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Conglomerates face tough times

ANSA McAL Limited

For the nine months ending September 30, 2010, Ansa McAl Limited (AMCL) reported a diluted EPS of $2.34. This represents a 5.3 per cent decline relative to the EPS of $2.47 recorded in the comparative period of 2009.

The Group’s top line Revenue remained relatively flat at $3.7B in 2010. Revenue from AMCL’s Automotive, Trading and Distribution segment was down 1.4 per cent to $1.6B year-on-year. The Manufacturing, Packaging & Brewing and the Insurance & Financial Services segments remained flat at $1.3B and $534.0M respectively. The Media, Services & Parent Company segment was up 21.2 per cent to $179.4M year-on-year.(See Exhibit 1). Operating Profit for the period fell 4.1 per cent to $676.0M year-on-year. As a percentage of total revenue, the

Group’s Operating Profit Margin moved from 19.2 per cent to 18.4 per cent for the nine months. The Group’s Finance cost remained relatively flat for the period, moving to $85.6M.

Profit before Taxation (PBT) fell 5.4 per cent to $599.4M. In the Automotive, Trading and Distribution segment, Profits before taxation fell 2.3 per cent to $85.9M. The Manufacturing, Packaging & Brewing segment continued to perform creditably lead by Carib’s operation. The PBT for this segment increased 24.0 per cent to $327.3M. The Media, Services & Parent Company segment reported a 13.4 per cent increase in its Profit before Taxation to $73.2M year-on-year. The one sector that under performed was the Insurance & Financial Services segment, where PBT fell from $217.2M to $113.1M year-on-year due to the “ongoing currency and equity market volatility” Overall, Ansa Mcal’s Profit after Taxation was down 5.6 per cent to $480.7M year-on-year (Exhibit 2).

Looking forward, the Group may continue to face challenges in growing revenue in some of its segments in the face of weakened economic and business environment. Trinidad & Tobago and Barbados are the two chief geographical segments in which AMCL operates and the performances of these economies are likely to reflected in the operations of AMCL.

The Group’s diversified base of operations in a variety of industries throughout the Caribbean region mitigates the risk of operating in a single market. Furthermore, by engaging in unrelated segments, reduces the overall threat of the Group’s operations. For instance, even though AMCL’s Insurance and Financial Services segment did poorly, some of its other segments performed well when compared to 2009. The Group’s balance sheet remains very strong. At the end of September, Cash and Cash equivalents amounted to $1.3B. This, in conjunction with the Group’s ability to take on debt within the range of $2B to $3B as reported at the end of 2009, places the Group in a strong position going forward.

At the current price of $44.84, the stock is trading at a trailing P/E multiple of 13.9 times. Historically the stock has traded at an average multiple of 14.5 times in the last 5 years. Its market-to-book of 1.72 times is quite attractive compared to its 5 year average of 2.9 times. BOURSE maintains a HOLD in the short run.


GraceKennedy Limited (GKC)

GraceKennedy Limited (GKC) reported a diluted EPS of $J4.68 for the nine months ending September 30, 2010. For the comparative period in 2009, GKC’s diluted EPS was J$5.51, 15.1 per cent higher than the earnings reported in 2010.

The Group continued to be impacted by reduced domestic consumer demand as reflected in the fall in Revenue for the period 4.4 per cent from J$43.4B to J$41.5B. The Food segement was down one per cent to J$25.9B. It was a difficult third quarter as GKC’s Food experienced a contraction in business in its domestic market. Although in the International market the Group’s Food operations showed signs of improvement relative to 2009, performance in this market was below GKC’s expectations. The Banking & Investments segment revenue fell by 24.1 per cent, while revenue from the Retail and Trading segment contracted 16.5 per cent. In the Insurance segment revenue gained 14.3 per cent. Revenue from the Money Services segment was down 2.3 per cent to J$3.2B.

The Group’s expenses fell by 5.4 per cent from J$41.8B in the nine months of 2009 to J$39.5B in the nine months of 2010. Other income declined 38.3 per cent to J$769.0M contributing towards a lower operating profit. However, GKC’s operating profit margin remained relatively flat at 6.7 per cent in 2010. Interest Income contracted 17.2 per cent to $J286.7M as the Group continues to be impacted by the lower interest rates resulting from the Jamaica Debt Exchange (JDX).

Profit Before tax was down14.2 per cent for the period from J$2.9B to J$2.5B. In the Food and Trading segment, pre-tax profits were down 43.9 per cent. The Food trading segment was impacted by the significant increase in finance costs from J$125.7M to J$306.7M. The reverse can be said for the Retail & Trading segment which benefitted from reduced finance costs. This sector recorded a profit of J$24.6M relative to the loss of J$41.1M recorded in 2009. Pre-tax profit in the Banking and Investments segment improved to J$648.2M.

GKC faces a challenging time ahead as the economic outlook for the Jamaica continues to look bleak. The Group’s falling interest income could be compensated by reducing its operating expenses at First Global Bank and First Global Financial services. Although the company faces the risk of further reductions in domestic consumer demand, the initiative of the new products may reverse this risk. The Chairman of the Group did point out that GKC is “poised to deliver improved service levels and new products” to its customers. On the international front, reduced recessionary pressures may contribute towards a better performing GKC food operation.

From a valuation perspective, at the current price of TT$3.63, GKC is trading at a forward P/E multiple of 9.1 times in line with its average in the last 5 years.The market-to-book of 0.63 times is quite attractive. Any pick up in global economic growth could turn around the operations of the Group and improve corporate earnings. BOURSE maintains a HOLD on this stock.


The Trinidad Guardian

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