Mark McKenize, managing director of Red Stripe.
D&G IS looking to its newest promotional campaign, 'Beer money a run', to revitalise its shrinking domestic sales.
Domestic sales dipped seven per cent for the half year to December 2005, but according to various wholesalers, sales of Red Stripe products have increased slightly since the launch of the promotional campaign. While domestic sales have struggled, exports shot-up 37 per cent to cause net sales to rise 9.7 per cent to $4.35 billion for the six months to December 2005.
However, direct costs increased at a faster rate to limit growth in gross profits to 8.7 per cent. Marketing expenses also jumped 26.43 per cent to $633 million, more than half of which was spent in the domestic market. Similarly, general, selling and administrative expense rose 17.67 per cent to $356.5 million due to inflationary adjustments made to employee-related expenses and infrastructure. These cost-push pressures muted the increase in trading (operating) profit to less than two per cent.
NET INTEREST INCOME
D&G earned $22.5 million in net interest income in the period, three per cent above the matching period of the prior year. Otherwise, the company disposed of land and realised gains of approximately $10.78 million in the period - albeit significantly below the $378 million earned from a similar transaction in 2004. Thus, after providing for taxation and finance cost, net profits were 29.8 per cent below that of the comparable period of the prior year. However, when profits from the land disposals are excluded, net profits declined only one per cent relative to the prior year. Notwithstanding, the company was marginally more profitable in the period as the adjusted ROA increased from 16.20 per cent to 16.40 per cent and adjusted ROE increased from 24.16 per cent to 26.25 per cent.
Alongside the new campaign, D&G looks to use its draught beer to capitalise on the growth being experienced in the local tourism sector. D&G will also increase marketing in overseas markets. In addition, the company will continue to penetrate new markets in Europe and North America. While D&G will likely reap success in growing exports, the tight domestic economy will likely limit the increase in domestic volumes. Limited improvement in sales together with the muted growth seen in D&G's profitability margins suggests only slim growth in profits over the next four quarters. While capital gains are expected to be thin, investors should benefit from regular dividends in keeping with the firm's commitment to pay out in excess of 50 per cent of earnings in dividends.
INTEREST RATES ON DOWNWARD PATH...
Results of the last Treasury Bill Auction showed a reduction in yields on 91-day instruments from 13.16 per cent to 12.79 per cent and from 13.18 per cent to 13.07 per cent on 182-day instruments. This development comes at a time when there is a consensus that BOJ will cut the rates applicable on its open market instruments. Industry observers expect that a reduction in money market yields will encourage investors to reallocate funds into stocks. Moreover, with expectations of improved results for the impending earnings season, stock prices could be increasing over coming weeks.
RECOMMENDATIONS
We hold a favourable outlook for NCBJ, GraceKennedy, PJAM, DB&G, and BNSJ. Lascelles, JBG, and Seprod could also perform well over the short-term. For further information on these and other stocks, contact us at 1-888-CALL DBG or visit www.mydbg.com and click our stockbrokerage division 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 judgment 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.
