Is Lumber Depot a buy?

After posting outlandish first quarter results that were boosted by inventory profit, Lumber Depot reported more down to earth profit in the second quarter of 5 cents per share, raising the half years earnings to 15 cents from profits in the October quarter of $35 million, down marginally from $36 million in 2020, with half year profit climbing 62 percent to $107 million from $66 million in 2020.

Lumber Depot dominated trading with

First quarter revenues grew an attractive 16 percent, but the second quarter revenues were flat, at $340 million bringing the half year sales to $760 million up 8.6 percent from $700 million for the similar period in 2020. “Revenues and profits for the three months ended October 2021, were directly affected by the lock-down period effected during the late summer that resulted in 17 lost sales days during the quarter and unprecedented disruptions to the construction planning and work cycle as well as to the supply chain for construction inputs. Against this backdrop, we are satisfied to have been able to maintain both revenues and profits for the second quarter at that same level as the prior year,” chairman, Jeffrey Hall advised shareholders in his report accompanying the quarterly.
Gross profit margin rose to 23 percent in the half year from 19.6 percent, while the 2021 second quarter saw gross profit falling to 18 percent versus 21 percent in 2020. Gross profit rose 28 percent from $137 million in the half year in 2020 to $176 million, while the 2021 October quarter saw gross profit just ahead of 2020, with $72 million versus $71 million.
Other income brought in $11 million for the half year compared to $5 million in 2020 and $9.5 million for the quarter versus $1.4 million being interest income in the 2020 quarter.
Administrative and other expenses slipped marginally in the half year to $73 million from $76 million last year and rose moderately from $39 million to $43 million for the quarter. Finance cost amounted to $5 million for the half year against $4.44 million in 2020 and the last quarter $2.2 million with the 2020 period amassing $1.9 million.

An unprecedential construction boom taking place in Jamaica

Gross cash flow brought in $112 million but growth in working capital, additions to fixed assets costing $164 million, resulted in negative funds flow of $28 million for the half year. At the end of October, shareholders’ equity stood at $402 million. No borrowed funds were used to finance the operation at the end of the period. Current assets ended the period at $329 billion including trade and other receivables of $51 million, cash and bank balances of $115 million. Invested funds amount to $119 million. Current liabilities ended the period at $228 million. Net current assets ended the period at $$101 million.
The Paul Scott’s, Stony Hill Investments recently acquired a major interest in the company, what could be in it for them some investors are asking.  Scott sees scope for expansion and growth, in what he considers a well-run company that is simple and easily understood. He feels that they are in a position to benefit from expansion of housing in the country. sees potential for major expansion, with Kingston, Portmore, Spanish Town prime areas for expansion focus and there is nothing to prevent them from expanding nationally at some point in time. Lumber Depot could benefit from the close linkage to the Musson Group that has large holdings of real estate within the group or indirectly in the investment companies that can purchase materials for repairs or expansion through them.
The full year results should end up around 30 cents assuming some pickup in sales in the second half. On this basis, the stock may be considered undervalued at the current trading price of around $3.

About IC