GSE: Stocks poised for correction

Friday, 13th December 2013 | The Ghana Stock Exchange fell slightly for the week to Thursday but gained on Friday by 5.07 points to end marginally above last week’s close. The main market index closing at 2130.87 up from last week’s 2,129.69 for a 77.19 percent gain year to date and the financial at 1,780.47 up from 1,774.36 the week before for a 70.57 percent gain for the year to date.

At the end of trading, the price of 3 stocks were down and 3 were up for the week. The marginal change to the index is reflective of the narrowness of the number of stocks with price movements in either direction.

ghanastockexchange280x150For the week, Aluworks gained 25 percent as the price moved up by GH¢0.01 to GH¢0.06, Cocoa Processing Company dropped 50 percent to hit GH¢0.01, Starwin Products dropped 25 percent to reach GH¢0.03 and Ghana Commercial Bank gained 2 percent to end at GH¢4.90 but had a bid at the close above the last selling price at GH¢4.91, last week it gained one percent.

The market seems to have weakened with just 8 stocks having bids at the end of trading, while there are 22 stocks with offers. The vast majority of the offer prices are the same as the last selling prices of the stocks, an indication of selling pressure.

Profits up 80% at Berger Jamaica

Berger Paints starts off the new earning season for the quarter to September with improved profit for the six months of $13 million, up 80 percent compared to $7.2 million for the same period in 2012 as sales rose 12 percent to $787.4 million. Importantly, revenues accelerated in the September quarter by 17.8 percent over that of 2012 compared to only a 5 percent increase in the first quarter.

Profit in the latest quarter was up by 76 percent to $16 million and augurs well for the all-important December quarter when it has the bulk of sales and profit.

Cash resources, which amounted to $130 million at the end of the March 2013 year end, is down to $33 million at the end of September. The bulk of the reduction went into working capital which rose from $512 million to $637 million excluding cash funds.

berger_construction-paintingA dividend of 13 cents per share totalling $27.362 million was paid in July, 2013. Berger has no significant borrowed funds used to fund its operations.

If the present trend in revenues and margins continue, profit for 2014 should end up around 35 cent per share compared to 19 cents in 2013 to March. The problem with Berger is its strong reliance on the performance in the wider economy for growth. Right now that is not happening although there are signs of some pick up in the construction sector that the company could benefit from even as large amount of paints are sold for renovation of existing buildings than new start-ups.

Related posts | Economy pressuring Berger

Berger TT profit poised for big gain

The economies of Trinidad & Tobago and that of Jamaica are two contrasting ones. In the case of Trinidad, after a few years of decline the economy is growing again, albeit moderately. Jamaica on the other hand, is still experiencing decline. Interest rates, while sharply down in Jamaica at more than 6 percent, are nowhere near those of the Twin Island state with Treasury rates at less than 1 percent.

But a look at the results for Berger Paints in the two territories would make one wonder if the state of the economies aren’t the same. Both companies are struggling to maintain profitability as the construction sector suffered decline in both countries and are yet to be restored to health. In both countries, there are signs that things may be picking up. For example, Trinidad Cement reported improved sales in the first quarter this year over 2012. In the case of Berger Trinidad, there was a big improvement in the bottom line in the quarter to June with slight pickup in sales to $13.395 million versus $12.891 in 2012. Not much, but enough. This along with a cut in expenses to $13.52 million compared to $14 million, reduced the loss from $1.25 million before tax in 2012 to $185,000 this year and the after tax loss to $179,000 to June this year versus $973,000 in 2012. For the 12 months to March this year, on revenues of $64,146 million and expenses of $62,504 million, the paint company made a profit of $791,000 after tax.

According to figures released for the quarter to June, the company has eliminated some cost. This should made quite a difference to the full year results which IC Insider is forecasting to be 50 cents per share for the year to March 2014.

The price earnings ratio (PE) of the stock is low at just 7 times this year’s earnings, making it a good candidate for investors to profit from.

The financial position of the company is healthy, with working capital being more than two and a half times current assets to current liabilities. Equity capital stands at nearly $25 million with no major debt capital being used in funding its operations. There is virtually no cash on the balance sheet suggesting that they are using cheap bank financing to ensure shareholders max out on profits.

Insider call | Berger TT is an IC Insider Buy Rated stock.

Economy pressuring Berger

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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 outlookBerger’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 9th this year.

Berger5yrSummary

Berger holds dividend, NCB cuts

Berger Paints Jamaica Limited | Advised that at a meeting of the Board of Directors held on April 24, 2013, the Directors passed a resolution that a Final Dividend payment of $0.13 per ordinary stock unit payable on July 9, 2013 be recommended to the stockholders on record as at June 21, 2013 in respect of the year ended March 31, 2013. The ex-dividend date is June 19, 2013.

Last year, the company paid dividends of a similar amount of $0.13 per share in July. This suggests that the profit to be reported for March 2013 is most likely flat.

National Commercial Bank | Declared a dividend of $0.16 per share payable on May 24. The ex-dividend date is May 8, 2013. The 2013 payment represents a decrease from $0.21 paid in May last year and is in keeping with an unpredictable dividend policy the company has been executing even after repeating a previously announced policy. The dividend payout ratio for the 2012 financial year to September amounted to 27% and for the 2011 financial year 25.7% compared to 42.2% for September 2010.

PreferenceStock150x150Dividend policy | As per the  2011 annual report: “The Board of Directors of National Commercial Bank recognizes the importance of capital in meeting the needs of shareholders, investors and the business. To this extent, a dividend pay-out rate has been determined.

The Board of Directors will declare, at its discretion, dividends to shareholders. These dividends will be paid from the realised earnings of NCB. The dividends will be subject to a maximum of 50% of the ordinary realised profit earned each year and will be applied after taking account of all transfers. In the event that the pay-out is less than 50% in any one year, the Board of Directors reserves the right to increase future distributions proportionately. Further, the Board, at its discretion, may distribute to its shareholders the full amount of any and all realised gains arising from non-recurring or extraordinary transactions.

“The Dividend Policy is consistent with the Capital Management Plan and is reviewed annually or more or less frequently as determined by the Board of Directors.”