Stephen Facey, CEO First Jamaica
THE REPOSITIONING strategy executed by First Jamaica Investments (FJI) in 2005 yielded immediate dividends during the opening quarter of 2006.
While most listed companies struggled to grow profits during the March quarter, profits from continuous operations at FJI jumped 30 per cent to $256.1 million driven by robust inflows from property management, investments and associated companies.
Total revenues spiked 36.3 per cent million to $240.5 million, energised by the 21.9 per cent rise in revenue from property management. Management reported that its property management benefited from high occupancy levels - averaging over 95 per cent over the period - as well as higher rental prices. Investments also rallied 161.9 per cent to $47.5 million - albeit a relatively smaller contributor to profits.
OVERALL OPERATING MARGINS
Growth in operating expenses was capped to 18.8 per cent , which allowed operating profits to jump from $102.8 million to $153.1 million. Although this development translated into overall operating margins of 63.7 per cent, up from 58.3 per cent at 2005, margins in property management services actually contracted from 55.6 per cent to 46.86 per cent due to higher maintenance costs.
Meanwhile, the effect of the repositioning strategy was most pronounced in the 24 per cent rise in profits from associated companies. These entities contributed $132.1 million, up from $106.4 million, due primarily to the Group's 25 per cent equity stake in the growing Life of Jamaica.
These hefty inflows pushed pre-tax profits to $281.4 million, favourably compared to $209.2 million a year earlier. Thus, even as the effective tax rate increased in the period, profits from continuous operations still shot up 30 per cent from $196.7 million (earnings per share (EPS) = $0.65) to $256.1 million (EPS = $0.85).
However, FJI booked $98.7 million from discontinued operations (the insurance business) in 2005, which helped to push numbers to $295.4 million at March 2005. Of course, for projection purposes profit from continuous operations is the critical variable - this increased 30 per cent for the quarter.
MAJOR GROWTH ENGINE
The Group's interest in LOJ is expected to be a major growth engine for the coming period. LOJ grew 48.5 per cent in the quarter and is expected to have a positive year anchored by improved efficiency in the insurance business as well as growth in investment income driven by recent initiatives taken by PCFS.
The sale of its insurance business also leaves FJI as a leaner, more efficient entity dedicated to the property management business and investments. FJI's interest in Sagicor should also refresh earnings in the form of healthy dividends. While Property Management Services continues to post healthy growing revenues on the back of higher rentals, the contraction in operating margins highlights reduced efficiency in that area.
In the final analysis, FJI is a value-play in that the book value per share is approximately $37.50 (based on market price of LOJ at March 2006) - almost 14 per cent above the current market price. Investors will be further rewarded by fairly healthy quarterly dividends.
RECOMMENDATIONS
We hold favourable long-term outlook for NCBJ, First Jamaica Investment, DB&G, and BNSJ. Lascelles, JBG, and Seprod could also perform well over the short-term (less than 12 months). 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.
Poor earnings weighed on the marketProfits shrank for most listed companies during the March quarter. The significant fall-off in profits at Hardware & Lumber and the losses reported by Berger Paints aptly demonstrated that the economic effects of the deepening cement crisis reached far beyond the borders of Caribbean Cement.
In fact, economic activity, and consequently disposable income, in almost all manufacturing and construction sectors has contracted significantly.
While efforts are being made to remedy the problem, results for the June quarter will likely be affected by this situation and in turn further delay the expected recovery of local stock prices.
SOURCE: Financial Gleaner, May 19, 2006
