Strong food & insurance sales gains at Grace

Grace new HQ close to the end of construction in downtown Kingston

Grace Kennedy reported net profit attributable to shareholders of $3.26 billion for the year to September compared with $3.3 billion in 2017 on strong gains in Food and Insurance segments. For the September quarter, the group earnings of $1.06 billion was realized, down from $1.5 billion.
The current quarter’s result is negatively impacted by one off expenses.
Segment results show declines in the Money transfer business with segment results down to $2.34 billion from $2.46 billion in 2017. Banking was flat with results of $401 million but both Insurance and Food trading recorded healthy increases. Food reported $1.35 billion in 2017 and climbed a strong 12.5 percent to $1.52 billion and Insurance jumped a robust 22.7 percent from $508 million to $734 million.
When adjusted for non-recurring gains in 2017 and one-time expenses of $236 million in the September 2018 quarter, profit for the nine months would have been greater by approximately $600 million.
For the nine-months, the Company revenues rose 7 percent to $73.8 billion but climbed a healthier 11 percent to $25.46 billion for the September quarter, over the same period in 2017. Group Chief Financial Officer, Frank James, informed IC that the savings from the rationalisation exercise will generate savings considerable higher than the cost, due partially to some former employees being retired and not incurring separation cost.
Operating cost rose faster than revenues, with an increase of 13 percent to $24.6 billion for the

Group Chief Executive Officer, Don Wehby.

quarter and an increase of 8 percent to $71.4 billion for the nine months. Unfortunately, Grace continues the backward practice of not breaking out direct selling cost from other costs in their interim results as such investors cannot determine how movement in cost is affected by changes in revenues versus fixed and administrative cost.
Shareholders’ equity increased of $3.2 billion to $48.4 billion over 2017. Loans receivables remained flat at $26.4 billion compared to $26.58 billion in September 2017 and is down from $27.55 billion at the end of 2017. At the end of the period total assets increased $7.3 billion to $137 billion since September in 2017 and liabilities rose by a smaller $3 billion to $86.44 billion.
In speaking to the recent performance, Group Chief Executive Officer, Don Wehby, affirmed, “The Company is investing strategically for future growth and efficiency to achieve this objective. We are seeing a 12.6 percent increase in profit over prior period, with the one-off adjustments, and we expect continued growth based on our strategy.”
Since 2018, the Group embarked on a programme which aims to improve its return on investment and shareholder value. The process involves a review of its overall organizational design, cost structure, and business processes at all levels resulting in restructuring which affected a number of positions in August. In expounding further Wehby stated, “Although the restructuring costs of $236 million impacted the quarter’s performance, I am confident that the Company will realize the benefits of this in subsequent periods.”
Grace pays an interim dividend of 50 cents per stock unit on December 13, bringing dividends to date to $1.35 per stock unit of more than $1.3 billion.
Wehby and the group’s chairman Gordon Shirley in their report to shareholders stated that Grace Kennedy anticipates continued growth for the fourth quarter, subsequent to the quarterly report the group announced changes in their Florida distribution with an investment in the company that manufactures it patties that will take over Graces distribution and warehousing in that area. The new arrangement will mean less cost and more profits for Grace.
IC projects earnings is $4.80 for the current fiscal year to December and $6 for 2019. The stock is listed on the Jamaica Stock Exchange and trades at $60 for a PE of 12.5 times current year’s estimated earnings versus an average for the market in the region of 15, with a premium of a mere 20 percent above net book value per share and seems undervalued, currently. The stock looks like a good long term investment.

Grace performance slips in Q2

Grace Kennedy HQ

Grace Kennedy reported revenues of $48.4 billion, an increase of 4.3 percent or $2 billion over the corresponding period of 2017 for the half year to June, “driven largely by growth in its Food Trading and Insurance segments.” Don Wehby stated in a release following the release of the interim results.
Net profit for the period was $2.5 billion, an increase of $266 million or 12.2 percent compared with 2017. After minority interest net profit rose by 14 percent to $2.15 billion but by just 9 percent in the second quarter to $959 million from $881 million in 2017.
Second quarter sales revenue grew just 3.85 percent to $22.44 billion, a slower pace than the first quarter’s 6 percent. Other income rose a strong 60 percent to $718 million in the quarter over the prior year, and 61 percent for the half year, to $1.45 billion. Interest income was slightly down to $1.13 billion and $2.25 billion in the quarter and half year period respectively, over the similar periods in 2017.
Total comprehensive income a better measure of managements stewardship, more than doubled in the second quarter to $1.338 billion from $625 million in 2017 but slipped slightly to $2.39 billion for the half year.
The Group reported that its Food Trading segment experienced growth in revenue and pre-tax profits over the corresponding period of 2017. This was due to improved performance in the domestic foods business as the local economy picks up and now showing stronger growth. While showing an increase in revenue over prior year, the Company’s international foods business experienced a decline in pre-tax profits compared to the corresponding period of 2017, primarily due to the performance of Grace Foods UK.

Grace Kennedy products

Financial Group experienced mixed fortunes during the period, as the Money Services and Banking and Investments segments both experienced decline in revenue and pre-tax profits, while the Insurance segment grew revenue and pre-tax profits over the corresponding period of 2017. The performance of the Money Services segment was due to a reduction in transaction volumes in the remittance business in Jamaica stemming from the implementation of enhanced compliance measures.
Grace’s financial position remains strong with Shareholders equities of $46.35 billion and the company’s stock traded at $58.50 on Friday with a PE of 11 based on IC’s earnings estimate for 2018 of $5.40. The PE is lower than the market’s average of 13.5 and with IC forecasting average PE to reach 17 by late this year or early next year, the stock has room for growth.
Grace approved the payment of an interim dividend of 45 cents per stock unit, payable on September 26, an increase of 18 percent from the 38 cents per stock unit paid to stockholders in September last year. Group CFO Frank James said, “This brings the dividends declared to date to approximately $844 million, an increase of 25 percent or $169 million over the corresponding period in 2017.”