Caribbean Flavour(ing) future profits

CFF fact 2014“With the price of the stock, trading at $2.55 for a PE of just over 3 and 2.3 based on IC Insider’s forecast, (is) indicative of much upside potential,” was how Caribbean Flavours was assessed back in August this year, as the stock was elevated to the BUY RATED ranking after the company released its full year results to June.
In the June posting, IC Insider stated, “The company seems poised to hit earnings of 65 cents per share, for the June 2015 financial year, making it attractive for some short-term gains, with the current price of $2.09, at a PE ratio of 3 times earnings.”
Focusing on the end results of Caribbean Flavours & Fragrances for the year to June 2015 with increased profit of 22 percent over 2014 would lead one to look elsewhere, but that would be a big error. For while the nine months to March showed profit down marginally to $39 million from $40 million, profit for the March quarter was up 20 percent over March 2014 quarter, the June quarter increased by 143 percent to $18.77 million from just $7.6 million for June 2014.
The company followed up the improved results for the March and June quarters, with another quarter of strong performance to September, with a 51.3 percent increase in net profit to $20.36 million over the $13.46 million recorded for the similar period in 2014. The improved profit flowed from sales for the quarter jumping 38.20 percent to $87.46 million, compared to the $63.29 million recorded for the same period in 2014.

Caribbean Flavours' produce with ingredients - the stock closed at a new high.

Caribbean Flavours’ produce with ingredients – the stock closed at a new high.

“The improvement to our revenue was primarily driven by increase in the sale of flavours in the domestic market as well as the sale of products to new customers. In addition, there has been a 6 percent year over year increase in the sale of fragrances for the quarter thereby contributing positively to both the revenue and our profitability,” the directors stated in their report to shareholders.
“The gross profit showed an increase of 28.91 percent moving from $25.487 million to $32.856 million as per our first quarter’s performance. The Company will continue to refine and improve our purchasing strategy in order to extract the necessary efficiencies and improve our cost of sales and gross profit.
The company continues to manage its administrative and general expenses within budget and compared to the 2014 quarter, there was only a 4.4 percent increase,” the report went on to state.
The future looks much brighter than the past year, for the company that manufactures and distributes flavours mainly for the beverage, baking and confectionery industries and also sells food colouring and fragrances. In responding to questions posed at the annual general meeting held on Wednesday 25 of November, directors indicated that the strong performance enjoyed in the September quarter continues into the December quarter.
“We have hardly scratched the surface of the potential market” Derrick Cotterell indicated, “we have moved into the Dominican Republic and Canada where there is much potential for growth and with renewed efforts and products the locally Jamaican market as well”. Cotterell stated that they have increased research into new products such as fragrances and this has opened up new opportunities for them. Trinidad, Cuba and Haiti are countries with potential for growth, they indicated but Haiti is said to be a difficult market to break into but they have contacts there that should make it possible. In addition to the focus on research and developments for new products and new customers the company said they were able to source some of its raw material more cheaply than before.
According to the company’s board, in their comments on the 2015 annual results “the economic environment has allowed the company to grow its revenues and profits by securing new markets for fragrances and increasing the volume of sales of flavours to existing and new customers in foreign markets. Based on the outlook for the coming year, it is expected that the company will continue to improve its profits whilst increasing its market share in the domestic and overseas markets”.
IC Insider projects profits for 2016 at $99 million or $1.10 per share with increased sales and improving profit margins and $1.50 for the 2017 fiscal year. Company is free of interest bearing debt and has net current assets of $221 million including cashfunds of $103 million.

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