Bourse Securities Limited: Revenue Growth For Neal & Massy

BOURSE SECURITIES LIMITED
Weekly Market Review

February 21st, 2011
Revenue growth for Neal & Massy

Neal and Massy Limited
For the quarter ended December 31st, 2010 (Q1 2011), NML reported diluted earnings
per share (EPS) of $1.15 versus the earnings of $1.20 reported the same quarter last year.
The EPS from continuing operations for the quarter was $1.18 compared to $1.30 in Q1
2010.
The Group’s Revenue was up 6.8% to $2.2B year-on-year. Across the board there was
revenue growth in all business units. In the Food Group unit, revenue for Q1 2011 was
4.8% higher than what was reported in Q1 2010. This unit continues to be the main
contributor to the Group’s total revenue, accounting for over 50% of the top-line.
Revenues from the Automotive & Industrial Equipment unit moved up 15.8% to
$358.3M. Stable commodity prices contributed towards the Energy and Industrial Gases
unit’s 13.1% increase in revenue. The Financial Property & Other business unit’s revenue
moved up 1.7% to $311.0M. The Tourism/Hospitality and Information Technology &
Communications units increased to $72.6M and $117.7M respectively (Exhibit 1).
The discontinued operations in this quarter contributed to a $0.03 loss in earnings, while
for the same period last year the discontinued cost reduced earnings by $0.10. Losses
from Warren Motors should end when operations are closed this month. The Group
intends to continue this trend of limiting future losses, keeping in line with its strategy to
restructure unprofitable operations.
Despite revenue growth in all its units, Profit before Income Tax for NML remained
relatively flat at $176.7M. The Food Group unit experienced a 10.5% improvement in
pre-tax profits. The Automotive & Industrial Equipment unit and Energy and Industrial
Gases unit also benefitted from improved pre-tax profits. The Financial Property & Other
business unit reported a 39.6% fall off in pre-tax profits. It should be noted that the
Group’s United Insurance operation were negatively impacted by claims for damages
arising from Hurricane Tomas and this would have contributed to the reduced profits of
the unit when compared to last year. Overall, results in Barbados were impacted by these
claims; without these claims profit before tax of the Barbados Operations would have
grown by 9%.
Profit after tax amounted to $119.7M versus the $118.3M reported in Q1 2010,
representing a growth of 1.2% year-on-year. Despite this growth, there was a decline in
the Profits attributable to Shareholders from $115.3M to $110.6M, since a considerable
share of the improvement in Profits after tax came from companies with strong minority
interests.
Going forward, some of the Group’s operations may continue to show signs of
improvement despite the slowdown in business activity. This can be possible as the
Group has identified opportunities for growth both locally and internationally, with each
business unit being given a growth mandate. For instance, on the local side, the Group
has indicated its intention to expand the Hi-Lo and Supercentre supermarket chains into
the East and Southern regions. Presently, over 50% of the chain is located in the North of
Trinidad.
In addition, restructuring of some of its operations can result in a turnaround in

performance of some of its business units. For instance, in its last financial year, Pres-T-
Con which is part of the Automotive and Industrial Equipment business unit was hit hard
by the tightening construction industry in Trinidad and Tobago. However, there was
significant restructuring in this company and the Group expects it to return to profitability
in 2011. Restructuring of the operations for the Almond Group may be on the works in
the current year. The outlook is for an improvement in the tourism sector in Barbados for
2011. A full recovery in the tourism sector is possible in 2011, provided that arrivals
increase as projected from the key source market, the UK.
Guyana continues to provide growth for the Group. Further expansion of services in the
country is expected as the Guyanese economy prospers in the wake of higher gold prices.
The Group has also expressed interest in doing business in the Dominican Republic in the
future. Overall the New Year will be important for the Group to provide a platform for
strategic growth locally and internationally.
At a current price of $42.00, NML is now trading at a trailing P/E of 9.9 times from
continuing operations (trailing P/E including discontinued operations is 13.6 times).
Currently its market-to-book stands at 1.3 times, while its average in the last 6 years
stood at 2.1 times. In light of these valuations and the Group’s steady performance in
such a challenging environment, BOURSE recommends a BUY on this stock.
GraceKennedy Limited (GKC)
GraceKennedy Limited (GKC) reported a diluted EPS of J$6.79 for the financial year
ended December 31st, 2010. For the comparative period in 2009, GKC’s diluted EPS was
J$7.79.
The Group reported a 3.8% fall in its top line from J$57.4B in FY 2009 to J$55.3B in FY
2010. There were mixed results in the final quarter of FY 2010 with GK Foods reporting
growth in revenues while GK Financial Group experienced a decline in revenue
stemming from lower interest rates when compared to last year. GK Food’s revenue
growth was possible through growth of the Grace-owned brands worldwide in the fourth
quarter. Despite this, income from the Food segment remained relatively flat at J$34.6B.
The Banking & Investments segment income fell by 26.7% for the year, while revenue
from the Retail and Trading segment contracted 12.5%. In the Insurance segment revenue
gained 19.0%. Income from the Money Services segment was down 3.7% to J$4.3B.
GKC’s expenses fell by 4.6% from J$55.2B for FY 2009 to J$52.7B in FY 2010. Other
income fell to J$1.1B contributing towards a relatively flat operating profit when
compared to last year. However, GKC’s operating profit margin improved marginally
from 6.4% in FY 2009 to 6.6% in FY 2010. Interest Income fell 16.4% to J$396.8M as
the Group continues to be impacted by lower interest rates resulting from the Jamaica
Debt Exchange (JDX).
Profit before tax was down 10.8% for the year from J$3.7B to J$3.3B. In the Food and
Trading segment, pre-tax profits were down 32.6%. The Food trading segment was
impacted by a significant increase in finance costs from J$159.8M to J$434.2M. For the
year, the Group made significant investments in this segment and had a new completed
operational distribution centre. For the Retail & Trading segment, the reverse occurred as
the segment benefited from lower finance expenses. This sector recorded a profit of
J$103.6M versus a loss of J$82.8M recorded in 2009. Pre-tax profit in the Banking and
Investments segment improved to J$545.3M.
GKC faces the potential of revenue growth once its GK Foods operations continue to
deliver growth in its Grace-owned brands worldwide. In addition, the significant
investments made in two of its factories and its new distribution centre can contribute
towards improvement in its earnings. Within the Retail & Trading segment, it should be
noted that there was significant recovery in the fourth quarter results after a dismal
performance in the first three quarters. A key factor going forward would be the Group’s
ability to maintain this growth momentum. Although the company faces the possibility of
weakened domestic consumer demand, new product initiatives may mitigate such risk.
From a valuation perspective, at the current price of TT$3.80, GKC is trading at a trailing
P/E of 7.6 times, in line with its 5-year average. The market-to-book of 0.61 times is
quite attractive. Any pick up in global economic growth as well as continued growth in
the Grace-owned brand worldwide can contribute towards improvement in corporate
earnings. BOURSE maintains a HOLD on this stock.
This report is for informational purposes only and does not constitute an offer or solicitation to buy or sell
any securities discussed herein. The information and any data contained herein have been obtained from
financial data provided to us by the issuers of the subject securities. Investors wishing to purchase any of
the securities mentioned should consult an investment adviser. Projections and estimates are those of
Bourse Securities based on current available information.
E-Mail us at [email protected] or phone 628-6204/3982/9100

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BOURSE SECURITIES LIMITED

Weekly Market Review

Revenue growth for Neal & Massy

In addition, restructuring of some of its operations can result in a turnaround in

GraceKennedy Limited (GKC)

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