Shane Ingram, Contributor
INGRAM
STOCKS CONTINUED to fall this week, but on only weak volumes, which suggests that investors are still sidelined by uncertainty. Meanwhile, BOJ continued to demonstrate its will and ability to protect the value of the local currency by intermittent supply-side interventions in the week.
This could restore calm to the market as pundits are beginning to assert that this current broker attack on the local currency will be short-lived. Simultaneously, many market participants optimistically await the release of third quarter corporate results. Earning Reports are expected to enter the market as early as next Friday, and observers argue that they should look relatively better given the impact of Hurricane Ivan on third quarter results of 2004.
COMPANY SPOTLIGHT: BERGER PAINTS JAMAICA LTD (BRG)
Profits at Berger Paints fell 35.7 per cent during the first half of 2005 against a backdrop of higher costs in the period. Sales increased 10.5 per cent to $492.4 million at the end of June 2005 but operating profits dropped 34.5 per cent to $21.7 million as operating expenses jumped 14 per cent. Since 2004, operating costs have been significantly affected by increased raw material costs stemming from spiralling international oil prices and higher imported input costs. With a 57.4 per cent decline in the income from investments, Berger reported profit before tax of $22.23 million, compared to $34.5 million earned for the same period last year. A reduction in the effective tax rate did little to halt the slide in profits as net profits surfaced at $14.8 million or 6.9c per share, down from $23.01 million or 10.8c per share earned in the comparable period last year.
Berger is a major manufacturer and distributor of industrial and decorative paints, as well as other paint-related materials in the local arena. This highly recognised brand has traditionally been a major sales driver for Berger but the local market has grown increasingly price sensitive in recent years, which has encouraged the influx of inferior paints. This liberalisation now accommodates more that twenty (20) brands competing in a fairly mature marketplace. As its markets are squeezed, Berger faces an additional challenge in the form of rising input costs especially oil-related raw materials. Devaluation pressures also threaten to spike production costs through higher imported input costs.
Meanwhile, Berger continues to invest heavily in R&D and quality management in order to deepen its product range as well as protect its reputation as a quality paint manufacturer. It also plans to continuous, revisit its formulations with the view to improving efficiency. This will be pursued within the ambit of quality as displayed in its international ISO certification with respect to quality management systems, customer satisfaction measurements, design issues, and continuous improvement. Moreover, Berger should benefit from economies of scale from being under the umbrella of Asian Paints, its parent company.
Likewise, Berger, as well as other local paint manufacturers, could get some reprieve from the Government's attempts to establish and enforce minimum standards for inferior brands. Interestingly, the remainder of the year could see some improvement in profits to the extent that current cost issues are outweighed by those encountered in 2004 including raw material shortages and curtailment in products sales during the aftermath of Hurricane Ivan. Also, activity in the stock could be triggered by the proposed payment of $0.10 dividend to shareholders on record at November 10, 2005.
RECOMMENDATIONS
The Winner's Edge recommends that investors add LOJ, CRTS, RJR, NCBJ, 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 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.
