When Caribbean Producers pitched their vision of an impressive future, many investors saw a new rising star on the horizon coming from the west and the company easily raised $425 million. The shares were heavily oversubscribed and shot up as high as $3 but reported results never met the hyped expectations.
All that has now changed with the latest quarterly results to September showing a 19 percent jump in revenues and a big turnaround for CPJ in the first quarter of the 2014 fiscal year which ends in June. From a loss of US$172,981 in the 2012 quarter, the company swung into a profit of US$447,421. IC Insider projects the company should pull in profits for the full year of US$8 million, around J$0.80 per share. However, the market’s lackluster reaction to the robust results leaves one searching for reasons why CPJ is not pleasing to investors’ palates.
Cost control | Although sales rose strongly from US$14 million to US$17 million contributing to the big improvement in profit, a major factor is the improved profit margin that rose from 37 percent in 2012 to 44 percent in the latest quarter helping to increase gross profit by a strong 35 percent. Also contributing is the maintenance of other cost increases to levels below or just above revenue growth as well as a turnaround of other operating activity from a loss of US$48,000 to a surplus of US$7,041. Selling and administrative cost rose 20 percent, a shade over the rise in revenues. Depreciation increased faster than sales, at 27 percent to reach US$435,500 but finance cost rose by just 7 percent to US$476,664.
The numbers suggest that the expansion into meat and juice processing is now bearing fruit and should get even better as they capture more market share with their new products.
Borrowings | The company took on a large amount of debt to help fund its expansion with borrowings at US$29 million at the end of September and equity of US$13.5 million, which was quite a risky financing arrangement. Since September 2012, loans have been used to fund a US$3 million increase in inventories and receivables and US$1.6 million increase in plant and machinery.
Positive cash | The good news is that in the latest quarter, there was a strong positive cash inflow of more than US$900,000 which should end up around US$10 million by the end of the fiscal year. That will be enough, coupled with cash now on hand of US$2.7 million, to meet loan payment of US$8.6 million due by June next year and US$9.5 million due in the next twelve months.
If the forecasted cash inflows materialise, equity would jump to US$21 million and borrowed funds should fall in line with equity, subject to funds being used in further expansion by the financial year end.
The company’s working capital is in very good shape with slightly more than 2 to 1 ratio, a situation that should improve as loans are reduced.
The company will begin operations in St. Lucia in 2013 with a well-established partner in the Eastern Caribbean. The new company, CPJ St. Lucia, will primarily focus on setting up beverage system programmes for the hotel sector on the island.
Insider call | IC insider is not only forecasting continued strong growth for this new fiscal year but a continuation into the next year as well, making the stock a good medium term investment. Caribbean Producers Jamaica Limited is an IC InsiderBuy Rated stock.
With net profit for the last quarter of US$1.4 million from revenues of US$19.2 million, Caribbean Producers Jamaica (CPJ)‘s June profit surpassed the previous quarter’s results by 188 percent. As a result, Earnings per Stock increased to US.13 cents compared to US.4 cents the previous year.
Management stated their release that fourth quarter performed ahead of the company’s expectations in terms of projected sales thereby contributing to the significant increase in net profit. Revenue was up 9 percent in the quarter from US$17.7 million in the corresponding period last year. This, management said, “was the result of increased production and efficiency of the manufacturing division, the consumer support of CPJ Market Kingston and Cru Bar. In addition, the hotel sector remained buoyant during the quarter as high occupancies were enjoyed throughout the period notwithstanding the closure of major hotel properties.” The growth in revenues of 9 percent for the quarter is in contrast with of just 2.7 percent for the year.
The company reported achieving a 15 percent increase on Gross Operating Profit of US$5.4 million, a significant improvement when compared to the corresponding period last year of US$4.6 million representing 28 percent and 26.4 percent gross profit margins respectively for the last quarter.
In spite of the big jump in the quarterly profit, net profit for year increased by just 5 percent to US$3.2 million compared to US$3.04 million at June 2012. Earnings per stock unit moved to USD 0.29 cents. The profit was realised from revenues for the year of US$69.4 million versus US$67.5 million over the corresponding period last year, an increase of US$1.9 million or 2.7 percent. For the year, gross profit increased from US$17.4 million to US$19.9 million as operating cost fell from US$50 million to US$49.5 million. Regardless, it is the results of the June quarter that is of most import as it points the way forward for profits.
CPJ reports its results in US dollars, as such exchange rate changes are not readily visible but some of the increased profits in the quarter would be due to lower cost of some local inputs making the result for the quarter larger than normal. That may well be true but sales in the period actually rose in real terms thus giving a good glimpse of possibly strong growth in the profits for 2014. The number suggests that the 2014 earnings per share should be in US$0.50 range as they ramp up sales form the manufacturing operations.
Selling and administrative expenses increased by 16 percent for the year to US$13.47 million from US$11.6 million and interest cost rose nearly 17 percent to US$1.8 million. The depreciation charge of US$1.5 million increased by US$469 thousand or 42 percent compared to US$1.1 million in the corresponding period in 2012 representing the capital expenditure for the manufacturing and operational assets set up this year.
Too much debt | At the end of June, shareholder’s equity stood at US$13 million but borrowings was at $24.8 billion, which is far too risky. Current assets that stand at US$32 million including US$3 million in cash is well in excess of current liabilities of $15 million, but short term loans amounts to over US$9 million. Cash flow for the past year came in at US$5 million and this should climb in the new year if the last quarter numbers are indicative of the 2o14 fiscal results.
Insider call | The company seems to be benefiting from the expansion that it undertook after the initial public offer (IPO) and the promise of strong profits that investors gleaned at the time of the offer does exist. IC Insider considers this stock as Buy Rated but is concerned about the high debt load, which is well beyond acceptable levels.
Statement released by Caribbean Producers Ltd | It has come to our attention that recent newspaper articles and press reports refer to breaches of the Customs Act by a major importer operating out of Western Jamaica that is listed on the Jamaica Stock Exchange.
While these reports do not name our Company, CARIBBEAN PRODUCERS (JAMAICA) LIMITED as the entity in question, we wish to advise our shareholders and the wider public that we consider such reports to be erroneous.
The Company is a leading food service company and hotel supplier in Jamaica. It sources its products from some 30 countries and imports thousands of unique items in up to 100 containers per month. The Company considers that it has worked closely with the Customs Department and the Ministry of Finance in establishing and growing its business during the course of the last 18 years.
Contrary to the press reports, the Company continues to have the status of ‘AUTHORISED ECONOMIC OPERATOR’ (AEO), which is granted by the Jamaica Customs Department. Changes to the AEO program were introduced by the Customs Department and the Company, along with other AEOs, will need to comply with certain requirements leading to security certification by 31 October 2013.
More recently, one of the suppliers of the Company mislabelled a relatively small number of cases of pork products that the Company inadvertently imported in a large container containing a total of approximately 500 cases of pork bellies. This matter is under discussion with the Customs Department and the relevant supplier has admitted its liability, which arose due to their error, and has offered to pay any fines on behalf of the Company, which the Company believes will not exceed J$1.1M.
Any other information published by the press in relation to the Company’s position as regards the Customs Act, including references to potential fines in the region of J$3 billion, is not correct. The Company is committed to being a good corporate citizen and responsible publicly traded company, operating within the law and with regard to the principles of good governance.
Tuesday, 18th June 2013 | With 600 shares traded, West Indian Tobacco marched on to new record again in Tuesday’s trading as the stock jumped $1 to close at $114 on a day when 15 securities traded with 5 advancing, 1 declined and 9 traded firm. Guardian Holdings suffered the day’s sole decline, falling $0.45 to end the day at $16.00.
Trading in the main market resulted in 157,621 shares crossing the floor of the Exchange valued at $2,624,514. National Commercial Bank Jamaica traded 60,781 shares for $73,196. National Flour Mills had 30,000 shares trading for $22,500. ANSA Mcal exchanged 19,254 shares with a value of $1,294,200, while Grace Kennedy added 15,163 shares valued at $61,410 to the trading activity.
Clico Investment Fund was the only active security on the Mutual Fund Market, posting a volume of 95,425 shares valued at $2,147,063.
IC bid-offer Indicator | At the end of trading, the Investor’s Choice bid-offer market sentiment indicator shows that bids for 6 stocks were higher, with 3 stocks that had offers lower than their last selling price, an improvement over Monday numbers. The Indicator points to continued moderate market gains ahead.
52 weeks high | Three stocks traded at new 52 weeks high with Unilever closing with a bid of $52.34 versus the closing price of $52.32 for 396 shares. The stock had 1,226 units trading on Tuesday, there was no stock on offer at the close. The same is true of One Caribbean Media which hit a new 52 weeks high of $17.30 with 800 shares trading.
This market seems poised to price certain stocks higher as supply for a number of them is low. But not all are likely to participate in upward price movement.
Monday, 17 June 2013 | Authorised dealers purchased less foreign exchange than they sold today at higher prices than on Friday and sold all three major currencies at higher rates as well. While they bought the US dollar for 29 cents more than on Friday, they sold it for only 7.7 cents more than Friday’s rate as the US dollar sold averaging at $101.164. The Canadian dollar was bought for 61.5 cents more and sold for 45 cents more and the Pound sterling was bought for 54 more and sold for 49 more than on Friday.
US$28.16 was purchased and US$34.65 was sold on a day when C$1.4 million was purchased at an average rate of $97.86 and C$1.2 was sold at $99.95, the Pound sterling accounted for £2.24 million at $156.86 and selling took place at $159.78 as £1.87 million was sold.
Monday, 3rd June 2013 | JMMB traded 4.57 million shares, all of which were bought by Scotia Investments for their own account and for clients except for 4,300 units bought by JMMB but sold from in-house for a client. Of the total amount of JMMB shares that traded, 2.7 million units traded at $9.50 each. The rest of the trades took place mostly at $9 per share. The stock traded up 50 cents for the day.
The All Jamaica Composite index closed up a strong 1,544.25 points to close 89,987.54 on day that saw 7.36 million units trading. The index closed at the highest level since January 8th this year when it closed at 89,699.10.
Stocks Gains | Jamaica Broilers traded up to $5 with 1.5 million shares changing hands. Kingston Wharves closed at 52 weeks high of $8, up 40 cents, while trading 10,000 shares on the day. Carreras and Grace Kennedy continued to be in demand, with the former trading 128,110 shares valued at $7.73 million while loosing 45 cents in closing at $60.45 and Grace trading 122,331 units valued at $7.35 million without a price change.
Junior market | The junior market was active with AMG Packaging trading 276,077 units in one trade with the stock closing up 10 cents at $4.15. Paramount traded 163,597 units while closing at an all time high of $3.60 up 20 cents. The stock closed with a bid of 559,806 units at $3.50 with no stock on offer which suggests that it will trade higher before long. Access Finance closed down 41 cents to $7.59 on very low volume, Blue Power traded up 71 cents to close at $7.52, an all time high, as 100,200 shares traded. All three Lasco companies traded but not heavily. Manufacturing closed at $15.35 off 4 cents from Friday’s close, Distributors fell slightly, by 10 cents and Financial Services gained 20 cents on Friday’s last traded price.
Advancing stocks greater | There was trading in 23 stocks on a day that was not all that active. The momentum of the market continues with advancing stocks continuing to be most dominant over declining ones 14 to 5. Four stocks traded at 52 weeks high including Proven ordinary which traded up 0.5 US cents to close at 11.5 US cents.
An indication of things to come can be seen from the bid and offers in relation to the last selling prices. At the end of trading there were 7 stocks with bids higher and only 1 stock with offer that is lower than the last sale price.
The main Market Index advanced by 877.17 points (1.00%) to close at 88,455.09.
The Select Index advanced by 48.71 points (2.00%) to close at 2,483.29.
The All Jamaican Composite was up by 1,544.25 points (1.75%) to 89,987.54.
The Junior Market Index advanced by 7.96 points (1.05%) to close at 767.89.
The Combined Index advanced by 900.62 points (1.00%) to close at 90,624.63.
The US Equities Index advanced by 3.57 points (4.54%) to close at 82.14.
Friday, 24 May 2013 | The rate for the pound sterling climbed on Friday by 66.7 cents on the buying side and 42 cents on the sell side. The US dollar picked 13 cents on the buy side and barely moved up on the average sell rate. Buying of the Canadian dollar climbed by 10 cents but fell 56 cents when sold. This all happened when there was more buying than selling of the three main currencies that traded.
Buying of the US dollar by authorised dealers was more than US$6 million greater the amount sold as US$36.6 million was purchased while selling was $30.2 million. Pound sterling purchased amounted to ₤2.5 million while sales amounted to ₤1.23 million. The amount of Canadian dollar purchased was Can$845,278 with Can$769,735 being sold.
The highest buying rates for all three currencies climbed on Friday noticeably with the US dollar moving up 60 cents, the Canadian 30 cents and the pound 50 cents. The lowest buying rate was flat to virtually flat except for the pound which fell by 25 cents. The highest selling rate for Canadian and US dollars was the same as the trading day before but the pound climbed $3.09 while dropping $1.90 for the lowest. The US dollar lowest rate dropped back by $14.95 and Canadian by 70 cents.
CPJ is following the example of the Government of Jamaica in pursuing a debt swap. This one, unlike that of the government’s, will not result in any loss in capital for the holders of the debt. The board recently gave approval for the company to raise $500 million in floating rate secured promissory note. The proceeds will be used to retire loans they current have including related parties loans which climbed to US$12.3 million at the end of March.
But loan capital is not what the company needs, it needs more equity capital. At the end of March, loans and advances by related parties amounted to nearly US$24 million, equity is less than half of that at US$11.7 million. Cash flow is about US$5 million for this year most of which has already been utilized in long term capital expenditure.
Stock Outlook | The working capital on paper is well within accepted norms. The only problem is that liquid funds are not plentiful, with less than US$1 million dollars on the books. The directors are causing the company to skate on thin ice which is what is happening. Seeking a debt swap may save on the interest cost but will merely dent the poor debt to equity ratio, which is well out of line and prudence dictates should be put right fast, not later.
Caribbean Producers reported reduced profits for the March quarter and for the nine months to March. The company reported sales of US$50.148 million for the nine months versus US$49.8 million in 2012. The latest quarter revenues came in at US$19.4 million just ahead of US$19.2 garnered in 2012 even as they rolled items from their expanded portfolio of products. Profit after tax was US$1.26 million in the 2013 quarter and US$1.73 million in the same quarter of 2012. Year to date after tax profit is US$1.8 million versus US$2.56 million in 2012.
The company indicated in its quarterly report to shareholders that they were able to squeeze cost savings from the manufacturing operations resulting in a 14.6 percent improved gross profit amounting to US$14.5 million bettering 2012 by US$1.8 million. The gross margin moved from 25.5 percent to 29 percent for the nine months period. Selling and administrative expenses climbed 25 percent mainly due to the expansion and introduction of the meat processing plant which had to employ persons at the commencement phase. The factory was commissioned during the March quarter.
The company’s Lady Musgrave Road retail operations started in December last year and comprises a bar, super mart and a deli. Management states that the financial results are improving each month since opening.
Even as the company maintains the accounting and sales in US dollars, it seems clear that the devaluation of the Jamaican dollar over the past several months has had a negative effect on the results. The end result is that the devaluation cost is passed on to customers, which means that customers would switch to suppliers who price their goods in Jamaican dollars in their search for lower prices.
Stock Outlook | The company should go on to earn around 27-30 cents per share for the full year but should see a boost for the next year which starts in July as revenues from new operations start to come in and reduce the impact of overheads incurred.
The stock which is trading around $2 may remain anchored at these levels for a while, additionally, the company needs to seriously address the poor debt to equity and working capital ratio and not by extending the loans profile.
Caribbean Producers Jamaica Ltd | Importers of wines, liquors, and other products that are used primarily in the hotel sector. They also produce juices and now have a meat processing plant which is used for processing beef and pig’s meat. The company is listed on the junior market of the Jamaican Stock exchange.
The numbers suggest that the expansion into meat and juice processing is now bearing fruit and should get even better as they capture more market share with their new products.
