Vantage Point With KEITH COLLISTER

The release of quarterly results was fast and furious this week reflecting the February 15 deadline, with notable results including GraceKennedy and its subsidiary Hardware & Lumber, Cable and Wireless, Desnoes and Geddes, Jamaica Broilers, Mayberry and Jamaica Money Market Brokers (JMMB).

Capital and Credit Merchant Bank has opted to submit their audited financial statements within 60 days of the financial year ended December 31, 2006, instead of submitting quarterly results, while Seprod has advised that its fourth-quarter results have been delayed to shortly after its board meeting scheduled for March 5, 2007.

Unlike National Commercial Bank and Lascelles, most of the companies released relatively flat to declining earnings.

Despite significantly better revenues, Cable & Wireless's net profits still declined for both the nine months and the quarter, a trend that we do not currently expect them to break in the super competitive environment of the Jamaican telecommunications industry.

Significant fall

While Jamaica Broilers Group's nine-month earnings per share were up slightly to 28.81 cents, compared with 28.39 cents, Broiler's earnings per share fell significantly in the latest quarter from 14.66 cents to 13.43 cents in the comparable quarter. A very significant improvement in its fish segment was not enough to offset the decline in chicken profits, largely due to a sharp rise in corn prices that the company has been unable to fully pass on to consumers. While the company expects to complete the ethanol production facility construction by July 2007, we continue to believe that a price closer to $4 more closely reflects the risk in this projection.

Desnoes and Geddes's second-quarter earnings per share were up slightly, reflecting better cost control and a reduction in marketing expenditure. However, as expected the end of their tax relief is posing increasing challenges to the company's profit growth, with the company's tax charge increasing sharply this quarter.

While the company experienced good volume overall driven by the domestic market, the export market performed less well, the opposite of last year's trend. Despite its very high-quality earnings, we believe investors should currently only buy this stock significantly below current prices, around or even below the $8 we recommended purchases last year.

JMMB reported a 34 per cent fall in net profits to $286.8 million for the third quarter of its 2006/2007 fiscal year compared with the comparable quarter last year. Readers of this column should not be surprised by this poor performance as it reflects the anticipated fall in net interest income and the poor performance of associated companies, e.g. Trinidad, reflecting their own poor market conditions.

As expected, both Grace-Kennedy and its subsidiary Hardware and Lumber reported falling profits for the full year-ended December 2006. While GraceKennedy increased revenues by 9.25 per cent to just over $36 billion, net profit fell 11 per cent to $1.845 billion, representing earnings per share $5.67. As I expected, Grace made additional provisions in the fourth quarter - $100 million for reorganisation costs associated with the creation of GK foods and GK investments as well as $281 million primarily against doubtful receivables in the remittance business. While Grace has not yet issued a profit forecast, it has already told the market that it expects to save $300 million in costs this current year, and I provisionally believe that Grace is a buy around current levels on the expectation of a better profit performance in 2007.

Sharp improvement

Hardware and Lumber should also see a sharp improvement in profitability in the coming year over its 12-month profit performance of just under $38 million (nearly half the $69.5 million it made in 2005). While the stock is likely to see a very sharp recovery in earnings per share from its current $0.47, even if it doubles its earnings to $1 per share its multiple would be much higher than its parent Grace, making it significantly less attractive than Grace at this time.

Unlike most of the other major companies reporting, Mayberry saw a significant turnaround, with profits in 2006 nearly trebling to $261 million from $88.1 million in 2005. Unsurprisingly, this appeared to be driven largely by a turnaround in the performance of their stock portfolio reflecting the market improvement in the second half of last year. While Mayberry's relatively large stock portfolio and aggressive trading mentality makes it a good way to play a stronger local stock market when that arrives, last year's improvement in the market is already in the price.