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

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.

The 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