Seprod reported a hike in profit of 14 percent for the six months to June this year, slower than the 34 percent increase in the first quarter. The company posted profit of $698 million for the half year, up from $614 million in 2013 and $298 million in the quarter versus $317 million in the 2013 quarter.
Seprod, involved in the manufacturing and processing of food products, oils, sugar, milk as well as a food product distribution business, enjoyed an 8 percent rise in revenues to $8 billion from $7.4 billion and 12 percent to $4.17 billion in the second quarter from $3.7 billion in the 2013 June quarter. While revenues climbed, Seprod suffered a reversal in the positive gains in investment income in 2013 with a fall of $110 million in the quarter and $118 million in the half year.
Gross profit grew a very strong 53 percent in the June quarter and a much lower 32.8 percent for the six months over the same period in 2013. Gross profit margins climbed to 29.70 percent in the June 2014 quarter, up from only 18.8 percent in 2013, for the six months 29.7 percent and 22.7 percent, respectively. These are good signs of an improving performance of the group. A major part of the improved performance, is the contribution the sugar manufacturing segment made.
Segment results show operating profit for the half year rising 61 percent, against revenues climbing only 11.4 percent, Distribution segment’s operating profit, fell from $99 million to $68 million. The group’s sugar operations made a loss of $15 million in the June quarter for the group net of minority interest and $30 million for the six months, a big improvement over the $166 million lost for the June quarter last year, and $200 million for the six months to June, 2013.
The group is now in the last six months of the year, when little income will be generated from the sugar operation at Golden Grove Sugar Factory in St Thomas. The cost associated with this operation will be absorbed and will dent profits in other areas. For the second half of 2013 the group picked up $322 million in losses from the sugar operation. Much progress has been made in reducing losses in the sugar operation but there is still some way to go to move to a profitable business. A lot will depend on increasing significantly, the amount of canes to be milled by the factory and by extension the sugar to be produced. They now need to produce around 3,000 to 4,000 tonnes more sugar, to break even.
Expenses| Selling expenses rose sharply by 43 percent in the quarter to $142 million compared with $100 million in 2013 and 22 percent for the six months to $241 million from $198 million. Administrative cost rose 25 percent to $428 million in the quarter versus $373 million in 2013. For the six months period, it rose only 7 percent from $784 million to $839 million.
Finances| Seprod has $4 billion in cash and investments. Borrowing stood at $2.55 billion up from $2.26 billion at June 2013, current assets are well in excess of current liabilities by more than 2 to 1 and equity stands at a strong $10 billion.
Longer term| For 2015 and beyond, a lot is predicated on the fortunes of the sugar operations in St Thomas, where the target is for the processing of 300,000 tonnes of canes and to produce around 25,000 tonnes of sugar. In 2013, Management indicated that the cane farms are already planted and increased production should be coming in from the 2014 crop. For the 2014 crop the factory, reached its highest-ever production levels, with 19,300 tonnes of sugar.
the group produced profits of $907 million last year and is expected to better this in 2014 by some. The stock remains buy rated.
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Sugar helps Seprod hike profit
Seprod considering a dividend
Seprod advised that at a meeting of the board to be held on October 6, 2014, a dividend payment will be considered.
Seprod paid a dividend of 55 cents per share on July 4, this year. Last year a dividend of 30 cents per share was paid on November 15 and 53 cents per share on July 8.
Seprod reported a hike in profit of 14 percent for the six months to June this year, slower than the 34 percent increase in the first quarter. The company posted profit of $698 million for the half year, up from $614 million in 2013.
Seprod added, others now BUY RATED
Seprod is added to the BUY RATED list for the first time, as profit seems to be settling down with reduced losses in the sugar production operations. The PE for the stock is currently at 4.4, with an eye on 2015 when results should get even better.
Radio Jamaica is now elevated to BUY RATED list, from market watch, based on a big improvement in the first quarter results, to June and IC Insider’s forecast for earnings of 35 cents per share for the fiscal year. The stock is trading at $1.22, giving it a very attractive PE of 3.
Cargo Handlers third quarter results is up on 2013, putting earnings in 2015 in the $3.40 per share level and close to $3 per share for 2014 fiscal year, to September, putting the PE at 5. Berger Paints Jamaica is moved to the BUY RTAED list, with gains in its first quarter results, to June and IC Insider forecasting of 43 cents per share earnings, for the year to March 2015. The prices of Consolidated Bakery, Caribbean Flavours and Paramount Trading, have all pulled back sharply from earlier levels making them more attractive buys.
Supreme Ventures and Jamaica Stock Exchange are added to the Market Watch list. The latter is based on a virtual wipe out of losses in the June quarter and an eye on the stock market activity that should be picking up going forward and thus enhancing the earnings and the value of heightened trades.
Cable & Wireless is still on the list with good top line growth, coming mainly from strong mobile growth. The company is heading for a break even position or small profit for the current fiscal year. Supply of the stock is low and a big payoff should take place in 2015, if the present trend in revenue continues.
Profit up, margins shrink at Seprod
Shrinking margins and lower gross profit could not prevent Seprod from enjoying a bump in profit of $312 million in the June quarter versus $161 million in 2012 and $542 million for the six months period versus $453 million in 2012.
Seprod got a boost of $107 million from the sales of equities in the June quarter. Also in the quarter, they benefitted from a gain of $54 million from holding of assets in foreign currency. Finance and other operating income rose to $112 million in the quarter, up from $80 million in 2012 and for the six months, $206 million versus $167 million. Management has kept selling and administration cost under control with both areas falling in the latest quarter and just rising slightly for the year to date period. Selling expenses which came out at $100 million for the quarter was $6 million less than in 2012 and admin cost came out at $372 million versus $374 million in 2012. For the six months, selling expenses climbed by $4 million to $198 million and admin went to $784 million up from $751 million in 2012. Finance cost moved up to $42 million from $26 million in the June quarter and in the six months period, it rose from $48 million in 2012 to $82 million in the latest period.
Revenues | Revenues were down 2 percent in the first quarter, falling to $3.7 billion and off by $74 million from the year ago period. However, revenues increased by a healthy 17 percent to $3.7 billion in the June quarter and is up 7 percent for the 6 months to June.
The biggest issue the company is currently having is a sharp fall in profit margin. To June 2012, gross profit as a percentage of direct cost was 28.2 percent and has fallen to 24 percent for the 6 months to June this year and to only 21 percent versus 24 percent in the June quarter. The deterioration has occurred in the distribution segment as profit stagnated at $99 million, a slight 3 percent rise in that area while sales rose 11.5 percent. In the manufacturing segment, profit is up by 12.5 percent to $893 million and revenues is up 3.5 percent to $4.7 billion.
Earnings per share for the 6 month period is $1.05 and the full 12 months to December should be around $1.80-$2.
Finances | Seprod has $3.9 billion in cash and investments. Borrowing is at $2.26 billion up a billion dollars from June 2012. Current assets are well in excess of current liabilities by 3 to 1 and equity stands at a strong $9.6 billion.
Longer term | Seprod has never been one of those sexy companies but it has done remarkably well since listing back in the 1990s. It appears that for 2014 and beyond a lot is being predicated on the fortunes of the sugar operations in St Thomas where the target for sugar production is the processing of 300,000 tonnes of canes that should work out to around 25,000 tonnes of sugar. Management indicates that the expanded canes farms are already planted and the production should be coming in the 2014 crop. The group acquired Bowden Estates with 3,000 acres along with another property in the area and lands that were in bananas have now been planted out in canes. Management states that the sugar company is critical to them as a foreign exchange earner that can supply foreign currencies for the group when needed.
Related posts | Seprod’s dividend consideration | What’s really up at Seprod?
Seprod’s dividend consideration
The Board of Directors of Seprod Limited will meet to consider the payment of a dividend at a meeting scheduled for June 3, 2013. The company last paid a dividend amounting to $0.30 per share on November 9, 2012. Prior to the November payment the company paid a dividend of $0.53 per share on August 7, 2012.
Seprod recently reported profits for the first quarter of this year that was down on the similar quarter in 2012. Profit after tax profit slipped to $231 million compared to $292 million in the 2012 first quarter.
For the last IC Insider report ‘What’s really up at Seprod‘, Click here
What’s really up at Seprod?
Revenues are down to $3.6 billion for the March quarter for Seprod, who manufactures and processes oils, fats, cornmeal, soaps, milk, sugar and run a cattle farm. In the 2012 period, the group recorded revenues of $3.7 billion. Profit followed in the path of revenues slipping to after tax profit of $231 million compared to $292 million in the 2012 first quarter. While sales declined, cost of sales moved up, resulting in just over $100 million less gross profit. Costs in other areas were kept well within the amounts for the previous year. Had it not been for a significant foreign exchange gains, the decline in profits would have been far worse than reported.
It was the cash generated from operations that is eye catching with nearly $500 million generated in the first quarter this year. Those figures translate to $2 billion per annum. However, these numbers include income from the sugar operations and for the rest of the year this operation will provide no sales for fresh inflows. The company also benefited from $95 million in FX gains which is unlikely to recur this year. Hence, the cash inflows will be much less and more likely to be just over a billion dollars for the full year. Loan payment of $330 million has to be made in the next 12 months and could reduce the net cash inflows along with the payment of dividends which would use up more than $400 million.
Seprod has $3.7 billion in cash and investments plus $253 million to be collected from short term receivable in the next 12 months from March. The big question is, what are the funds being piled up for?
Sugar operations | Long term loans increased by $977 million in the quarter primarily for use in the sugar operations. The target for sugar production is based on processing 300,000 tonnes of cane that should work out to around 25,000 tonnes of sugar and that all depends on the sucrose contents of the canes. Added to that, St Thomas, where the operations are, has heavy rainfall close to the beginning and the end of the crop each year. The timing to reap is critical in maximizing the quantity of sugar that is extracted from the canes.
Management indicates that the expanded cane farms are already planted and the increased production should be coming in the 2014 crop. The group acquired Bowden Estates with 3,000 acres and another property in the area plus lands that were in bananas are now planted out in cane. For the current year’s crop 18,000 tonnes of sugar were produced at about a break even level. If the important things go well and they make close to next year’s target, the operations should end with a profit.
Management states that the sugar company is critical to them as a foreign exchange earner for the group. The sugar factory can be pushed up to grind 400,000 of cane but no decision has been taken on that. It would require major capital injection to get to that level of production. The cost of energy for the group is an important area of focus and thought has been given to increase the generation of power at the sugar factory and wheel it to others in the group. The estimate for such a project would be in the order of US$15 million, which would allow for the installation of new broilers to power the factory using bagasse, the byproduct of cane milling, to generate heat and steam for electricity thus cutting the overall energy cost for the group.
The company indicates that they are always on the lookout for acquisition. The funds being built up are to allow for acquisitions when suitable ones arise as well as for capital spend. But the main focus is to fully turn around the Duckenfield sugar operations. That objective is important since Seprod profits have been stagnated subsequent to their investment in sugar production. It has proven much more difficult than most of the directors first thought possible. At the first annual general meeting, one shareholder warned them of the challenges they were going to meet. Three to four years later and after more capital injection than originally contemplated, management has had enough time and experience to appreciate the unsolicited advice.
Notwithstanding the challenges faced, the group is in a very healthy financial state with $9 billion in equity and a relatively small amount of debt. Working capital is also in good nick as well.
Stock outlook | The company’s stock last traded at $15 and seems fully valued based on current market conditions. Investors will need to bear in mind the softening in the price of sugar on the world market and commodity prices in general which could push up the breakeven level and continue to have a drag on profits as well as eat up more capital. These risk factors need to be factored in when considering the investment in this stock.