Home' Trinidad and Tobago Guardian : September 19th 2013 Contents This week, we at Bourse, take a look at
Jamaican conglomerate GraceKennedy Ltd,
conducting a review of its half-year per-
formance and outlook for 2013.
The conglomerate sector of the
T&T Composite Index (TTCI)
is the third largest sector of
the TTCI, valued at $18B and
accounts for 18 per cent of
total market capitalisation. The
conglomerates sector is made up of only three
companies; two of which are domiciled in
T&T : ANSA McAL Ltd (AMCL) and Neal and
Massy Holdings Ltd (NML). The third is
Jamaican-based GraceKennedy Ltd (GKC).
As seen in Exhibit 1, the conglomerate sector
has been on an uptrend, recording market
returns of 17 per cent in 2011 and 12 per cent
in 2012. This performance has been driven
primarily by the performances of AMCL and
As at 12 September 2013, the conglomerate
sector is up four per cent year-to-date. The
sector s relatively muted performance YTD
can be attributed to the less-than--stellar stock
performance of AMCL, which is marginally
down 0.5 per cent YTD. AMCL accounts for
64 per cent of the conglomerate sector, whereas
NML accounts for 30 per cent and GKC, six
per cent. NML s share price has appreciated
19 per cent YTD, while GKC s stock return is
the least impressive, down seven per cent
Unlike its T&T counterparts, GKC has sig-
nificant business exposure to the Jamaican
economy, with around 66 per cent of its rev-
enue generated from Jamaica. The recent
underperformance and negative outlook of
the Jamaican economy has impacted the per-
formance of GKC s share price. As the Group
undertakes further growth and diversification
initiatives however, GKC and its stock could
be setting up to deliver the results investors
have been awaiting.
A review of the financials...
For the half-year ending June 2013, GKC
reported a 21 per cent increase in diluted earn-
ings per share (EPS) to J$4.17 from J$3.45 in
the corresponding period of 2012. The Group
declared its second interim dividend of J$0.78,
payable on 30 September 2013.
Revenues grew seven per cent to J$32.7 bil-
lion from J$30.6 billion, with improvements
in all divisions. The food division maintained
its position as the largest contributor to revenue
increasing by eight per cent year-on-year to
J$22B, benefitting from its diversification and
expansion strategy into new geographic mar-
The money services division experienced
growth in all of its business lines, with revenue
increasing by eight per cent year-on-year to
J$2.6 billion. Meanwhile, expenses rose by 7.3
per cent to J$31 billion from J$29 billion. Other
Income of J$883 million was more than double
that of 2012.
Profit from operations surged 26 per cent
to J$2.3 billion, with a subsequent increase in
operating profit margin from six to seven per
cent. There was an overall decline in interest
income and interest expenses from non-finan-
cial activities, attributable to lower interest
rates. Interest income from non-financial serv-
ices fell by J$2.6 million to J$151 million.
While interest expense from non-financial
services also declined by $44 million to $268
million, it remains considerably higher than
For the six months ending June 2013, profit
before tax (PBT) rose 31 per cent to J$2.3 billion
whilst net profit increased 23 per cent to J$1.59
The balance sheet showed relatively strong
growth with shareholders equity increasing
by eight per cent to J$31.3 billion from J$28.98
billion in the previous year. This increase in
equity was mainly due to increases in share
capital (↑15 per cent) and other reserves (↑29
per cent). Total assets grew five per cent to
J$107.2 billion, while total liabilities increased
3.7 per cent to J$74.5 billion.
A closer look at GKC s five operating seg-
ments showed increases in PBT across all core
operating segments, with the exception of the
banking and investments and the insurance
divisions. The banking and investments PBT
declined seven per cent, adversely impacted
by a first quarter loss associated with the
National Debt Exchange (NDX) and the Private
Debt Exchange (PDX). The Insurance division
had the largest decline in PBT with a 60 per
cent reduction and was the lowest contributor
to overall PBT.
The food trading division, while the largest
contributor to revenue (67 per cent) was the
second highest contributor to PBT accounting
for 32 per cent of the Group s PBT for HY2013.
This increase is a result of the growth in market
share of its diverse export markets. The money
services division is the third largest contributor
to revenue and remains the highest contributor
to PBT, representing 37 per cent of the total
For 2012, 72 per cent of GKC s revenue was
derived from the Jamaican and Caribbean
region, 66 per cent of which came from
Jamaica as seen in Exhibit 2.
The European market is the group s second
largest geographical revenue generator, account-
ing for 15 per cent of revenue, followed by
North America at 12.7 per cent. While Africa s
revenue represented a mere 0.1 per cent, the
J$41 million generated in 2012 marked a 234
per cent increase from the year before.
The foray into the African market is expected
to grow in significance as GKC makes a com-
mitted effort to penetrate this geographic
region. In particular, GKC is strategically enter-
ing the Ghanaian market via its food trading
division, with plans of further expansion into
neighbouring African territories.
Strategic initiatives and direction
At its recent investor briefing, GKC reiterated
its diversification strategies with respect to
revenue generation outside of Jamaica and in-
line with its vision of becoming a "global con-
sumer group." The geographical contribution
to profits shows that 37 per cent of GKC s
profits were generated outside of Jamaica in
2012, an 11 per cent increase over 2011.
More importantly, it is the result of a con-
scious strategic decision taken by GKC s man-
agement and highlighted as one of the groups
In particular, GKC s management team has
a target of generating 50 per cent of group
revenue outside Jamaica by 2020, with an
additional revenue diversification target of
producing revenues of 15 per cent from each
market in North America, Europe and Africa.
The initiative and direction communicated
by GKC bodes well for the future performance
of the Group, as geographic diversification of
its business segments offers the potential to
mitigate the effects of a slowdown in the
Jamaican and wider Caribbean economy.
Beyond its usefulness as a defensive measure,
penetrating new and large consumer markets
such as the African region and intensification
within the North American markets vastly
expands the growth opportunities for GKC
and potential stock performance.
So is there value?
At a price of $3.30, GKC is trading at a trail-
ing P/E of 4.7 times, significantly lower than
its industry peers (AMCL at 17 times and NML
at ten times). Its dividend yield stands at 4.2
per cent, currently the highest in the con-
On a price to book basis, GKC s ratio of
0.56 is below 1 and less than its competitors.
This price to book ratio represents a discount
to the book value of TT$5.88. The dividend
policy is expected to be consistent, with an
increase in payment frequency from two div-
idend payments per year to three.
Ultimately, GKC s future growth potential
is dependent on the will and skill of the group s
Commendably, the group seems to have
identified appropriate opportunities and crafted
strategies for growth. For shareholders to ben-
efit from these opportunities, however, exe-
cution of strategy is critical.
The future success of the group lies outside
its home region. Should GKC be able to cap-
italise on its targeted initiatives for geographic
expansion the potential for share price move-
ment upward is substantial.
BOURSE maintains a BUY rating in the
medium to long-term for GKC.
For more information, investors can call
Bourse at 628-9100 or visit us at any one
of our offices. Further information is also
available on Bourse's Web site at www.bour-
seinvestment.com and Bourse Securities
Ltd Facebook page.
BG20 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 2013 • WEEK THREE
Bourse Securities Ltd
Weekly market review
GKC: Going global
This document has been prepared by Bourse Securities Ltd, for information purposes only. Any trade in securities recommended herein is done subject to the fact that Bourse, its subsidiaries and/or affiliates have or
may have specific or potential conflicts of interest in respect of the security or the issuer of the security, including those arising from (i) trading or dealing in certain securities and acting as an investment advisor; (ii)
holding of securities of the issuer as beneficial owner; (iii) having benefited, benefitting or to benefit from compensation arrangements; (iv) acting as underwriter in any distribution of securities of the issuer in the three
years immediately preceding this document; or (v) having direct or indirect financial or other interest in the security or the issuer of the security. Investors are advised accordingly. Neither Bourse nor any of its sub-
sidiaries, affiliates directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses arising from the use of this document or its contents or reliance
on the information contained herein. Bourse does not guarantee the accuracy or completeness of the information in this document, which may have been obtained from or is based upon trade and statistical services or
other third party sources. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.
Links Archive September 18th 2013 September 20th 2013 Navigation Previous Page Next Page