Home' Trinidad and Tobago Guardian : October 11th 2015 Contents OCTOBER 11 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
In last week s article we suggested, in
passing, that the Volkswagen emissions
problem may have some negative fall-
out for its local dealer, Best Auto Ltd.
Considering that Massy Motors has
only a 50 per cent stake in that com-
pany, which comprises a relatively small part
of its total automotive business, this event is
not likely to affect that group to any significant
In any case, most of the cost of the repair
exercise would naturally fall on Volkswagen.
In the short to medium term, the greater chal-
lenge is the potential for lost sales of that
Of greater immediate positive significance
was Massy s sale on September 22, 2015 of its
20 per cent stake in Banks Holdings Ltd to
SLU Beverages Ltd, which is owned by Cerve-
ceria Nacional Dominicana SA. In turn, CNDSA
is controlled by the Brazilian beverages giant,
Companhia de Bebidas Das Americas---AmBev.
SLU, which increased its stake in banks to
40 per cent, has since made a formal offer to
buy the remaining shares in BHL at the same
price of Bds$4.00 per share. The directors
have received the formal offer and indicated
that they will respond and give their recom-
mendation to shareholders by October 19,
The sale of 13.1 million shares was executed
at Bds$4.00, thus realising Bds$52.6 million
or about TT$171 million. As at September 2014
the market value of this investment was
TT$123.4 million. The profit on this sale will
be included under "other income" in Massy
Holdings Ltd 2015 accounts, which closed on
The sale of BHL could also have positive
implications for Sagicor Financial Corporation,
which owns 3,956,722 BHL shares or about
6.1 per cent of the total outstanding.
We turn now to Massy s third quarter results
for the nine-month period ending June 30,
Massy's Q3 performance
Total third party revenues rose by 12.7 per
cent to $8.97 billion from $7.96 billion in the
comparative 2014 period.
Operating profit before finance costs
advanced by a modest 1.4 per cent to $624.8
million from $615.9 million recorded in the
Although finance costs did decline by $1.8
million in the third quarter, the year-to-date
figure registered at $63 million. This repre-
sented an increase of $29.1 million or 86.2 per
cent greater than the 2014 figure of $33.8 mil-
lion. This was mainly attributable to the $1.2
billion bond that was used to refinance short-
term debt and to fund new acquisitions.
This movement pulled down operating profit
to $561.8 million from the previous level of
$582.1 million. In addition, the results from
associates and joint ventures did not help mat-
ters; the contribution from these sources fell
to $24.6 million from 2014 s $35.1 million.
In 2014, the re-branding exercise pulled
down profits by $59 million to $558.2 million.
In the current period, this line item was a
modest $313,000 which enabled Massy to
report a pre-tax profit of $586.1 million; this
compares favourably with the $558.2 million
reported for the 2014 period.
After allowing for taxation and minority
interests, the net profit attributable to share-
holders came in at $415.9 million versus $396.3
million. This reflects a current EPS of $3.95
versus $3.74 previously.
Profit increases were recorded in both the
automotive and industrial equipment and
insurance divisions. Increasingly, Massy United
insurance is tying in vehicle and auto sales
into one package.
Despite higher revenues in the integrated
retail segment, profits were lower. It is here
we see the major effects of higher finance
costs, which climbed to $27.7 million from
$15.7 million. Profit margins were also squeezed,
moving from 6.18 per cent in 2014 to 5.87 per
Lower profits in the energy and industrial
gases segment were largely attributable to
reduced activity and prices.
Implementation delays pulled down profits
at the ITC division. Meanwhile, the investments
and other segments suffered from lower poultry
prices in Barbados and the absence of the
Huggins Shipping contribution.
Interestingly, third party revenues at its
Trinidad operations increased to $4.47 billion
(2014: $4.27 billion) while pre-tax contribution
from that source declined to $410 million from
$439.3 million. Higher profit levels were record-
ed in Barbados, Guyana and Columbia; in the
case of the latter, albeit, from a low 2014 base.
Share price, dividends and prospects
Massy s share price closed on January 2,
2015 at $68.25. During that month a final div-
idend for 2014 of $1.39 was paid.
By February 5, the price had dropped to
$64.00 and it further declined before ending
at $63.00 on May 26, 2015. A tepid recovery
started and the price closed at $64.26 on June
5, 2015. During June, shareholders received an
interim divided $0.51, which was unchanged
from the previous year.
Once again, the share price began slipping
and was recently quoted at $62.50.
At that price, the annual dividend of $1.90
gives investors a yield of 3.04 per cent.
With substantially all the rebranding costs
behind it and despite higher finances costs,
the group should report a reasonable 2015
The higher costs of super and diesel fuels,
announced in the 2016 Budget, could place a
small damper on the sales of its current range
of vehicles. On the other hand, the fortuitous
sale of its Banks shares, as indicated above,
combined with any other miscellaneous items
could provide a useful lift to its profits.
These developments suggest that its final
dividend could be higher than last year s $1.39.
Increasing its dividend would also improve its
yield and, eventually, help restore its share
Lower finance cost
boosts PHL's Q3 results
The tone of the Chairman s comments has
shifted favourably, as follows: "Customer Serv-
ice and satisfaction remain a major focus of
management and represent our biggest oppor-
tunity for improved growth and profitability."
This change suggests that, even in the highly
competitive food retail business and in a slow
growth economy, which is likely to continue
for some time, focussing on the right priorities
can result in profit growth and improved
returns to shareholders, including employees.
For the nine months to August 2015, PHL s
revenues advanced by a modest 3.65 per cent
to $723.2 million from $697.7 million in the
2014 comparative period. Even so, gross profit
margins improved by 4.1 per cent to $261.5
million (2014: $251.2 million).
Higher restaurant operating expenses (up
by 6.1 per cent) and administrative expenses
(up by 2.8 per cent) restrained operating profit
to $62.5 million. This was marginally higher
than the $62.2 million reported for the 2014
period. The higher restaurant operating expens-
es reflect the costs of upgrading the TGI Fri-
day s outlets at Price Plaza and Gulf City.
However, the biggest improvement was
shown under net finance cost, which con-
tracted to $6.36 million from last period s $9.15
Resulting from this decline, pre-tax profit
advanced by 5.8 per cent to $56.1 million from
last period s $53.1 million.
Lower taxation of $14.98 million (2014:
$16.8 million) saw the after-tax profit register
at $41.16 million; this was 13.5 per cent greater
than the $36.3 million recorded for the nine
months to August 2014.
In 2014, there was $826,000 reversal of a
previously recognised deferred tax asset, which
contributed to a higher tax cost in that year.
EPS, including ESOP shares, improved from
$0.583 to $0.661.
On the basis of these results, the interim
dividend was increased from $0.15 to $0.16;
this will be paid on October 19, 2015.
Share price, dividends
PHL s share price closed at $9.56 on January
2, 2015. Following the release of its 2014 results,
the price advanced to $10.00 on March 18. It
remained firmly at that price until May 28,
2015, when it weakened to $9.99. In early May,
the final dividend for 2014 of $0.17 was paid.
For the next several months, the price ranged
from $9.85 to $9.90.
At the higher price and using the 2015 cal-
endar dividend of $0.33, the yield is 3.33 per
On the basis of the trend in its performance,
we can project a full-year EPS of $0.85. That
estimate suggests that its final dividend could
be $0.19. This would bring its total dividend
for fiscal 2015 to $0.35 (2014: $0.32 and 2013:
PHL has a healthy hoard of cash totalling
$68.7 million (November 2014: $57.3 million).
In addition, its current assets of $151 million
comfortably exceed its current liabilities of
Also, its retained earnings of $193 million
are within striking distance of its total liabilities
(current and long-term) of $224 million. Finally,
its dividend pay-out percentage is about 40
Traditionally, the company has grown faster
by making acquisitions within its field of com-
petence (the most recent being Subway).
Do these metrics suggest that PHL is build-
ing up its reserves in order to execute an appro-
priate purchase at a time of its own choosing?
Might Linda s Bakery or another eligible target
become part of its 2016 game plan?
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