Barita, Lasco Financial get thumbs up

Monday, 5th August 2013 | Two weeks into the earnings season and quarterly reports continue to flow in. How will the markets respond? Our ‘Stocks to Watch’ list gives clues for some of the market action expected this week.

Buy Rated Stock | New to our Buy Rated list are Barita Investments and Lasco Financial, which brings the number to 5 companies that have received a ‘two thumbs-up’ based on our review of their 2nd quarter results.

Other companies that reported results and solidified their position on our Buy Rated list are Access Financial and Lasco Manufacturing.

Better than a broker’s ‘buy’ recommendation, IC Insider has no vested interest in any stock transaction or conflict of interest. Our research is backed by published reports of the company’s performance and insights of future earnings that can be found at ICInsider.com. The final decision to buy, or not, is your personal choice.

Related posts | LASCO Financial small but tallawah | Access growth continues | LASCO Manufacturing profits in the future 

To find published reports for a Buy Rated stock on IC Insider, please use category Buy Rated’ under Company News or enter the company name, in full or part at ‘Search IC Insider’.

StockswatchAug5 Image courtesy of ImageryMajestic/FreeDigitalPhotos.net

Cement profit surge – not so fast

Caribbean Cement Company is reporting a major change in fortunes in the latest quarter ending June from a loss of $497 million in the first quarter to a profit of $359 million in the June quarter. For the six months to June, the Group is reporting loss of $137 million, compared to a loss of $1,204 million in the corresponding period of 2012.

The loss of $137 million is after charging $701 million of non-cash foreign exchange losses compared to $136 million of foreign exchange losses for 2012. In the June quarter, Forex loss is $252 million but interest cost fell by $62 million and is down $60 million for the year to June. The bright light is not all that it appears to be at first sight as the results benefited from the write back of $591 million of withholding taxes on interest that was due to the parent company which have been reversed. The write back results from the restructuring of the parent company debt into preference shares.

Management states that, “We note that even before the write back of the withholding taxes, operating profit for the second quarter had improved over the prior quarter from $98 million to $153 million. This improvement is principally as a result of increased revenue from the 3% price adjustment in the domestic market in April and a doubling of export sales volumes in the second quarter, due primarily to our entry into the very vibrant Panama market.”

cementpour150x150The numbers are saying that excluding extraordinary charges or income and assuming business is maintained at least at the current levels then a small profit should be eked out quarterly.  The preference shares which are redeemable are effectively participating shares and are entitled to receive the same amount of dividend per share as the ordinary shares. There will only be a total of 115 million preference shares to 851 million ordinary shares.

Sales | Revenues for the quarter is up to $3 billion from $2.4 billion last year and $2.68 billion in the 2013 first quarter. Local sales in tonnes was the same as the first quarter but exports grew to 68,000 versus 33,000 in the first quarter. Local tonnage is up year to date by 20,000 tonnes but exports are below last year six months by 34,000 tonnes. Last year the local company exported cement to Trinidad as the plant there was under strike.

The restructuring of US$75 million of debt due to Trinidad Cement, contributed shareholder’s equity moving from negative $2.939 billion at the beginning of 2013 to positive $4,501 million at the end of June. The restructuring of the debt was completed with the conversion of US$37 million to preference shares, in accordance with the approval given by the shareholders at the Annual General Meeting, and with TCL making a capital contribution of US$38 million to defray the balance.

Caribbean Cement’s management stated that “they experienced operational gains through significant improvements in our plant efficiency, in particular specific energy consumption, following expenditure of approximately US$5 million in capital maintenance and upgrade works earlier in the year. As a result of the improved performance, we have been able to meet our debt obligations over the last six months. With the restructuring of the intra-group debt, the threat of foreign exchange translation losses has been significantly mitigated. We expect to maintain the improvement in export sales and grow these even further as we enter new markets in South America. While we do not foresee any meaningful growth in the domestic market, with careful cost management and the expected growth in export earnings, we expect to maintain these favourable results over the rest of this year”.

The June results is pointing to earnings per ordinary share of around 40 cents for a twelve month period. With these results, the stock which has risen from a low this year of 60 cents to a $1 recently, could enjoy further gains in the period ahead.

Related posts | Carib Cement profit mired in concrete

Grace’s profit up 41% in June quarter

Thanks to good pick up in other income and increased segment profit from the food division, GraceKennedy’s profit before tax was pushed up by 53 percent to $1.19 billion and 41 percent after tax of $703 million in the second quarter of the year to June.

In the first quarter, profit after tax was up by just 4 percent and 13.5 percent before tax but the results were negatively affected by the cost associated with the government debt swap. For the year to June, after-tax profit increased by 21 percent over 2012 to $1.39 billion with revenues being up 8 percent to $33.9 billion. The second quarter revenues were up 12 percent to $17.2 billion versus the 4 percent in the first quarter.

In the first quarter, the retail and money transfer divisions did well in growing profits. Banking and investment recorded a loss of more than $200 million while the huge food division only eked out a very small increase over 2012 figures. In the second quarter things looked better all-round except for Insurance which recorded a loss of $100 million compared to a break even position in the first quarter. In the second quarter, the food division contributed $170 million of the increased profit as sales climbed by $1.33 billion compared $470 million in the first quarter. Retailing with just $144 million more sales contributed $74 million more to profits. Banking and investments’ contribution in the second quarter was $229 million, while money transfer contributed $55 million to the increase in profits for the quarter.

In 2012, the first quarter was the highest for revenues than any other quarter, while the profit in the second quarter of 2012 was the lowest. The big jump in profit in the latest quarter is unlikely to repeat at that level for the remaining of the year but earnings seem set to reach between $9.50 and $10 per share for 2013.

GraceRev&ProfitSummary

Grace is a dominant player within the Jamaican market in its traditional business of food and trading and its focus on overseas markets for expansion and growth is obvious. Any meaningful growth in these two areas in the local market would have to come from growth in the economy, which is not likely to happen for a few years due to fiscal deficit reduction. Grace’s deeper involvement in investing in overseas markets with a physical presence could provide the needed market intelligence to grow by acquisitions and thus speed up the growth rate as well as providing a solid platform for the company to introduce some of its existing products to a wider populace.

Increased lending by banks, or the pace of it, gives a good indication about likely growth in profits. As such the 17 percent annual growth of lending by the group’s commercial bank, First Global, is a good indication that there should be pretty healthy growth in profits going forward, subject to strong control on non-performing loans. Banking, of course, is only one area of the group’s business.

Grace is financially solidly based with equity of $33 billion and total assets of $107 billion at the end of June.

The shares are trading at around 6 times this year’s earnings and sells for just under 60 percent of book value and approximately 30 percent of sales, making it historically cheap but relatively adequately priced. This should be a good medium to long term buy — don’t expect an explosive movement in the stock price unless the entire market were to do the same.

Related posts | Dividends: Carreras cuts, Grace ups | Grace looking up

Access growth continues

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Access Financial Services is reporting another successful quarter but at a slower pace of 22 percent for the June quarter than for the first quarter. For the six months to June, earnings are up a still strong 34 percent to $119.59 million and $89.38 million in the same period last year. First quarter earnings increased 47 percent to $61.5 million from revenues of $173 up $19 million over 2012 first quarter. For the June quarter earnings came in at $58 million from revenues of $197.6 million versus $47.5 million in June 2012 based on revenues of $166.8 million.

Revenues for the year which was up by 13 percent in the first quarter is up 18 percent in the second quarter over 2012 and up 16 percent year to date. In the June quarter, revenues grew by $20 million over that of the March quarter but expense increased by $23 million led by a $11.5 million increase in provision for bad loans which resulted in slightly lower profit for the quarter versus the first quarter.

The results are coming off of a successful 2012 when it clocked up earnings of $238 million from an increase of 47 percent from revenues of $661 million.

The company’s growth is emanating from very strong growth in loans which increased from $643 million in March 2012 to $758 million at the end of March this year and to $776 million at the end of June. The last quarter is the period of greatest demand for loans and therefore the most profitable period.

Access is primarily involved in payroll lending at high interest rates amounting to about 60 percent per annum but they have been moving to more rapidly expand their offering to the small business sector. Investor’s Choice projects $1.37 per share earnings for 2013 and recommends the stock as a good buy.

The company has increased profits in each year and the stock has grown from $18.30 to the equivalent of $90 each (the stock was split into 10 units for each 1 owned and now trades at $9 each). Investors would have received a dividend in each year since the listing amounting to 65 cents based on last year’s earnings, 45 cents for 2011 earnings and 31 cents per share based on 2010 earnings — not bad for those who backed the issue.

Insider Call | Access Financial Services is a IC Insider Buy Rated stock.

Related Posts | Access Financial defying IPO critics | 20/20 Hindsight: Access Financial IPO

LASCO Financial small but tallawah

LASCO Financial may be the smallest of the three listed Lasco companies but its performance has been tops for the past 2 years with growth in profits far out pacing its two bigger affiliates. The company which recorded strong growth in profit in the last fiscal year to March has continued that trend with profit of $39 million compared to $26 million for the first quarter, a strong 50 percent increase.

For the full year ending March this year, the company reported profit of $163.9 million compared to $102.4 million, a 60 percent increase. The strong increase in profit, helped propel the stock price up by more than a 200 percent increase from the end of December last year and 275 percent from the June 2012 when the price was of $4.25. The stock now trades at 42.5 cents based on a recent 10 for 1 stock split.

Profits grew 60 percent for the year to March this year, in 2012 it grew by 244 percent, helped by revaluation surplus on investment property that was booked and in the prior year growth was 187 percent. As the company grows in size, the growth rate has slowed but indications are that this should continue into the current fiscal year and the first quarter numbers support this so far.

According to management, the latest results emanated from trading income which is up by 47 percent to $144 million as a result of a 100 percent increase in the Cambio Division and a 28 percent increase in the Remittance Division.

Management also indicated that, “Lasco Financial has commenced significant investments in marketing activities, which are expected to capture even more substantial market share for our remittance division; the outcome of which will also yield growth opportunities in the Currency Trading division. This is noticeable in our selling and promotion expenses which saw a 58 percent increase, up from $36.3 million in the previous period to $57.6 million. Administrative and other expenses rose in the quarter to $47.6 million, up 33.7 percent over the same period of 2012.”

The company’s subsidiary Lasco Financial Services (Barbados) Limited and its agent Unicomer Barbados Limited (Courts) began trading in May 2013. Transaction growth has been satisfactory to date and LASCO Financial Services will continue to expand in the Caribbean region.

Growth | Total assets amounted to just $47 million in 2010 but has enjoyed rapid growth and is at $690 million at the end of June this year — still a small financial company in the local market with lots of room to grow. Loans advanced was nil at the end of 2011 and is now close to $100 million at the end of March this year. Loans and receivables rose to $334.5 million up from $237 million at the end of June last year. Cash also increased from $135.5 million to $221.7 million over the same period. Equity stood at $514 million. Based on the recent growth levels and investments in marketing to expand revenues IC Insider is forecasting earnings between 22-25 cents per share for the current year.

Insider call | LASCO Financial Services is an IC Insider Buy Rated stock.

Related posts | All 3 Lasco companies approve splits | Lasco Financial strong profit

Holding company for Sagicor Life

Sagicor Life Jamaica (SLJ) has advised that at meeting held on July 25, 2013, the decision was taken to reorganize the corporate structure of the Sagicor Life Jamaica Group.

The reorganization will involve the establishment of a new holding company which will be listed on the main market of the Jamaica Stock Exchange and which will become the direct holding company of Sagicor Life Jamaica Limited, (the Group’s insurance division), Sagicor Investments Jamaica Limited, (the Group’s investment banking division) and Sagicor Bank Jamaica Limited, (the Group’s commercial banking division).

All current shareholders of SLJ will exchange shares in SLJ for shares of equal value in the new Holding Company. That means the value of the new shares to be issued in Sagicor Group will be identical in value to the shares previously held in SLJ.

The reorganization will align the group’s organizational structure with the requirements of new omnibus legislation for deposit taking institutions which soon to be promulgated by Parliament.

The day-to-day operations of Sagicor Life Jamaica Limited, Sagicor Investments Jamaica Limited and Sagicor Bank Jamaica Limited will not be affected by the reorganization.

Guardian maintains strong rating

A release from Guardian Group:

GUARDIAN_GROUP_Maintains_BEST_RATING_

Insider call | Guardian Holdings is an IC Insider Buy Rated stock and is traded on the Trinidad & Tobago Stock Exchange

Related posts | Guardian ongoing profits up 29%

LASCO Manufacturing profits in the future

In the aftermath of the first quarter results to June, investor’s would be forgiven if they were disappointed in the results of what many see as the flag ship of the three Lasco companies listed on the junior market. Revenues grew “oh so slightly” to $842.7 million from $835.4M in 2012. However, the company was able to maintain and control its costs of sales, thus achieving gross profit of $250.3 million slightly  above that of the first quarter of 2012. Profit was not as fortunate as it slipped to $138.751 million from $153.54 million in 2012. The stock which was trading at $1.80 pulled back on the release of the results and closed at $1.45 on Wednesday.

Operating expenses | The first quarter operating expenses increased due to an under-accrual for a promotional expense during the last quarter of 2012-2013, which was brought to account in the current quarter. In addition, the company had to honour a retroactive duty charged by customs on the disposal of damaged raw material, which consequently impacted on the profitability for the period. But investors should be looking well beyond the latest results and focus instead on the major expansion that is currently under way. Once completed, the increased sales from new products will not only boost sales but profits and ultimately the stock price.

Not to be underestimated is the impact that the factory expansion is having on costs and the diversion of cash to fund the factory expansion that would otherwise have been available for investments.

Exports | LASCO Manufacturing exports 10% of sales as finished products to the United States, Canada, England, Panama and the Caribbean. The company is currently exploring West Africa, and Ghana in particular, as a new market. Exports are planned to move to 25% within a short time period. That will take some doing as local sales is also expected to grow. Current export sales would be need to increase by one and a half times to meet this target.

The chairman, Lascelles Chin, told the attendees at a press conference on Monday that “the development of a new product range has become an important facet in our strategic plan and every effort is being made by the team to ensure the margins required are obtained.

lasco_logo_150x150The chairman also disclosed that the factory expansion will cost just under US$30 million, this well be over the original planned figure of US$10-15 million. The factory is expected to be operational by September, at which time the company expects to roll out new products that will be priced very aggressively to compete with others in the market place. According to Chin, “The results of the manufacturing expansion currently underway at the White Marl location will undoubtedly unlock potential in the company for our consumers, shareholders and other stakeholders”. He indicated that this will be the largest factory in Jamaica at 340,000 square feet and will produce many new products to add to the current range.

The expansion is not only about new products. A significant factor will be the reduction of current costs and the ease of production. The new factory and machinery will result in waste reduction and eliminate the doubling-handling of goods.

The chairman reiterated, “With the expansion project near completion within the next two months, we expect that LASCO Manufacturing’s financial performance will improve significantly. Over the next year – many new products will be pivotal to the company’s growth and we look forward to being able to make further positive announcements about new products to you in the near future.”

Balance Sheet | Trade payables increased from $258.8 million at the end of 2012-2013 financial year to $333.8 million in June 2013 due to increased purchases of raw materials, which is typical for the period in anticipation of the summer, back to school and hurricane season. This was affected also by the exchange rate fluctuations during the first 3 months of the financial year. The receivable surge was due to extended credit terms offered to a major distributor. The company borrowed $1 billion to help fund the expansion of the factory with about $1 billion being internally generated funds. The loan represents just under 2 years of cash flow at present revenues.

Insider call | LASCO Manufacturing is a IC Insider Buy Rated stock.

Related posts | All 3 Lasco companies approve splits | LASCO Manufacturing: one for the radar

Higher cost flattens Paramount’s profit

Direct expenses rose 7.55 percent for the year to May but sales only increased 4.7 percent to reach $642 million highlighted by a 14 percent increase in administrative, sales and distribution cost. Staff cost rose by 18 percent to $50.5 million, plus an $11 million devaluation loss only made matters worse.

In the end, while Paramount Trading showed an improvement in net profit for the year, it was a reduction in tax payable of $10 million versus $30.75 million in 2012 and gains from acquisition of a subsidiary amounting to $21 million that helped pushed profits for the year above that of 2012, as pre-tax profit hit $83.5 million and after tax $73.3 million compared to pre-tax profit of $84 million in 2012 and $53.4 million after tax.

Problems | Concerns arise about amount due from debtors which rose sharply even as revenues have not. While amounts due up to 60 days accounts for the bulk of the increase or $28 million, amounts more than 90 days is up at $15 million, up from $5.5 million in 2012. Amounts owing for 31 to 60 days is up to $37.7 million, an increase of $11 million. Provision against the debts amount to only $6 million. The company seems exposed to potential doubtful debt problems with what appears to be a tighter economy. The increase is also robbing the company of cash that could be used to pay down expensive borrowings.

Paramount_silka180x180While sales grew by less than 5 percent, segment results show an interesting picture with chemicals sales growing 9 percent but gross profit declining from 32 percent to 29 percent. Construction and adhesives sales fell by 22 percent but the margin increased from 36 percent to 52 percent and the manufacturing margin improved from 38 percent to 43 percent as sales fell by 19 percent. Overall margins increased from 41 percent in the first nine months of the year to the 44 percent by the end of the financial year 2013, but it’s down from 48 percent for 2012. The margin for February was just 36.6 percent, which helped to drag down the margin for the year. Margin for the final quarter results was restored to 48 percent.

Forecast | Earnings per share for 2013 amounted to 54 cents for the year based on the average number of shares in issue for the year. In December last year the public purchased 30.85 million shares bringing the total to 154.247 million units.

IC Insider’s forecast for the current year is for earnings per share of 74 cents and 88 cents for 2015 fiscal year. The forecast is based on a restoration of profit margin, removal of taxation on profits and reduction in interest cost as loans are reduced.

Balance sheet | Receivables have climbed to $146 million from $99 million in 2012, inventories fell to $172.5 million from $186 million. Receivables represent nearly 3 months of sales and inventories and 5 months of cost of sales, both these items appear to be out of line and is costly. Cash helped by the proceeds from the public share issue is up to $60 million after repaying $39 million of loans. Current assets exceeds current liabilities by more than 2.6 to 1 and borrowings have decrease to $71 million from $110 million. Equity climbed to $273 million helped by the inflow of new capital last year and profit for the year to May.

Stock Outlook | The stock which last traded at $3.30 is recommended as a cautious buy at this stage.

Carreras takes a big hit but tax recovery starts

The only good news from Carreras‘ first quarter results is buried in the notes to the end of the quarterly report. Namely, the Tax Authority has made arrangements with the company to offset current tax liabilities against the amount owing and that they have so far recovered $338 million during the latest quarter.

Elsewhere, revenues plummeted from $3.1 billion in June 2012 quarter to just $2.155 billion, a sharp 30 percent drop that is not all coming from the recently announced smoking ban. Profit after tax fared even worse than the fall in revenues dipping by 40 percent. That is not good news for the stock which has been declining ever since the ban on public smoking was announced.

An interesting development is that gross margin improved to 100 percent from 90 in the 2012 similar quarter and 86.5 percent for all of the 2013 fiscal year. The price increase earlier this year has clearly had a negative impact with the company’s customers, which seems to have taken a big bite out of sales. A look at sales in 2012 showed a big jump in the last half of the year coming into the March 2013 quarter, suggesting that distributors were stocking up on the product in anticipation of price increase and stopped stock piling once the price adjustment was implemented. As such, the fall off in sales may not be as bad as it appears on the surface.

Carreras_tobacco150x150Expenses rise | While revenues plummeted, expenses did not. In fact sales & marketing went up by a third to $207 million from $152 million and administrative expenses from $278 million to $320 million, a 15 percent jump.

Tax Recovered | The tax now recoverable is down to $1.4 billion from $1.733 billion at the end of March. If the tax authority allows a full recovery, then the full amount of the current liability could be recovered this fiscal year and most likely be distributed as dividends to shareholders.

Carreras ended up with cash funds of $3 billion at the end of June, equity is at $3 billion or $6.30 per share. Current liabilities are at $2.6 billion which includes tax payable of $1.5 billion against current assets of $4.1 billion.

These are clearly times of uncertainty for the stock with the fall in revenues and the smoking ban that no one really knows what impact the ban will have over the next few months. With the stock not having a great deal of bids in the market currently, it’s anyone guess where the price will settle in the short term.

Carreras cut the latest dividend from $1.50 paid last year August, to $1 to be paid in August this year, an amount that is in line with the latest quarterly profit.

Related Posts | Dividends: Carreras cuts, Grace ups | JSE: Ban hitting investors harder than smokers  |  Carreras grew income