCF DCF	FCF ~500→525→550m next 3yr; WACC 11%; g=3%	28–35	Terminal value significant; sensitive to WACC and capex variations.
Sum-of-Parts	Core op EV ~KSh4.0b (≈12/sh); + cash/bonds ~4.0/sh + listed eq. ~2.0/sh	~36	Essentially BV + op value. If bonds mark-to-market or ops revised, shifts.

Key Green Flags

• High margins & ROIC: Gross margins ~65% and strong cash returns on invested capital (new capex boosting future margins).

• Asset-rich balance sheet: Liquid investments (~KSh 2.48b) exceed market cap by a hair, limiting downside.

• Stable shareholder: Founder-backed holding company (49.9% stake) shows long-term alignment.

• Consistent dividends: 22+ years of payouts at ~7–9% yield.

• Diversified revenues: Export growth outside Kenya (now ~20% of sales) reduces single-country risk.

Key Red Flags

• Extreme illiquidity: Tiny float & volume make trading execution risky; likely higher volatility, especially near elections.

• Portfolio gains dependency: ~10% of profit in 2025 was unrealized mark-to-market. A market downturn would lower EPS (and equity reserve) immediately.

• Concentrated ownership: While founder backing is good, it also means a large block trade could crash price if moved.

• Election/macrorisk: Kenya’s 2027 election (15 months away) could trigger capital outflows. Regional political/economic shocks (e.g. trade barriers) could hit.

• Regulatory risk: As an energy user, Carbacid could face new taxes or import/export constraints. (None currently flagged.)

Final Verdict (1-year horizon):

Conditional Buy. Carbacid’s combination of a resilient industrial business and a cash-rich balance sheet is attractive at these levels. The strongest bull arguments are steady earnings growth from food-beverage demand and cost-saving capex (solar), plus a very healthy payout. The strongest bear arguments are exogenous: an election-year liquidity squeeze, commodity/energy headwinds, and the fact that even good news may not move price quickly due to thin trading. The key thesis-breaker would be any sign that core CO₂ demand is waning or that the investment portfolio sustains a large loss (e.g. equity markets crash) – either would break the stock’s support near current levels. Best entry is in the low–mid KSh20’s (earnings yield ~12–15%). We would look to trim around KSh 34–38 if fundamentals remain intact. If markets deteriorate before the 2027 election, we’d still hold through minor dips due to the high dividend buffer, but avoid adding new positions unless price falls substantially. Overall, Carbacid remains worth holding/adding on dips, provided the exit strategy accounts for its liquidity limits.