Seprod slated to make big acquisition

Seprod is in the process of acquiring a distribution company headquartered in Trinidad and Tobago and is involved in food, grocery, hardware, housewares, pharmaceuticals and beverages. gathers the acquisition, which Seprod states is slated to be concluded by the end of May, would about double Seprod’s size in revenues. The target has 1,300 employees and revenues of US$240 million around J$37 billion, just below Seprod‘s sales of J$43 billion for 2021. The group, AS Brydens which is being acquired, also operates in Barbados and Guyana and is expected to boost Sperod’s profit per share, from the majority ownership that they will hold along with others within the Musson Group.

IC gathers that Seprod expects to benefit from increased sales of locally manufactured goods through the new linkage.

Is Lumber Depot a buy?

After posting outlandish first quarter results that were boosted by inventory profit, Lumber Depot reported more down to earth profit in the second quarter of 5 cents per share, raising the half years earnings to 15 cents from profits in the October quarter of $35 million, down marginally from $36 million in 2020, with half year profit climbing 62 percent to $107 million from $66 million in 2020.

Lumber Depot dominated trading with

First quarter revenues grew an attractive 16 percent, but the second quarter revenues were flat, at $340 million bringing the half year sales to $760 million up 8.6 percent from $700 million for the similar period in 2020. “Revenues and profits for the three months ended October 2021, were directly affected by the lock-down period effected during the late summer that resulted in 17 lost sales days during the quarter and unprecedented disruptions to the construction planning and work cycle as well as to the supply chain for construction inputs. Against this backdrop, we are satisfied to have been able to maintain both revenues and profits for the second quarter at that same level as the prior year,” chairman, Jeffrey Hall advised shareholders in his report accompanying the quarterly.
Gross profit margin rose to 23 percent in the half year from 19.6 percent, while the 2021 second quarter saw gross profit falling to 18 percent versus 21 percent in 2020. Gross profit rose 28 percent from $137 million in the half year in 2020 to $176 million, while the 2021 October quarter saw gross profit just ahead of 2020, with $72 million versus $71 million.
Other income brought in $11 million for the half year compared to $5 million in 2020 and $9.5 million for the quarter versus $1.4 million being interest income in the 2020 quarter.
Administrative and other expenses slipped marginally in the half year to $73 million from $76 million last year and rose moderately from $39 million to $43 million for the quarter. Finance cost amounted to $5 million for the half year against $4.44 million in 2020 and the last quarter $2.2 million with the 2020 period amassing $1.9 million.

An unprecedential construction boom taking place in Jamaica

Gross cash flow brought in $112 million but growth in working capital, additions to fixed assets costing $164 million, resulted in negative funds flow of $28 million for the half year. At the end of October, shareholders’ equity stood at $402 million. No borrowed funds were used to finance the operation at the end of the period. Current assets ended the period at $329 billion including trade and other receivables of $51 million, cash and bank balances of $115 million. Invested funds amount to $119 million. Current liabilities ended the period at $228 million. Net current assets ended the period at $$101 million.
The Paul Scott’s, Stony Hill Investments recently acquired a major interest in the company, what could be in it for them some investors are asking.  Scott sees scope for expansion and growth, in what he considers a well-run company that is simple and easily understood. He feels that they are in a position to benefit from expansion of housing in the country. sees potential for major expansion, with Kingston, Portmore, Spanish Town prime areas for expansion focus and there is nothing to prevent them from expanding nationally at some point in time. Lumber Depot could benefit from the close linkage to the Musson Group that has large holdings of real estate within the group or indirectly in the investment companies that can purchase materials for repairs or expansion through them.
The full year results should end up around 30 cents assuming some pickup in sales in the second half. On this basis, the stock may be considered undervalued at the current trading price of around $3.

Profit soars 103% at Seprod

Seprod expected their entry into sugar production in 2009 was going to be a lucrative endeavour with their business acumen, strong capital base and vision they would succeed where others failed for decades. According to a Gleaner report in 2010, “the company not only acquired some 820 hectares of lands last year to add to its Golden Grove Sugar Company operations but also upgraded its factory. The strategy of an upgraded factory and “economies of scale” is expected to reap increased revenues for the group, according to Group Chairman Paul Scott.” Shortly after they acquired the business, the directors were told they were undertaking a huge gamble and would have been better off if they had left it alone. Ten years later, with billion-dollar losses, Seprod finally stopped the costly experiment.
Having disposed of the sugar manufacturing operation, the company slashed its sugar losses by 89 percent from $139 million for the first quarter in 2019, to just under $15 million for the quarter just ended. The reduction in the sugar operating losses helped the net profit to soar 103 percent to $633 million, up from $312 million from the first quarter of 2019 that includes net loss from discontinued operations of $139 million. So strong are the first-quarter numbers that the profit amounts to 65 percent of the full year’s profit in 2019. Earnings per share came out at 86 cents for the quarter.
First-quarter revenues increased six percent to $9.14 billion over the $8.6 billion for the comparative period last year. Manufacturing segment revenue was up 17 percent to $5.2 billion compared to March 2019, while distribution revenues increased 14 percent to $6.9 billion. Segment profit for the Manufacturing segment grew from $682 million to $1.14 million and that for the distribution segment increased from $156 million to $418 million. Export sales rose 13 percent over last year’s first quarter, accounting for $405 million in revenue or 4 percent of the total revenue.

Some of Seprod’s products.

The net profit increase for the quarter comes on the heels of an 8 percent decline in profit for the year ended 2019, dropping from $1.1 billion in 2018 to $973 million, although revenue increased for the year by 45 percent to $32.7 billion, resulting from acquisition and mergers mostly from businesses within the Musson Group.
For the quarter, direct expenses rose a modest one percent coming in at $6.4 billion and other operating expenses increased two percent to $1.78 billion year over year and finance costs fell three percent, from $287 million at the end of March 2019 to $280 million at the close of 2020 first quarter.
Seprod raked in $1.1 billion in operating profit for the quarter, a 32 percent increase over the $835 million in the corresponding period to March 2019. Operating profit margin rose 20 percent from 10 percent to 12 percent, year-over-year.
The group generated gross Cash inflows of $1 billion and ended with cash and equivalents of $1.1 billion, down from $1.48 billion at the start of the year. There was a sharp reduction in payables but a big increase in receivables since December 2019 and there was a near billion-dollar drop in inventories. Net current assets ended the period at $7.8 billion, after accounting for current liabilities of $6 billion. At the end of March, shareholders’ equity stood at $15.6 billion, but borrowings totaled $13.5 billion. Seprod paid $366 million in dividends compared to $330 million in the previous year’s first quarter.
The company executives note that COVID-19 had a “minor negative impact” on its first-quarter results and it is expected that the full effect of the pandemic on company operations will be realized in subsequent quarters. Notwithstanding, it is important to note that the Seprod group includes several companies that manufacture or distribute what many consumers deem as essential foods and pharmaceutical items, which should also factor into the company’s ability to withstand this economic shock during this period.
IC is forecasting $4 per share for 2020, with the stock trading at $51 on the Jamaica Stock Exchange with a PE ratio of 12.8 times 2020 earnings.

Motta shares fully allocated

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%8 Half Way Tree Road owned by Stanley Motta.

Shares offered for sale in Stanley Motta were fully taken up report from NCB Capital Markets shows.
According to a release from the brokers to the deal, the offer of reserve shares and those the general public were full allocated.
The Company intends to apply to the Jamaica Stock Exchange for the listing on the main market of the JSE of all the Shares and to make such application as soon as is conveniently possible following the close of the offer. The offer opened on July 6 and was scheduled to close on July 20, but an notice in Friday the 20th in the Daily Gleaner, disclosed that the issue was closed suggesting that the issue was fully taken up with minimal take up by the NCB Capital Markets as underwriters.
The offer covered 757 million shares with 227,348,547 reserved mostly for family members of the majority shareholders of the Musson Group and 529,970,315 units for the General Public for purchase at $5.31 per share, meant to raise $4 billion.

Motta for income & long term gain

ALorica, parent company of the prime tenant at 58 Half Way Tree Rd.

The Musson Group is disposing of all their interest in Stanley Motta Limited in a scheduled sale of all the 757,818,862 ordinary shares currently owned.
Our sources state that the business which is a solely a real estate venture is not part of Musson’s core business. If the shares are listed it would be the fifth company connected to the group to do so.
The offer has 227,348,547 shares reserved mostly for family members of the majority shareholders of the Musson group and 529,970,315 units for the General Public for purchase at $5.31 per share. All the net proceeds will be payable to selling Shareholders. Sources indicates that General Accident Insurance will make be taking up a large block of the shares that offered to the public.
The Company intends to apply to the Jamaica Stock Exchange for the listing on the Main Market of all the Shares and to make such application as soon as is conveniently possible following the close of the offer. The offer opens on July 6, with July 20 set as the closing date.
A business process outsourcing and technology park consisting of five buildings totaling over 200,000 square feet of rentable commercial office space at.
The company owns 58 Half Way Tree Road in Kingston, next door to the new Kingston, comprising 200,000 square feet of rentable space that is fully leased with the lease quoted in US dollar. Tenants are responsible for all expenses arising by reason of occupation, including insurance, property tax and maintenance expenses. The weighted average tenor and annual rent per square foot are 4.7 years and US$12.09, respectively.

Site plan of 58 Half Way tree road.

The anchor tenant is Jamaica Agent Services Limited, the local subsidiary of Alorica Inc. Alorica is a US based global business process outsourcing firm and the third largest provider of customer experience solutions in the world. The company has over 100,000 employees and operates from 140 locations in 16 countries around the world in North America and the Caribbean, Latin America, Europe, China, the Philippines, and Japan. Alorica serves over 600 clients many of which are on the annual list of the 500 largest companies in the United States as compiled by Fortune magazine. Under the terms of Stanley Motta’s two leases with Alorica, who took possession of Units 2, 3 and 4 each as a “cold hard shell” and paid to complete the buildings at its own expense including all interior walls, ceilings and finishes.
The complex will be managed by Felton Property Management Services Limited, a subsidiary of Musson. Felton will be responsible for all day-to-day on-site property management, administration and accounting services.
The property is a designated Free Zone, accordingly, Stanley Motta is exempt from corporate income tax on the rental income of Free Zone property.
The Board expects to distribute approximately 90% as dividends subject change from time-to-time if circumstances dictate.
The Projected Valuation obtained from an independent appraiser, using the income capitalization approach, for Unit 4 at completion is US$21.3 million or approximately $2.63 billion using rates of exchange as at December 31, 2017 and $2.79 billion using the weighted average selling rate according to the Bank of Jamaica as of June 19.
The Company’s sole source of direct income is from the rental of units in the technology park. Its only other source of income is from dividends from Unity Capital, whose sole income is derived from the rental of office space in its building at 58 Half Way Tree Road. The lack of diversification means that the Company is particularly exposed to risks affecting the property market.
The Invitation is underwritten by the Underwriter up to a maximum of the equivalent of US$21 million.
The stock is not for all investors in the short term. Investors looking for relatively high return in US dollars with modest capital appreciation over time may find this an attractive offer. While most investors may view the income in US dollars as a big positive, they ought to be aware that continued devaluation of the local currency going forward is not guaranteed. Of note is that the rental income for a full year is likely to be in the order of US$2.5 million with most expenses picked up by tenants, it should net out around the same amount tax free. The yield on investment will translate to just under 7 percent. The property has room for some amount of expansion which is done could increase the revenues and profit. The new leases while priced at $12 per square foot is set to rise to $14 dollar at renewal in 5 years and should go higher on renewal thereafter.
With Jamaica, on target to lower the fiscal deficit to 60 percent of GDP and with government maintaining balanced fiscal operations inflation going forward is likely to remain low and should result in low interest rates, against this back drop ground, the income from this operation could see investors ultimately acquiring the stock as a good income play and then drive up the price over time.

PBS IPO to launch end of June

Productive Business Solutions’ prospectus for its Initial Public Offer (IPO) is expected to be available to the public on June 29, when it will be posted on the Jamaica Stock Exchange website.
The company, a member of the Musson Group, is slated for listing on the US dollar market of the Jamaica Stock Exchange. The price will be $0.55 with the target is to raise US$41.5 million.
Revenues are said to be in the order of US$200 million with EBITA of US$20 million. The company is the largest dealer for Xerox equipment and generates 60 percent of revenues from the Central American region and 40 percent in the Caribbean with 5 percent in Jamaica. Other brands the company represents are Cisco, Oracle,GMC, Triplite and Engatel.
NCB Capital Markets are the brokers handling the deal IC has been reliably informed. The shares will be the fourth listing of ordinary shares on the US$ market of the Stock Exchange.
According the company’s website, they are the largest IT and Technology Company in Central America and the Caribbean covering 22 countries and a US$202 million multinational company employing 1,300 employees. The Musson Group has Eppley, General Accident and Seprod that are listed on the Jamaica Stock Exchange.
The Musson Group is a diversified conglomerate operating most specifically as a distributor, logistics partner, manufacturer and sales and marketing company for many global brands, and some of its own branded products in 33 countries worldwide.
IC has also understood that a major and popularly known group with a diverse product mix has recently taken a decision to list on the Jamaica Stock Exchange. Currently, it is not known the timing for the listing or the size of the amount to be raised. IC will keep updated as soon as more information is available.