Stocks to watch: 10th June 2013

Keep an eye on these stocks for movement during the week of 10 June, 2013.

  • Access Financial
  • Paramount Trading
  • Lasco Financial
  • Blue Power
  • AMG Packaging
  • Jamaica Broilers
  • Mayberry
  • Sagicor Life
  • Scotia Group

C&WJ announces $2.99 prepaid rate

Following on the decision of the Office of Utilities Regulation to lower interconnection rates, from $5 to $1.10 effective July 1, Cable & Wireless (C&WJ), today announced a one rate of $2.99 per minute for all pre-paid calls to any domestic and select international numbers, effective midnight tonight.

The standard Talk EZ Prepaid customers will enjoy the $2.99 per minute rate – billed on a per second basis – for local calls as well as the USA, Canada and landlines in the U.K. The Talk EZ plan is the default option for all new LIME customers, existing subscribers may activate the plan by dialling *123*1# from any mobile phone.

Garfield Sinclair, CEO, Cable & Wireless Jamaica and Cayman revealed that the TALK EZ prepaid plan will also extend to calls made to subscribers on its rival competitors’ network, Digicel.

cable-and-wireless-worldwide280x150Coming down from $6.99 per minute – the new cross network rate of $2.99 represents a 60% reduction in the cost to call across networks for its mobile subscribers. Digicel customers currently pay up to $14.20 per minute to call the C&WJ network, the CEO said.

Sinclair further announced an offer for persons wishing to capitalize on the company’s new rate adjustment with an in-store deal that will see customers receiving a free Alcatel 296 handset and a free SIM card with the purchase of $1000 pre-paid mobile call credit. The two-day offer will be available at C&WJ stores island-wide from Friday, June 7 to Saturday, June 8.

C&WJ, which has emerged as the clear mobile value provider, announced a dramatic rate cut in on and off-network calls on June 14 last year, when the Office of Utility Regulation (OUR) issued its Interim Determination to reduce the Mobile Termination Rate from $9 to $5 per minute.

LASCO Manufacturing: one for the radar

LASCO Manufacturing enjoyed a 15 percent increased profit for the year ended March 2013 before taxation from increased revenue of 13% for the year. Profit after taxation was up only 9 percent as the 2012 results benefited from a tax credit which boosted the after tax figure. In the latest quarter, revenues were up just 8 percent, a lower pace than the September and December quarters with growth of 21 percent and 15 percent respectively. But the best is yet to come with the near completion of the factory expansion that will cut cost and result in new products being introduced.

4th Quarter | Pretax profit for the March quarter was up 29 percent to reach $175 million. After tax, the increase was just 8 percent. In the March quarter, gross margin increased from 27 percent in 2012 to 30.7 percent and is up from 27 percent in the December quarter. Administrative expenses rose 6.5 percent year over year, much less than the growth in revenues while selling and promotional expenses remained flat for the year, helping to boost profit.

The improvement shown in a better margin and subdued cost increases has been highlighted by management in a report to shareholders. “The company continues to focus on cost control, cost containment, cost management and increased efficiency,” the statement said.

Lasco_FoodManufactoring150x150Financials | Trade Receivables increased by $180 million from $447 million in 2012 which management states was due to a temporary timing difference of payment with one of their distributors and has subsequently been settled. Inventory also increased $210 million from $279 million in 2012. Equity capital was $1.9 billion at the end of March, enough to facilitate the loan taken on, allowing for appropriate coverage.

Factory expansion  | LASCO Manufacturing embarked on 70 percent factory expansion of the manufacturing operation which is nearing completion at the White Marl location. When completed with new machineries in production, cost is expected to be reduced considerably. The areas that the reduction will be most visible include direct production cost, with less direct labour, material waste and cost relating to the double handling of goods. The capital spend on the expansion at the end of March is $1.7 billion out of a budgeted expenditure of J$2.2b. So far the company has drawn down J$1 billion of a loan facility to help fund the capital expenditure with the rest coming from internally generated funds.

“We are poised for further growth as we experienced higher demand for our products in the local and export markets in the past year,” Management said.

Products | The company manufactures several well-known food items such the soy protein based LASCO food drinks, LaSoy Lactose Free, Oats Porridge Mix. It will also package Full Cream Milk Powder and Skimmed Milk Powder and purchase and co-package a wide range of other food items, consumer, personal care, infant care and household products.

Exports | The company exports its products to 23 countries, including UK, Canada and USA. Export sales now represent 9% of overall sales.

Stock outlook | Lasco has a competitive advantage with a well-known and respected brand and the expansion will reduce the cost of production making the existing products even more competitive. New products are to be added to the existing ones and some products that are being manufactured by others will be produced in house.

The stock price raced to $15 after the company announced a 10 for 1 stock split and it gained added support with the release of the recent results. The growth seen during the year, with more to come, makes this stock one that must be on all investors’ radar.

Carreras grew income

In the just concluded financial year ending March, Carreras grew its income from increased volumes and some price adjustment. Operating profit climbed from $5.175 billion to $5.68 billion. Administrative distribution and marketing expenses rose from $1.745 billion to $2 billion. The company is reporting profits of $6.49 billion up from $2.6 billion in 2012.

The latest results have been impacted by a $5.08 billion inflow from the pension funds representing a portion of the pension fund surplus which was distributed to Carreras. The company reported earnings per share from ongoing business of $6.14 versus $5.35 in 2012. Most of the pension surplus was distributed to shareholders as a special dividend. Carreras also picked up foreign exchange gains of $161 million during the year up from $19 in 2012. This may or may not recur in the current financial year ending 2014 and investors will need to pay attention to that.

Tax refund | Of import, is a refund of $1.7 billion of taxes that was paid over to the government and is to be refunded plus cost of legal fees and interest. The government has made provision of half a billion in this year’s budget to pay interest on the indebtedness. The entire amount is expected to be paid out as dividend when received.

Carreras_tobacco150x150The company’s product is not only mature but seems to be less socially accepted. The company has done most of the cost cutting hence increased profits in the future will come mostly from price adjustments. If the company is allowed to keep the price relatively stable for a while, then the possibility of picking up some volume increases may occur.

At the end of the financial year, the company had cash funds of $3.9 billion, some of which will be paid out as dividend in June. Liquidity is good with current assets exceeding current liabilities $4.76 billion to $3 billion. There are no borrowed funds being used in the operations.

Income stock | The stock is essentially one for dividends with the company paying the equivalent of $5.20 per share for the year. Lower interest rates in the financial sector is likely to drive more investors to this stock for the relatively high yield, but with withholding tax at 15 percent on dividends and an unsure growth path for profits, investors may be taking on added risk to eke out a slightly higher return from the dividends paid by Carreras.

Stock outlook | At this time, the stock is price to almost perfection in earnings with a PE of 10 times the latest earnings. The price of the stock to net book value is the highest in the market at more than 11 times.

Investors in this stock should ensure that their portfolio is appropriately balanced. In other words, investors should ensure the stock does not dominate their portfolio.

FX gains & securities boost Proven

Increased gains from foreign exchange and securities trading helped Proven Investments to report higher profits than in 2012 in its latest release of its audited financial statements to March this year. The investment bank reported 26 percent higher profits than in the previous year.

While interest income grew from US$7.076 million to $7.36 million, net interest income fell to US$2.89 million from US$3.1 in 2012. However, dividend income grew from $900,000 in 2012 to US$1.26 million in the latest year. Net fair value adjustments and realised gains accounted for US$4.51 million versus US$3.31 million in 2012. But foreign exchange trades delivered US$1.57 million, a turnaround from a loss of US$417,000 in 2012.

Us$_Bankroll280X150Bad debt of US$637 million helped to move up other operating expenses from US$1.9 million to US$2.8 million. The earnings work out at US$0.0141 per share versus US$0.0112 in 2012. The stock closed up slightly at US$0.115 at the end of Monday’s trading before these results were released. There seems to be room for further gains in the stock price with the PE ratio of the stock being 7.7 times the latest earnings. Management will have to pull out all the stops and be creative to drive earnings in the immediate future to continue to make the stock attractive to a wide array of investors.

The company reported assets of US$144 million up from $140 million in 2012. Equity capital stood at US$35.8 million at the end of March 2013. The company is reporting that exchange movement reduced the value of the preference shares during the year from US$11.24 million down US$9.922 million.

Going forward, much will depend on the ability of management to extract more gains from foreign currency trade as well as how well they do in investing in other forms of securities. In this regard investors, who may be interested in the stock, would need to focus on the management’s track record as there is less predictability in the potential earnings in trading securities and currencies.

LASCO Distributors lowers profit

Revenue for the year to March increased 11 percent, but profits fell by 8 percent cooling the rapid growth experienced in the previous year for Lasco Distributors. The stock price nevertheless jumped just before the release of the results from $10.50 to $15 in response to an announced stock split.  Profit came in at $507 million without any tax charge, down from $550 in 2012 after a tax charge of $30 million. The result helped to maintain the stock at the level reached before the actual results were published as earnings per share came in at $1.51.

Revenues grew by $795 million to $8,255 billion in a period when official data says the local economy recorded negative growth. Gross profit margin declined quite sharply to 19.9 percent  from 21 percent in the prior year due to a what management states is “a one off adjustment to cost of sales related to import duties, absorption in increased volumes for institutional sales at lower margins, and the impact of the volatility of the exchange rate.”

The management statement continued “during the last financial year there were unavoidable disruptions in the supply chain for key products which impacted on revenue and profit performance. Whilst the company makes efforts to improve efficiencies there were also investments for future growth.

lasco_logo_150x150“Administrative and other expenses increased by 15 percent to $871 million, due to organisational changes in staff resources to strengthen the company’s market presence and preparation for impending new projects.

“The company has had success in its marketing activities as it has seen growth in some core categories and deeper penetration in targeted distribution channels. The widening of appeal and stronger brand presence is the platform for newly launched products and other planned projects with our partners.”

Balance sheet | Inventories increased by $535 million over the corresponding period in 2012, primarily due to inventory carried for important institutions and planned major promotional activities for key products which extend beyond March. Trade and other receivables increased by $315 million due to the increased marketing activity and extended credit arrangements for key institutions. “The trade receivables continue to be managed within industry standards and extended terms for supplies to key accounts is achieved in collaboration with our suppliers. Current liabilities also increased as trade and other payables was $267 million over the corresponding period and this is due to the continued supply agreement with our strategic partners,” the company stated in a release to shareholders.

Equity capital stood at $1.89 billion while current assets amounted to $2.7 billion versus current liabilities of $1.16 billion. The company is virtually debt free with just $46 million in overdraft outstanding on the books at March.

LASCOPharma_logo150x150Looking forward | The company has geared up for improved business. Some of it seems to be government related. Additionally, Lasco Manufacturing expansion is well on its way and when completed and in full production, Lasco Distributors will benefit from increased flow of items to market locally.

The stock may be fully valued, currently at $15 each, bearing in mind the valuation of other junior market companies, but profits should improve going forward thus providing opportunities for further gains in the future.

Legal matter | There is a claim by Pfizer Limited (Pfizer) against Lasco Distributors Limited  and others for damages for breach of a patent relating to a particular product. The action has been tried and judgement entered in favour of the company. The judgement has been appealed by Pfizer. The appeal has been heard in the Supreme Court of Jamaica and the court has reserved its judgement. The matter has been further appealed to the Privy Council and the records of appeal have now been settled and communicated to London. It is anticipated that the matter should come before the Privy Council either by the end of this year or during the first quarter of next year.

The attorneys are of the opinion that the company should be successful on this appeal and anticipate that the amount to be recovered by the company may be approximately $400m. If not, the company will be liable for cost estimated at $25M and for an accounting as to profits made by the company as damages to Pfizer for its loss of profit attributable to the sale of the product from the commencement of the company’s dealing to the date of the interim injunction issued on 29 March 2005.

Proven, FCIB declare dividends

Proven delivers 10% cash return | PROVEN Investments has declared a dividend of US$0.0032 per ordinary share payable on June 26, 2013 to shareholders on record as at June 12, 2013. The stock will trade ex-dividend date is June 10, 2013.

This brings the amount of ordinary share dividends to US97 cents in the last twelve months. The dividend yield is close to 10 percent based on the stock price in early June 2012.

A dividend of US$0.0022 per ordinary share was paid in March this year.  One was paid in December 2012 amounting to US$0.0025 per share in August they paid US$0.0018 per share.

The company will also pay a dividend of $0.10 per preference share payable on June 24, 2013 to shareholders on record as at June 10, 2013. The ex-dividend date is June 6, 2013.

US$&Coins280x150First Caribbean International Bank | Operating throughout the Caribbean region and listed on the Barbados, Trinidad and JSE exchanges, First Caribbean has declared an interim dividend of US$0.015 cents per share payable on June 28, 2013 to shareholders on record as at June 13, 2013. The ex-dividend date is June 11, 2013.

The bank reported net income for the six months ended April, 2013 of US$34 million that is up $4.6 million versus net income of $29.4 million for the same period in the prior year thanks to a sharp reduction in loan loss provisions. Total revenues of $263.3 million were down $5.9 million and continue to be challenged by the struggling economic conditions of the region. Loan loss impairment expenses were down $22.4 million.

Lasco Financial strong profit

The smallest of the three listed Lasco companies, Lasco Financial posted impressive results for the year ended March 2013. Revenues climbed 30 percent to $485 million and profits jumped 60 percent to $164 million. The net results is even more impressive considering that in 2012 there was net addition to profits coming from revaluation of a $90.3 million property which was partially offset by the write off of $$46.28 million for the full purchase costs incurred from the take over of Supreme Venture Financial Services MoneyGram operations, in December 2011.

Quarterly results | In the quarter to March 2013, revenue was $144 million versus $184 million but the latest quarter figures are better than the $132 million generated in the December 2012 quarter. The revaluation gain was booked in the March 2012 quarter thus swelling the revenue figure in the period.

The quarterly profit for March was also down compared to 2012. More importantly, the $52 million earned in the last quarter of the 2013 financial year was just $2.5 million less than that earned in the high-earning December 2012 quarter.

Cost has been kept under control with a slight dip in administrative cost, most of that would relate to the removal of the one-off cost of $46 million reflected above. Selling and promotional cost were up by half to reach $152 million but the growth was much slower than the rise in trading revenues of 73 percent.

LascoCambioServices_logo150x150Business lines | The company is involved primarily in the business of cambio operations, money transfer and lending. It has a ready market for the foreign currencies that it purchases which it can sell to the other companies within the family.

Much of last year’s growth came from the acquisition of the business purchased. Operations have been extended to Barbados but it will take hard work to come close to repeating the 2013 performance.

The capital base is $475 million with total assets of $640 million and enjoys return on equity of a strong 39 percent and a gross profit margin of 34 percent.

The stock | This company seems to be coming into its own and investors have noticed. The stocks has gained 100 percent since December last year, when it traded at $4.90 and closing on Friday at $9.80. The results were released after trading closed on Friday. The other two Lasco companies are trading around 10 times 2013 earnings and if this company does the same it should be trading around $13 this coming week.  The PE is currently 7.5 and the share price to book 2.6 times. The company, which is not subject to taxation on profits for another three years, should report around $1.70 per share for the 2013/14 year.

JMMB posts improved profit

Jamaica Money Market Brokers reported improved 2013 fiscal year results to March with net profits of $3.87 billion, the first time in its history. Not even the $750 million loss incurred in the write-off of investment premiums that the company had to effect in swapping government debt for lower yielding ones could dent the profit for the year.

All the good news did not come about from normal operations. In 2012 the company acquired all the shares of Capital & Credit Group (CCFG) and merged some elements into JMMB‘s other operations. The acquisition price was less than the net asset value of the acquired company resulting in a book gain of $2 billion. Had it not been for these one-off items, profit would have been lower by approximately $1.1 billion. In 2012, the company earned $2.2 billion after tax but those results were boosted by a large one-off gain from a security sale. IC Insider’s assessment is that earnings from ongoing operations, is around $1.65 per share.

Interest earned | For the year ending March, JMMB earned $11.25 billion in interest. In 2012, the comparative amount was $9.17 billion. The company improved the interest margin considerably, from 63 percent to 70 percent, garnering $4.648 billion compared to $3.54 billion in 2012. Net interest and other income amounted to $6.997 billion up from $5.99 billion in the previous year. The 2013 figures have 9 months income from the CCFG acquisition. Unfortunately, operating cost rose faster that the income with expenses climbing $1.4 billion to $4.6 billion. When the one-off gain in income realised in 2012 is taken into consideration, the increase cost does not look that bad against the growth in income.

jmmbGrouplogo150x150Size can matter | Total assets climbed to $167 billion, higher than the amount at the time of the take over. Growth here is important if the group is to keep profits on the rise. Mergers and acquisitions usually result in duplicated cost which is reduced overtime. JMMB should fully integrate CCFG operations during this year and should minimize cost and start to enjoy most of the benefits of the merger. To date, not much is seen in the profit results to suggest that the group has benefited much from the acquisition. The improved interest margin may have been one of the benefits.

The last quarter had revenues of $3.85 billion, a gain of 28 percent over the similar period in 2012 and is up from an increase of 20 percent realised in the December quarter. Pretax profit before exceptional income and charges was up to $735 million compared to $590 million in 2012. In spite of the debt swap charge, a tax credit of $791 million for the quarter resulted in after tax profit climbing to $647 million versus $441 million in 2012. In the March 2012 quarter, there was a tax charge of $144 million.

Capital | In spite of the write-off of the premium on GOJ bonds that were swapped, JMMB still carries $1.7 billion as investment fair value reserves up from just $400 million in 2012. The gains have helped, along with the profit reported for the year, to push the equity capital to $16.7 billion up from $10.8 billion in 2012.

Undervalued | JMMB will be acquiring the shares it does not already own in International Bank in Trinidad, no terms have yet been announced. This acquisition will put management in full control and enable them to optimize business and returns from it. The annual accounts show minority interest of $118 million, so this share of profit plus whatever increase obtains for this year will flow to profit.

JMMB could produce net earnings in the order of $3.2 billion for the year ending in March 2014. The outcome could be positively influenced by trading gains and how active the stock market becomes. An active stock market would result in increase brokerage fees and gains from trading shares for their own account as well as increase in the size of the unit trust portfolio that would also result in increased fee income.

Stock outlook | The shares that were languishing at $8 jumped on the release of the results to $9 on heavy volume. The shares which are listed in Trinidad are also in demand on that stock exchange. The PE is around 6 times 2013 earnings from ongoing business and is selling below net book value as well.

Scotia Investments one time dent

The Government of Jamaica debt exchange cost shareholders $238 million as Scotia Investments participation resulted in the write-off of premium that was originally booked on the bonds that were swapped. The effect after tax would translate to a third less. Net profit for the half year to April was $858 million, down $176 million or 17 percent from the same period last year. Earnings per share was $2.03 compared to $2.45 for the same six month period last year.

Profit for the quarter was $371 million, down $115 million or 24 percent below the $487 million earned in the previous quarter and also below the $536 million earned in 2012. Had it not been for the debt exchange, profits in the quarter would have close to that earned in the similar quarter of 2012.

Net Interest | After impairment losses Net Interest for the six months was $1.39 billion, remaining relatively flat over the same period last year and for the quarter it was $625 million, $137 million or 18 percent below the results of the previous quarter as well as below the 2012 quarter of $706 million. Interest earnings continue to be impacted by lower yields on the securities portfolio and would have suffered from lower yields on government bonds based on the debt swap.  Gains on foreign currency trading and the impact of the movement of the Jamaican dollar on holding of foreign exchange denominated investments would have helped to cushion some of the effects of the lower interest yields.

scotiabanklogo150x150Non-Interest Income | Non-interest income, which includes fee income, securities trading gains and net foreign exchange trading income, was $669 million for the period, down $8 million or 1 percent compared to the same period last year; and $324 million for the quarter, down $21 million or 6 percent over the $345 million recorded last quarter.

Total operating expenses for the quarter was $417 million, 3  percent below the previous quarter. Year-to-date operating expenses was $845 million, representing an increase of 29 percent or $188 million over same period last year. This variance was mainly reflected in staff related costs and other operating expenses associated with the newly imposed asset tax.

Managed Funds | The investment bank is reporting that the Scotia Premium Money Market Fund surpassed the $3 billion mark in just over 18 months since its launch; and the Caribbean Income Fund surpassed the US$75 million mark. The company is placing more emphasis on pooled investment funds so as to move away form the repos investment where the company takes the risk on the underlying investments while granting investors fixed rates of return for a specified period.

As these funds grow either from new investments inflows in or by improvement in values as a result of income or growth in the underlying assets in the funds, management fees earned will increase going forward. This is where the company is planning much of its growth.

PreferenceStock150x150As interest rates stay low, investors will be looking at ways of boosting their income and in some cases with flexibility. The low rates favour increased stock market activities, increased values for stocks and more fees for Scotia Investments as their brokerage arm enjoy more trading income from trading stocks for clients as well as for the equity fund they manage.

Assets under management including the Company’s custody book were $109.5 billion as at the end of the quarter, up $10.8 billion or 11 percent above the same period last year and $2.7 billion or 2.5 percent over the previous quarter. The growth was driven by increased net asset values in managed funds. The company would most likely be holding stocks in its portfolio that would benefit from a stock market rally.

Stock Outlook | The price earnings ratio for the stock is around 6 at $27, the last selling price and a net asset value of $34, placing the stock in the undervalued category.