Producers profits up, is it time to buy?

Directors of Jamaica Producers have purchased quite a bit of their company’s shares in recent months as the fortunes of the company seem to be on the improve. However, we ask the question: Is Producers right for the average investor?

The answer: Not at this time. With the stock price at the $18 level and the net book value placed at $29 per share, the gap is significant and earnings have not reached the level for the wider investing public to accord the stock a higher value, regardless of what the Directors’ buying actions may suggest.

In the just released company results, Producers reported a jump in profits by 42 percent to $158.5 million for the six months to June 2013 relative to the same period last year, and was up 59 percent for the latest quarter to June, over the June 2012 quarter to $73 million. For the six months, revenues increased by 6 percent to $3.7 billion and 5 percent to $1.84 billion for the June quarter over the same periods in 2012.

JP Europe | Revenues increased by 8 percent to $1.34 billion for the European division resulting in a 20 percent increase in pre-tax profits of $56.5 million for the second quarter and $116.4 million for the first half of 2013, more than doubling the result for the comparative six months of 2012. The turnaround in this area resulted from moderate improvement in the economies within the region, exchange rate movements between the Jamaican dollar and the Euro as well as expansion of sales to new areas within the EEC.

JP Tropical | Pre-tax profits of $26.6 million for the second quarter increased by 105 percent from $12.9 million in the 2012 period, a turnaround relative to the first quarter 2013 loss of $54.8 million, which included one-off exceptional restructuring costs of $35.9 million. With very limited banana supply, total revenues for the JP Tropical Division for the second quarter were down by 3 percent relative to the 2012 second quarter and rose by 4 percent on the first quarter.

During the latter weeks of the six month period, production of bananas resumed on the farms in St. Mary, commencing the generating of income to help cover the cost of re-development and maintenance of the resuscitated banana farms, which had negatively affected JP Tropical Division’s previous results. With the return of banana production, the JP Tropical Division improved its pre-tax profits for the second quarter compared to both the first quarter of 2013 and the comparable period last year. The primary snack production facility in Jamaica has now returned to production having been closed since Hurricane Sandy in 2012.

The recent acquisitions and investments in our JP Tropical Division collectively made a positive contribution to the divisional performance and we expect them to be an increasingly important part of the division in the future. The primary focus for the Division going forward will be to grow revenues organically by taking advantage of our installed base of productive capacity.’

“Mavis Bank has had a strong first half with operational efficiency gains allowing the company to meet export targets” management stated. Tortuga had mixed results in the first half with improved performance in Jamaica and Barbados and weaker sales in the US and other Caribbean markets. Tortuga’s overall performance was also affected by the seasonality of the product which typically generates peak sales in the fourth quarter and the Caribbean winter tourist season.

Regarding the Mining Company Limited, a subsidiary in which they hold a 51 percent interest, the company stated, “It had a satisfactory performance in the first half driven by the quality of our output and reliability of our service. We are now taking steps to expand mining operations from our base in St. Mary by opening a facility in Clarendon to allow us to participate in the South Coast market.”

The group has borrowings of $1.2 billion, which was used in funding investment in some of the associated companies as it reduced the amount in cash funds and investments that the Group held prior to the major investments. Cash and short term now stands at $435 million and $558 million for longer term investment. Investment in associated and joint venture companies amounted to $2.75 billion with the bulk of it being in Kingston Wharves. Shareholders’ equity at the end of June amounts to $5.4 billion.