Shane Ingram, Contributor
Rodney Davis, president/CEO of Cable and Wireless Jamaica. - WINSTON SILL/FREELANCE PHOTOGRAPHER
THE SEE-saw motion of the local equities market persisted this week as investors were largely anticipating the mid-week entrance of GOJ's US dollar instrument.
Demand for the instrument was quite excessive not only because the Government has not issued a U.S. dollar instrument recently, but also because of the growing risk of local devaluation stemming from concerns about inflation, domestic debt and other macroeconomic indicators. Consequently, traded volumes were fairly weak throughout the week.
CWJA had an inauspicious start to the new financial year as net profits fell 23 per cent to $609.2 million during the quarter ended June 2005. Revenues inched up 1.4 per cent to $5.68 billion while costs of sales shifted upward by 2.8 per cent to $1.6 billion.
Simultaneously, operating overheads climbed 13.1 per cent to $2.9 billion consequent to the 24.0 per cent jump in employee expenses and the 15 per cent rise in depreciation charge arising from additional capital expenditure undertaken by the company. Administrative expenses, the single largest cost centre, also grew by 5.4 per cent to reach $1.36 billion at the end of the period. Thus, operating income amounted to $1.12 billion, down 21.42 per cent on the comparable outturn of the prior year. Pre-tax profit fell 23.7 per cent to $932.9 million. Net profits attributable to shareholders amounted to $609.2 million or 3.62 cents per share matched against $791 million or 4.71 cents per share at June 2004.
Despite the wane in profits during the first quarter, the stock price has remained resilient because investors have grown increasingly confident in the prospects of this entity. In particular, CWJA recently assembled a star-studded management team that has vowed to win back market share lost to new entrants. The group signalled its presence with a 40 per cent cut in the monthly prices for its high-speed Internet service effective July 11, 2005; a move consistent with the company's thrust to increasingly penetrate this lucrative segment of the local telecommunications market.
Management contends that the decision was targeted at attracting an additional 50,000 new broadband customers by next March. CWJA followed up with an announcement of a single calling rate for its fixed line service effective October 1, 2005. This decision is expected to yield CWJA approximately 15 per cent more revenues from its fixed line operations. The most recent announcement came two day ago when CEO Davis unveiled an average 47.5 per cent slash in the rates
CWJA customers will pay to call other networks. CWJA also offers the customers of its competitors the opportunity to trade in their handsets for new model phones at a discount. Cable and Wireless does not plan to stop there as the firm intends to spend some $500 million to expand and improve its network.
These initiatives point to significant revenue benefits over ensuing quarters, especially over the long term when the market fully adjusts to these developments. Moreover, with an accountant at the helm of the Telecom giant, one can expect to see increased control over costs. Consequently, investors should realise significant value from holding this stock over a suggested investment horizon of at least eighteen (18) months.
RECOMMENDATIONS
The Winner's Edge recommends that investors add CRTS, RJR, LOJ, KW, Seprod, Gleaner, D&G, PJAM, and Goodyear to their investment portfolios. CWJA and Carreras are also good long-term option. Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit www.mydbg.com for detailed analyses.
DISCLAIMER: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
