Economy pressuring Berger

Berger Paints is reporting slightly higher profits for the year to March 2013. As it usually is the case, the final quarter profits are the lowest and in recent years the company makes a loss in the quarter. The loss made in the final quarter of the fiscal year was down on the same period in 2012, while profit before tax was actually up 8 percent at $14.9 million compared to $16.3 million, due purely to a cut in finance cost from $1.574 million to just $27,000 for the quarter. Revenues in the quarter fell 4 percent to $320 million. In 2012 revenues for the same quarter was $332 million. Uncertainty within the economy as Jamaicans awaited the outcome of the negotiation between the government and the IMF could have been a factor in the lower sales.

Revenues for the year climbed to $1.6 billion. However, the increase of 4.38 percent was not enough to offset cost. Profit before tax was down by $2.3 million as a result of the poor top line performance, while a lower tax bill resulted in profit after tax being up, but just about, with the company reporting $34.08 million versus $33.32 in 2012. The improvement was aided by a lower tax payment down from $16 million to $13 million and a boost by $9.8 million coming from a reduction in inventory obsolescence provision.

Stock outlook | Berger’s fortunes have declined considerably in the last 3 years. In the March 2011 financial year, revenues were $1.5 billion with profits of $67.8 million and it will take some doing to get sales up and get back to those profit levels. The price earnings ratio (PE) of the stock is high at 14 times earnings, even as return on equity, is paltry at 7 percent. The company would need to put in a very robust performance for the stock price to rally in light of the high valuation.

The financial position of the company is healthy, with working capital being more than twice current assets to current liabilities. The company recently announced a 13 cents dividend that is payable in July 9^th this year.