Shane Ingram, Contributor
INGRAM
BESIDES ATTRACTIVE price/earnings and price/book value multiples, the up-tick in stock prices in recent weeks has been encouraged by the slowdown in inflation from 2.6 per cent in September to 0.6 per cent in October and expectations of further moderation as agricultural prices continue to normalise. Likewise, the PIOJ projects 2.9 per cent real GDP growth for October to December 2005 on expectations of gradual improvements in agriculture, tourism and the petroleum industries.
Industry observers also look forward to a bumper winter tourism season based on the advanced bookings and the diversion of tourists away from hurricane Wilma-affected Cancun. This, together with relatively subdued international oil prices and a likely slowdown in U.S. interest rates, bodes well for a restoration of calm to the currency market.
JAMAICA BROILERS DEFIES THE ODDS
Amid challenging economic conditions and a growing incidence of illegally imported leg quarters, Jamaica Broilers reported $119 million in net profits for the quarter ended October 2005, up from $111 million from continuous earnings last year. JBG enjoyed double-digit sales growth of 16 per cent on account of higher volumes and higher prices, which pushed revenues to $2.2 billion at the end of the period. Gross profits surged 46 per cent to $591 million as movement in direct cost was restrained to 8.2 per cent above last year's numbers. Although JBG's heavy investment in efficiency-saving technology over the years would have contributed to the muted increase in direct costs, the greatest portion of the slowdown is likely due to the cost spike that occurred last year due to the passage of hurricane Ivan. Still, operating profits increased by only 14 per cent to $151 million as distribution costs jumped 57 per cent to $78 million owing to higher inventory levels arising from the impact of illicit importation of leg quarters. Administrative expenses were also 14 per cent higher largely due to inflationary pressures.
Net finance income was $1 million, favourably matched against the $10.8 million in finance cost at the same time last year. This turnaround stemmed from JBG's debt reduction strategy and increased earning investments. Thus, pre-tax profits were measured at $153 million. Last year, JBG booked $115 million for the sale of its Hope Road property, which boosted the pre-tax profits to $236 million. Note, however, that when this one-off gain from the sale is excluded, pre-tax profits for this quarter were approximately $31 million or 25 per cent ahead of the out-turn last year.
Recent results have highlighted JBG's inherent vulnerability from operating in the agricultural sector. However, this has lessened in recent years due to the Group's more modernised operations and insurance coverage. Probably more importantly though, JBG faces relatively price-sensitive markets - a situation exploited by illegal importers of chicken parts. Although the Government has sought to address this perennial problem with the imposition of duties on leg quarters, the practice remains widespread.
MATURE MARKET COMPLEXION
Nonetheless, JBG is the leading supplier of poultry to the local market with close to 50 per cent of local market share. While the mature market complexion is expected to limit growth in volumes, further expansion in the value-added line together with traditional price increases should add buoyancy to revenues from the Poultry Division. Continued recovery in the agricultural sector also augurs well for the Feed and Farm Supplies division (Hi-Pro Ace) that has carved a niche in market segment. The Group has also invested heavily in efficiency-saving technologies including the co-generation facility that promises significant savings in energy cost. Similarly, JBG's more robust financial position is expected to further shelter operations from finance costs. Upside potential exists in this stock!
RECOMMENDATIONS
Investors are encouraged to remember that stocks are long-term investment options. Among the better long-term options currently available are JPG, CWJA PJAM, Carreras, BNS, NCBJ, and RJR. Short term gains could surface from JBG, CRTS, Seprod, D&G, and Goodyear. 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.
Shane Ingram, Financial Analyst at Dehring Bunting & Golding Ltd.
