Thanks to good pick up in other income and increased segment profit from the food division, GraceKennedy’s profit before tax was pushed up by 53 percent to $1.19 billion and 41 percent after tax of $703 million in the second quarter of the year to June.

In the first quarter, profit after tax was up by just 4 percent and 13.5 percent before tax but the results were negatively affected by the cost associated with the government debt swap. For the year to June, after-tax profit increased by 21 percent over 2012 to $1.39 billion with revenues being up 8 percent to $33.9 billion. The second quarter revenues were up 12 percent to $17.2 billion versus the 4 percent in the first quarter.

In the first quarter, the retail and money transfer divisions did well in growing profits. Banking and investment recorded a loss of more than $200 million while the huge food division only eked out a very small increase over 2012 figures. In the second quarter things looked better all-round except for Insurance which recorded a loss of $100 million compared to a break even position in the first quarter. In the second quarter, the food division contributed $170 million of the increased profit as sales climbed by $1.33 billion compared $470 million in the first quarter. Retailing with just $144 million more sales contributed $74 million more to profits. Banking and investments’ contribution in the second quarter was $229 million, while money transfer contributed $55 million to the increase in profits for the quarter.

In 2012, the first quarter was the highest for revenues than any other quarter, while the profit in the second quarter of 2012 was the lowest. The big jump in profit in the latest quarter is unlikely to repeat at that level for the remaining of the year but earnings seem set to reach between $9.50 and $10 per share for 2013.

Grace is a dominant player within the Jamaican market in its traditional business of food and trading and its focus on overseas markets for expansion and growth is obvious. Any meaningful growth in these two areas in the local market would have to come from growth in the economy, which is not likely to happen for a few years due to fiscal deficit reduction. Grace’s deeper involvement in investing in overseas markets with a physical presence could provide the needed market intelligence to grow by acquisitions and thus speed up the growth rate as well as providing a solid platform for the company to introduce some of its existing products to a wider populace.

Increased lending by banks, or the pace of it, gives a good indication about likely growth in profits. As such the 17 percent annual growth of lending by the group’s commercial bank, First Global, is a good indication that there should be pretty healthy growth in profits going forward, subject to strong control on non-performing loans. Banking, of course, is only one area of the group’s business.

Grace is financially solidly based with equity of $33 billion and total assets of $107 billion at the end of June.

The shares are trading at around 6 times this year’s earnings and sells for just under 60 percent of book value and approximately 30 percent of sales, making it historically cheap but relatively adequately priced. This should be a good medium to long term buy — don’t expect an explosive movement in the stock price unless the entire market were to do the same.

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Grace Kennedy posted increased profits in spite of a one-time charge of $216 million in the first quarter of this year. The charge relates to the write-off of premiums on investments that were swapped in the government debt exchange in February. The improved results flowed from revenues which were up to $16.5 billion in the quarter from $15.85 billion in 2012 and profit before tax $1.14 billion and $689.7 million after tax and minority interest, slightly more than the $652 million netted in 2012.

NDX plunged the banking and finance division into an operating loss of $7 million, down from $209 million in 2012. The trading operations more than doubled operating profit from $22 million to $55 in 2013. All other divisions contributed moderate increases to the groups operating results for the quarter.

Growth markets | Management stated that the food division performed well with improved profit. Jamaica, Canada, Belize and the USA were leading markets for them. Grace‘s international business benefited from marketing efforts with the main focus on consumer acceptance. The focus on newer markets is going well. The west coast of America expansion is on target whilst they have seen gains in shelf space in the UK top retail chains. Lower yields on government bonds have forced shifts within some of the group companies. Other segments within the group will benefit from lower cost of funds as interest rates on some instruments have declined since the NDX.

This year’s results are commendable. If the company can maintain or improve upon the first quarter numbers, earnings for the full year could beat last year’s and the year’s results could come in around $11 per share. The group has also increased the dividend payout to shareholders making the stock a bit more attractive with a 17 percent increase in the last one paid out in March.

Financial position | Grace’s finances are in good health. Assets amount to $104 billion including fixed assets of just $7 billion. Liabilities are $72 billion. Equity capital is $30.7 billion.

With economic growth in the local economy at low levels and likely to be that way for some years, Grace needs to look outside Jamaica for higher growth levels than they have been enjoying having been dominant in most areas that it operates in the local market.

The stock is cheap, selling at around 5 time earnings. Growth has not been great and may not be so for a while, but with the present price between $55-56 per share the stock has lots of room to grow. It is worth a serious look.