Neal & Massy profits up

Neal & Massy one of IC Insider’s Buy Rated companies, delivered slightly better results at the end of the fiscal year to September 2013 than our forecast, due primarily to reduction in corporate taxes in the final quarter.

The Trinidad based group reported profit after tax of $142 million in the 2012 September quarter and recorded an increase of 19 percent $168 million profit in the September quarter of 2013. However, taxation in the quarter fell from $98 million in 2012 to only $58 million in 2013 and was the only reason for the improved bottom-line in the quarter as profit before tax of $243 million in 2013 was virtually flat with $241 million earned in 2012.

Full year Profit | For the twelve months to September, profit before tax moved from $544 million to $611 million, an increase of 12 percent from continuing operations. Profit after tax for the same period moved from $496 million to $556 million from all operations and excluding losses in a discontinued business which was sold. Earnings per share is $5.73, making the stock more attractive than IC Insider’s forecast of $5.40. Profits were generated on sales of $2.34 billion versus $2.17 billion in the last quarter of 2012 and $9.4 billion for the year compared with $9.15 billion in 2012. This is not much change at all, leading to nearly flat pretax profit and suggests challenges in moving profit forward in 2014.

Image courtesy of StuartMiles/FreeDigitalPhotos.net

Tough environment | The reality is that the group operates in economies that are undergoing no growth or slow growth except for Guyana where GDP growth was 4 percent during the period. Neal & Massy was able to eke out a 7 percent growth in revenues in Trinidad but suffered declines of 4 percent in Barbados and Jamaica while Guyana rose by 4 percent. Profit from the region shows mixed performances with Barbados showing increase of 6.5 percent in spite of a fall in revenue, Trinidad recorded an increase of 4 percent but less than that of revenues while Jamaica’s profit fell worse than the decline in revenues at 24 percent, due partially to devaluation of the local currency. Guyana grew by 13 percent.

Plans | “Throughout 2013, the group made major strides in implementing its strategy. Its business unit successfully executed acquisitions, such as Caribbean Insulation Services, implemented innovative retail concepts, initiated projects to expand into new sectors such as petrochemicals, and launched new products and services, Furthermore the group made good progress in diversifying into new territories in Central and Latin America with specific acquisition currently underway,” management stated in their report to investors.

Neal & Massy declared a dividend based on the results, bringing the total dividend for the year to $1.75 up from $1.50 paid in 2012.

Outlook | “In light of the improved results and the strong outlook for the group” is how management described the group’s performance when declaring the dividend. Regardless, based on its dominance in their main market of Trinidad and with Barbados being put through greater austerity in 2014 than in 2013, growth is likely to be slow even as the Jamaican market is expected to emerge from recession with no new major taxes expected during the coming year. Earnings could grow 30 percent for the 2014 year thus putting profit at around $710 million or $7.33 per share. The forecast is in line with growth in profit after tax in 2012 and 2010. In 2011, profits got hit with a $300 million one-off charge, which resulted in a fall in after tax profit. The forecast is also consistent with growth level between 2004 and 2008, the year when the world-wide economic crisis commenced.

Finances | The group is financially strong with shareholders’ equity at $3.85 billion at the end of the financial year against borrowed funds of $1.3 billion and cash and equivalents of $1.1 billion. Current assets of $4.4 billion was adequate to fund current liabilities of $3.1 billion.

TheGroup’s stock, which last sold on the Trinidad market at $60, is undervalued based on its peers, the overall market valuation and its prospects for increased profit in 2014. One caution for investors is the tendency for conglomerates to be hit with surprises that can affect the profit markedly. The group got rid of the loss-making hotel operation in 2012 and so far, there is no mention of any major areas of concern.

Neal & Massy is an IC Insider’s Buy Rated stock.

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