Shane Ingram, Contributor
RJR Communications Group Chairman J.A. Lester Spaulding. - Winston Sill/Freelance Photographer
STANDARD AND POOR'S affirmed its 'B' long- and short-term sovereign credit ratings on Jamaica against a backdrop of the Government's ongoing commitment to fiscal discipline, debt reduction amid external shocks, and higher growth prospects boosted by the strong inflow of foreign direct investments in the tourism and mining sectors. This came on the back of continued normalisation in domestic inflation in December - numbers coming out at 0.1 per cent compared to 0.3 per cent in November. The stock of international reserves also remained strong at over US$2 billion. These favourable developments should encourage investors to return to the equities market.
Company spotlight: Strong revenues expected from RJR?
RJR's posted $601.4 million in revenues for the six-months ended September 30, 2005, up 10 per cent on the $546.5 million recorded a year earlier. Gross profits grew by a similar 10 per cent to $377.6 million as margins remained relatively flat in the period. Core earnings got additional support from non-traditional sources such as the Fame Road Shows that contributed $14.1 million or 15.6 per cent more than the prior year.
Meanwhile, total operating expenses inched up only 4.19 per cent to $327.1 million primarily on account of the 21 per cent drop in administrative expenses arising from the removal of non-recurring expenses included in last year's numbers. This reduction in costs would have been higher if not for the 46.3 per cent ($37 million) spike in other operating cost resulting from higher energy costs and major repairs to transmitters in the period. With total costs being relatively tamed, operating profit grew from $41.2 million to $64.6 million and operating margin strengthened 3 percentage points to 11 per cent.
RJR realised $11.6 million in finance income, which compared quite favourably to finance costs of $15.3 million incurred at the same interval a year earlier. This positive out-turn stemmed from the reduction of the stock of debt following the rights issue as well as debt refinancing initiatives pursued by RJR. At the same time, however, RJR recorded a loss in share of associated companies of $3.8 million for the period ended September 2005. This investment in associate represents 20 per cent shares of the Gleaner Company (U.K.). Thus, RJR ended the half-year interval with group profits of $53.9 million, up from $21.4 million. Despite the strong rise in earnings for the cumulative six months, profits at RJR grew only 1.6 per cent in the second quarter. The unimpressive second quarter earnings represented the combined outcome of sluggish sales and higher costs. In fact, earnings per share fell 14.4 per cent in that quarter given the increased number of shares outstanding consequent to the rights issue.
RJR has enjoyed an annual average increase in revenues of 35 per cent over the last five years and will look to sustain this trend through the introduction of new programmes both locally and overseas. In particular, Rising Stars has been a phenomenal success since its introduction and should now be able to command a premium for time-spots around its viewing. RJR also acquired exclusive rights to air the biggest sporting event for Sum-mer 2006 World Cup Football.
Interestingly, revenues at RJR jumped 37 per cent during the year of the last World Cup. RJR will also look to take advantage of overseas markets through its subsidiary, Multimedia Jamaica, and joint ventures. Already, RJR has begun airing its local programming abroad through partnerships with other radio and television stations. Similarly, its interest in The Gleaner Company (U.K.) gives the Group further leverage in the communications industry by diversifying further into the print media.
Notwithstanding the favourable outlook for revenues, business margins have traditionally been thin. In addition, costs at RJR have been quite volatile in recent quarters, which suggest that most of the projected revenue growth may not filter to the bottom-line. Moreover, it would take more time for the recent consolidation activities to take root and bear the efficiency savings promised. Within this context, marginal growth is expected in this stock price over the short-term.
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We hold favourable outlook for NCBJ, CWJA, PJAM, DB&G, and BNS. Seprod, D&G, CRTS, KW, and Goodyear could also perform well over the short-term. 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.
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