LASCO Financial may be the smallest of the three listed Lasco companies but its performance has been tops for the past 2 years with growth in profits far out pacing its two bigger affiliates. The company which recorded strong growth in profit in the last fiscal year to March has continued that trend with profit of $39 million compared to $26 million for the first quarter, a strong 50 percent increase.

For the full year ending March this year, the company reported profit of $163.9 million compared to $102.4 million, a 60 percent increase. The strong increase in profit, helped propel the stock price up by more than a 200 percent increase from the end of December last year and 275 percent from the June 2012 when the price was of $4.25. The stock now trades at 42.5 cents based on a recent 10 for 1 stock split.

Profits grew 60 percent for the year to March this year, in 2012 it grew by 244 percent, helped by revaluation surplus on investment property that was booked and in the prior year growth was 187 percent. As the company grows in size, the growth rate has slowed but indications are that this should continue into the current fiscal year and the first quarter numbers support this so far.

According to management, the latest results emanated from trading income which is up by 47 percent to $144 million as a result of a 100 percent increase in the Cambio Division and a 28 percent increase in the Remittance Division.

Management also indicated that, “Lasco Financial has commenced significant investments in marketing activities, which are expected to capture even more substantial market share for our remittance division; the outcome of which will also yield growth opportunities in the Currency Trading division. This is noticeable in our selling and promotion expenses which saw a 58 percent increase, up from $36.3 million in the previous period to $57.6 million. Administrative and other expenses rose in the quarter to $47.6 million, up 33.7 percent over the same period of 2012.”

The company’s subsidiary Lasco Financial Services (Barbados) Limited and its agent Unicomer Barbados Limited (Courts) began trading in May 2013. Transaction growth has been satisfactory to date and LASCO Financial Services will continue to expand in the Caribbean region.

Growth | Total assets amounted to just $47 million in 2010 but has enjoyed rapid growth and is at $690 million at the end of June this year — still a small financial company in the local market with lots of room to grow. Loans advanced was nil at the end of 2011 and is now close to $100 million at the end of March this year. Loans and receivables rose to $334.5 million up from $237 million at the end of June last year. Cash also increased from $135.5 million to $221.7 million over the same period. Equity stood at $514 million. Based on the recent growth levels and investments in marketing to expand revenues IC Insider is forecasting earnings between 22-25 cents per share for the current year.

Insider call | LASCO Financial Services is an IC Insider Buy Rated stock.

Related posts | All 3 Lasco companies approve splits | Lasco Financial strong profit

In the aftermath of the first quarter results to June, investor’s would be forgiven if they were disappointed in the results of what many see as the flag ship of the three Lasco companies listed on the junior market. Revenues grew “oh so slightly” to $842.7 million from $835.4M in 2012. However, the company was able to maintain and control its costs of sales, thus achieving gross profit of $250.3 million slightly  above that of the first quarter of 2012. Profit was not as fortunate as it slipped to $138.751 million from $153.54 million in 2012. The stock which was trading at $1.80 pulled back on the release of the results and closed at $1.45 on Wednesday.

Operating expenses | The first quarter operating expenses increased due to an under-accrual for a promotional expense during the last quarter of 2012-2013, which was brought to account in the current quarter. In addition, the company had to honour a retroactive duty charged by customs on the disposal of damaged raw material, which consequently impacted on the profitability for the period. But investors should be looking well beyond the latest results and focus instead on the major expansion that is currently under way. Once completed, the increased sales from new products will not only boost sales but profits and ultimately the stock price.

Not to be underestimated is the impact that the factory expansion is having on costs and the diversion of cash to fund the factory expansion that would otherwise have been available for investments.

Exports | LASCO Manufacturing exports 10% of sales as finished products to the United States, Canada, England, Panama and the Caribbean. The company is currently exploring West Africa, and Ghana in particular, as a new market. Exports are planned to move to 25% within a short time period. That will take some doing as local sales is also expected to grow. Current export sales would be need to increase by one and a half times to meet this target.

The chairman, Lascelles Chin, told the attendees at a press conference on Monday that “the development of a new product range has become an important facet in our strategic plan and every effort is being made by the team to ensure the margins required are obtained.

The chairman also disclosed that the factory expansion will cost just under US$30 million, this well be over the original planned figure of US$10-15 million. The factory is expected to be operational by September, at which time the company expects to roll out new products that will be priced very aggressively to compete with others in the market place. According to Chin, “The results of the manufacturing expansion currently underway at the White Marl location will undoubtedly unlock potential in the company for our consumers, shareholders and other stakeholders”. He indicated that this will be the largest factory in Jamaica at 340,000 square feet and will produce many new products to add to the current range.

The expansion is not only about new products. A significant factor will be the reduction of current costs and the ease of production. The new factory and machinery will result in waste reduction and eliminate the doubling-handling of goods.

The chairman reiterated, “With the expansion project near completion within the next two months, we expect that LASCO Manufacturing’s financial performance will improve significantly. Over the next year – many new products will be pivotal to the company’s growth and we look forward to being able to make further positive announcements about new products to you in the near future.”

Balance Sheet | Trade payables increased from $258.8 million at the end of 2012-2013 financial year to $333.8 million in June 2013 due to increased purchases of raw materials, which is typical for the period in anticipation of the summer, back to school and hurricane season. This was affected also by the exchange rate fluctuations during the first 3 months of the financial year. The receivable surge was due to extended credit terms offered to a major distributor. The company borrowed $1 billion to help fund the expansion of the factory with about $1 billion being internally generated funds. The loan represents just under 2 years of cash flow at present revenues.

Insider call | LASCO Manufacturing is a IC Insider Buy Rated stock.

Related posts | All 3 Lasco companies approve splits | LASCO Manufacturing: one for the radar

LASCO Manufacturing enjoyed a 15 percent increased profit for the year ended March 2013 before taxation from increased revenue of 13% for the year. Profit after taxation was up only 9 percent as the 2012 results benefited from a tax credit which boosted the after tax figure. In the latest quarter, revenues were up just 8 percent, a lower pace than the September and December quarters with growth of 21 percent and 15 percent respectively. But the best is yet to come with the near completion of the factory expansion that will cut cost and result in new products being introduced.

4^th Quarter | Pretax profit for the March quarter was up 29 percent to reach $175 million. After tax, the increase was just 8 percent. In the March quarter, gross margin increased from 27 percent in 2012 to 30.7 percent and is up from 27 percent in the December quarter. Administrative expenses rose 6.5 percent year over year, much less than the growth in revenues while selling and promotional expenses remained flat for the year, helping to boost profit.

The improvement shown in a better margin and subdued cost increases has been highlighted by management in a report to shareholders. “The company continues to focus on cost control, cost containment, cost management and increased efficiency,” the statement said.

Financials | Trade Receivables increased by $180 million from $447 million in 2012 which management states was due to a temporary timing difference of payment with one of their distributors and has subsequently been settled. Inventory also increased $210 million from $279 million in 2012. Equity capital was $1.9 billion at the end of March, enough to facilitate the loan taken on, allowing for appropriate coverage.

Factory expansion  | LASCO Manufacturing embarked on 70 percent factory expansion of the manufacturing operation which is nearing completion at the White Marl location. When completed with new machineries in production, cost is expected to be reduced considerably. The areas that the reduction will be most visible include direct production cost, with less direct labour, material waste and cost relating to the double handling of goods. The capital spend on the expansion at the end of March is $1.7 billion out of a budgeted expenditure of J$2.2b. So far the company has drawn down J$1 billion of a loan facility to help fund the capital expenditure with the rest coming from internally generated funds.

“We are poised for further growth as we experienced higher demand for our products in the local and export markets in the past year,” Management said.

Products | The company manufactures several well-known food items such the soy protein based LASCO food drinks, LaSoy Lactose Free, Oats Porridge Mix. It will also package Full Cream Milk Powder and Skimmed Milk Powder and purchase and co-package a wide range of other food items, consumer, personal care, infant care and household products.

Exports | The company exports its products to 23 countries, including UK, Canada and USA. Export sales now represent 9% of overall sales.

Stock outlook | Lasco has a competitive advantage with a well-known and respected brand and the expansion will reduce the cost of production making the existing products even more competitive. New products are to be added to the existing ones and some products that are being manufactured by others will be produced in house.

The stock price raced to $15 after the company announced a 10 for 1 stock split and it gained added support with the release of the recent results. The growth seen during the year, with more to come, makes this stock one that must be on all investors’ radar.

Revenue for the year to March increased 11 percent, but profits fell by 8 percent cooling the rapid growth experienced in the previous year for Lasco Distributors. The stock price nevertheless jumped just before the release of the results from $10.50 to $15 in response to an announced stock split.  Profit came in at $507 million without any tax charge, down from $550 in 2012 after a tax charge of $30 million. The result helped to maintain the stock at the level reached before the actual results were published as earnings per share came in at $1.51.

Revenues grew by $795 million to $8,255 billion in a period when official data says the local economy recorded negative growth. Gross profit margin declined quite sharply to 19.9 percent  from 21 percent in the prior year due to a what management states is “a one off adjustment to cost of sales related to import duties, absorption in increased volumes for institutional sales at lower margins, and the impact of the volatility of the exchange rate.”

The management statement continued “during the last financial year there were unavoidable disruptions in the supply chain for key products which impacted on revenue and profit performance. Whilst the company makes efforts to improve efficiencies there were also investments for future growth.

“Administrative and other expenses increased by 15 percent to $871 million, due to organisational changes in staff resources to strengthen the company’s market presence and preparation for impending new projects.

“The company has had success in its marketing activities as it has seen growth in some core categories and deeper penetration in targeted distribution channels. The widening of appeal and stronger brand presence is the platform for newly launched products and other planned projects with our partners.”

Balance sheet | Inventories increased by $535 million over the corresponding period in 2012, primarily due to inventory carried for important institutions and planned major promotional activities for key products which extend beyond March. Trade and other receivables increased by $315 million due to the increased marketing activity and extended credit arrangements for key institutions. “The trade receivables continue to be managed within industry standards and extended terms for supplies to key accounts is achieved in collaboration with our suppliers. Current liabilities also increased as trade and other payables was $267 million over the corresponding period and this is due to the continued supply agreement with our strategic partners,” the company stated in a release to shareholders.

Equity capital stood at $1.89 billion while current assets amounted to $2.7 billion versus current liabilities of $1.16 billion. The company is virtually debt free with just $46 million in overdraft outstanding on the books at March.

Looking forward | The company has geared up for improved business. Some of it seems to be government related. Additionally, Lasco Manufacturing expansion is well on its way and when completed and in full production, Lasco Distributors will benefit from increased flow of items to market locally.

The stock may be fully valued, currently at $15 each, bearing in mind the valuation of other junior market companies, but profits should improve going forward thus providing opportunities for further gains in the future.

Legal matter | There is a claim by Pfizer Limited (Pfizer) against Lasco Distributors Limited  and others for damages for breach of a patent relating to a particular product. The action has been tried and judgement entered in favour of the company. The judgement has been appealed by Pfizer. The appeal has been heard in the Supreme Court of Jamaica and the court has reserved its judgement. The matter has been further appealed to the Privy Council and the records of appeal have now been settled and communicated to London. It is anticipated that the matter should come before the Privy Council either by the end of this year or during the first quarter of next year.

The attorneys are of the opinion that the company should be successful on this appeal and anticipate that the amount to be recovered by the company may be approximately $400m. If not, the company will be liable for cost estimated at $25M and for an accounting as to profits made by the company as damages to Pfizer for its loss of profit attributable to the sale of the product from the commencement of the company’s dealing to the date of the interim injunction issued on 29 March 2005.

The smallest of the three listed Lasco companies, Lasco Financial posted impressive results for the year ended March 2013. Revenues climbed 30 percent to $485 million and profits jumped 60 percent to $164 million. The net results is even more impressive considering that in 2012 there was net addition to profits coming from revaluation of a $90.3 million property which was partially offset by the write off of $$46.28 million for the full purchase costs incurred from the take over of Supreme Venture Financial Services MoneyGram operations, in December 2011.

Quarterly results | In the quarter to March 2013, revenue was $144 million versus $184 million but the latest quarter figures are better than the $132 million generated in the December 2012 quarter. The revaluation gain was booked in the March 2012 quarter thus swelling the revenue figure in the period.

The quarterly profit for March was also down compared to 2012. More importantly, the $52 million earned in the last quarter of the 2013 financial year was just $2.5 million less than that earned in the high-earning December 2012 quarter.

Cost has been kept under control with a slight dip in administrative cost, most of that would relate to the removal of the one-off cost of $46 million reflected above. Selling and promotional cost were up by half to reach $152 million but the growth was much slower than the rise in trading revenues of 73 percent.

Business lines | The company is involved primarily in the business of cambio operations, money transfer and lending. It has a ready market for the foreign currencies that it purchases which it can sell to the other companies within the family.

Much of last year’s growth came from the acquisition of the business purchased. Operations have been extended to Barbados but it will take hard work to come close to repeating the 2013 performance.

The capital base is $475 million with total assets of $640 million and enjoys return on equity of a strong 39 percent and a gross profit margin of 34 percent.

The stock | This company seems to be coming into its own and investors have noticed. The stocks has gained 100 percent since December last year, when it traded at $4.90 and closing on Friday at $9.80. The results were released after trading closed on Friday. The other two Lasco companies are trading around 10 times 2013 earnings and if this company does the same it should be trading around $13 this coming week.  The PE is currently 7.5 and the share price to book 2.6 times. The company, which is not subject to taxation on profits for another three years, should report around $1.70 per share for the 2013/14 year.