Steven Gooden, Contributor
Mark Hart, chairman.
MONTEGO BAY Ice Company Limited (Mobay Ice) is incorporated in Jamaica, being established in 1948. The group's principal activities are the manufacture and sale of ice and spring water, the provision of cold storage facilities, apartment rentals, and during the previous year, the purchase and sale papaya. The company has two subsidiaries; they are Montego Bay Cold Storage Limited (67 per cent owned) and Deans Valley Ice Company Limited (100 per cent owned - dormant).
The company is one of the smallest companies listed on the Jamaica Stock Exchange with a market capitalisation of $74 million and a staff complement of thirty two.
The board of directors consist of M. Hart (chairman), (Ms) T Chin (managing director), H.G. Anderson, K. Armstrong, A. Brennan, A. Fray, P. Hart, A. Jones and (Mrs.) S. Allen (company secretary/general manager). The group is controlled by the Hart family, which controls over 80 per cent of the company.
FINANCIAL STATEMENT ANALYSIS
During 2004, revenue declined by 7.1% to $48.6 million. Gross profit fell to $30.4 million, resulting in a 6.9 percentage point fall in gross profit margin to 62.5 per cent.
Other income declined 64.3 per cent to $4.8 million, largely as a result of a significant reduction in foreign currency gains stemming from a relatively stable currency market during 2004, when compared to the previous year.
The company was able to keep a reign on administrative and other expenses, which rose marginally despite a relatively high inflation rate during the year. All of this resulted in an operating profit of $6.4 million from $21.3 million.
Finance costs fell by almost one-third to $350K largely as a result of continued pay down on its bank loan. The effective tax rate increased by 6.7 percentage points to 28.7 pere cent because of smaller foreign currency gains during 2003, which is non taxable.
Consequently net profit attributable to members fell 75.5% to $3.5 million. This resulted in a return on average equity of 2.5 per cent as compared to 10.3 per cent the previous year.
Total assets declined by 2.1 per cent to $181.3 million after having grown consistently over previous years. This reduction is largely as a result of a $6.2 million dividend payment during the year (based on 2003 results).
Fixed assets declined 4.3 per cent to $52.7 million largely as a result of the disposals during the year. Investment properties which include two apartments stood relatively flat at $58.4 million. Working capital continued climb with a 6.2 per cent increase to $61.3 million.
LIQUIDITY
The group is very liquid as demonstrated by a current ratio of 7.9 times. They also have a high cash ratio of 6.4 times, suggesting that they have more than sufficient cash to cover all of their current liabilities. These ratios are the highest over the past five years. The group's cash position per share is $9.30 or 77.4% of its share price.
The group short-term efficiency ratios showed mixed results. Receivables turnover (days) increased to 35 days in 2004 as compared to the mid-twenties in previous years. Accounts payable turnover (days) stood at 84 days, which is high but stable when compared to the previous years. However inventory turnover declined to 22.6 days, reflecting a higher movement of raw materials and finished goods.
The company is lowly leveraged with a long-term debt to total asset ratio of 0.5 per cent and an interest coverage ratio of 17.1 times during 2004, which are relatively low when compared to previous years. The group had an ordinary dividend payout ratio of 34.8 per cent as compared to 42.7 per cent in the previous year. The company did not pay any ordinary dividends in 2000 and 2001; however the group has honoured its six per cent preference dividend payment over the five-year period.
VALUATION
Based on a projected earnings of 96 cents to $1.10 per share for 2005 and a projected P/E multiple of 11 times, the company's projected price $10.56 to $12.10 per share, suggesting that the company is fully priced at this time at current share price of $12.01 per share.
The projected P/E is at 35 per cent discount to the current market PE of approximately 15 times because of the risks (both market and business risks), associated with investing in this company.
Despite a moderate valuation based on earnings, the company possesses tremendous value as the company's net book value amounts to $23.03 per share, a 91 per cent premium to its share price, while the company's cash and near cash position amounts to $9.30 per share.
Also the company has farm land which is stated at cost in the balance sheet (and not at market value properties as in the case of the apartments, since the farm land is utilised by the company; the market value of this land ought be higher than cost hence placing the true net book value of the company higher than $23 per share.
RECOMMENDATION
On an earnings basis the company is fully priced, however the company possesses tremendous value. Also the group is very cash rich, which could facilitate a significant capital distribution, which is likely in a declining interest rate environment.
The company is not a recommended buy by for investors with a short-term horizon or trading mentality, given the lack of liquidity and volatile earnings.
However, the company is recommended buy for investors with a 'buy and hold' philosophy and/or wanting a controlling interest in the company given the tremendous value that the company has. The only problem is finding the shares to buy.
