When stock prices rise much faster than the growth in profits, we need to take time to take note of what is happening. Investors in such stocks should be fully conversant with the factors at play to ensure that their investment can be properly protected if, and when, the factors change.
Unilever Caribbean stock price is up 13 percent so far this year on top of a 45 percent increase in 2012, 44 percent in 2011 and 35 percent in 2010 after a 16 percent fall in 2009. The company a subsidiary of Unilever PLC, a United Kingdom company, is based in Trinidad and manufactures a range of homecare, personal care and food products for the Caribbean region, including Jamaica, and has been having a reasonable profit performance for a number of years. In fact they have been able to improve sales and margins in a market that has been in recession since 2009. The growth in the stock price is well in excess of the rise in profits for the past four and half years.
Some of the company’s brands include Mistolin, Radiante, Breeze, Vaseline, Lux, Lipton, Becel and Blue Band. The product range also includes dishwashing liquids as well as fabric conditioners.
For the three months to March this year, revenues climbed to $133 .6 million up from $127.5 million for the same period in 2012 while profits were up to $13 million after tax compared to $11.9 million in 2012. The December quarter is the biggest period for earnings with more than a third being generated in the period. For 2012 full year to December the company reported after tax profit of $59.5 million an increase of 2.8 percent over that earned in 2011. Profit for 2011 was up 11 percent over 2010 and 2010 profit was up 26 percent over the previous year. Lower interest rates in Trinidad have helped to push the PE ratio to 21 times earnings at a current stock price of $53.25, up from 14 times in 2011 and 11.5 for 2010.
Unilever reported areas of success reflected in good growth in some of its products but also expressed concerns about rising input cost of some of the products it manufactures as well as competition from cheaper products. From all indications, management seems to have managed to steer the operations well resulting in improved margins, which moved from 61.8 percent in 2012 first quarter to 63.8 percent in 2013, a continuation of the marked improvement seen for 2012 when the margins for the full year came out at 63.7 percent vs the 59.2 percent enjoyed in 2011.
While cost increase seems to be under control in 2013 for the first quarter, that was not the case in 2012 when selling cost rose by $17 million or 17 percent and administrative cost rose 22 percent, well above the growth in revenues. For the quarter, selling cost rose by 4.8 percent and administrative cost rose 2.7 percent while revenues are up 4.75 percent.
The company boast equity capital of $176 million, has no interest bearing debt and a high current asset ratio with liabilities almost covered twice over.
The stock seems poised to rise further as demand exceeds the supply of the stock on the Trinidad market.
[…] $64.34, National Enterprises had 2,300 shares changing hands, climbed 1 cent to end at $17.21 and Unilever Caribbean ended trading with 254 shares to close at a new 52 weeks’ high of $66.42 after adding 3 cents. […]