Ingram
Shane Ingram, Contributor
THE SHORTENED trading week muted the triple-witching activities expected for this week. Under normal conditions, this week would have seen heavy trading activity and rising prices as brokers try to book profits for the end of the month, quarter and the year but investors appeared content to make their next move in the new year. In this scenario, an air of cautious optimism beckons 2006. Market valuations are attractive and key local and international indicators appear to be moving in the right direction.
COMPANY SPOTLIGHT - LASCELLES DEMERCADO
Lascelles deMercado earned $1.9 billion (EPS = $19.68) in net profits for the year ended September 2005, up 25 per cent on $1.5 billion (EPS = $15.72) reported a year earlier. However, this significant cumulative profit growth masked the reduction in profits that occurred in the last three quarters of the year. After booking $1 billion in net profits during the first quarter on account of the huge capital distribution by Carreras, net profits slumped 31 per cent to $116.28 in Q2 and dropped a further 48 per cent to $141.02 million in Q3, and 36 per cent to $525.2 million in Q4, relative to the respective quarters of the prior year.
Buoyed by 21 per cent growth in the liquor segment, group revenues increased 14 per cent to $18.3 billion for the year. This segment has historically registered double-digit growth in revenues due to Lascelles' leadership in the local rum-based alcoholic beverage industry and its thriving export business. However, pre-tax profits from that area contracted 43 per cent on account of the losses endured in its sugar business consequent to the passage of Hurricane Ivan. General merchandise, which provides close to 21 per cent of group revenues, also booked $9.5 million in losses, albeit less than the $19.1 million loss reported at the end of 2004 due to upfront costs associated with the fledgling state of Lascelles TeleCom (distributor of electronic pre-paid top-ups) as well as the intense competition from the large number of agents operating in the local distributive trade.
Similarly, while revenues from transportation and other (John Crook and Sterling Motors dealerships) crept up three per cent to $1.6 billion, continued pressure from local competition and tight local economic conditions engineered $18.3 million in pre-tax losses in that area. On the other hand, pre-tax profits from the insurance arm expanded four fold due chiefly to the increased operating muscle from the merged operation of Globe, JGIC and Twickenham Insurance while the investment business grew 31 per cent to $1.2 billion resulting from Carreras' $9.8 per share capital distribution in December 2004.
REMNANTS OF IVAN
Save for the inflows from Carreras' generous dividend distribution, Lascelles would have endured significant profit reduction in 2005. Although Lascelles' leadership in the local rum-based alcohol and continued expansion in its export markets are likely to strengthen future revenues, profit from the division is likely to feel the lingering effects of the 50 per cent loss of its sugar crop during the passage of Ivan.
Similarly, the tight local economic conditions are likely to mute sales in the automotive division, thereby making it difficult for this business segment to make a positive contribution to group profits. On the other hand, as the telecom business moves up the business learning curve, higher profits should surface from these operations. Likewise, the insurance arm is projected to further benefit from the increased operating muscle of the merged operations of JGIC, Globe and Twickenham Insurance, albeit possibly having to deal with low interest rates and possible changes in regulations governing the Motor Vehicle Insurance Act.
Also, while Carreras is unlikely to make another dividend payment of similar magnitude, the firm is expected to maintain its high dividend tradition and thereby contribute to the outturn from the investment arm. These revenue drivers should be complemented by the group's on-going modernisation programme and its consistent control over overhead costs. Beyond the upcoming first quarter, Lascelles is likely to return to the path of growing profits.
Be sure to see The Sunday Gleaner for our picks for 2006. See you in 2006!
- Taken from the Financial Gleaner, Friday, December 30, 2005.
