Overall ranking is measured on performance in 10 key variables over a 12-month period. A score is awarded based on performance in each of the variables. All the scores are then aggregated.

Seprod, with 159 points, ranked ahead of Salada Foods (157) and Jamaica Broilers (152) among the eight companies that the JSE categorises as manufacturers.

It was far ahead of its peers in one of the variables, earnings growth, which jumped a whopping 870 per cent during its last four quarters covering the period July 2007 to June 2008 — boosted somewhat by a one-off gain in the sale of its interest in three associated companies - and was consistently among the top three performers in the others.

Seprod, incorporated in 1940, started life as a firm that turned the copra from Jamaica's coconut farmers into oil and soaps. It later started manufacturing corn meal. It went public in 1985 when the government divested its majority stake.

Strategy fit

In recent years, control of Seprod has fallen to Blades, who holds more than 40 per cent of Seprod, primarily through his distribution company Musson Jamaica Limited and Musson subsidiary, Facey Commodity Company Limited.

Blades has been acquiring entities as well as selling off others if they fail to meet his strategy fit.

In the six months to June 2008, for instance, group revenue of $4.3 billion, was 53 per cent higher than in the comparable period a year earlier. That largely reflected the contribution of Kraft Food Jamaica whose manufacturing assets, inventory and distribution rights for some Kraft brands were acquired by Seprod a year ago. Those assets are held under International Biscuits Limited, formed in 2007 by Seprod to effect the deal.

"The acquired business contributed revenues of $226.477 million and net profit of $150.347 million for the four months ended December 2007," said Seprod of the Kraft acquisition.

The company also posted a capital gain of $203 million from the sale of its 50 per cent holding in Gatcombe, CBM Limited and Productions Business Solutions Limited, all principally owned by Musson. Gatcombe is essentially the holding company for Facey Commodity, a distributor of telecommunications, pharmaceutical, industrial, and consumer products. The other two companies offer document management services.

In 2005, Seprod and Musson, which each held 48.8 per cent of Facey Commodity, transferred their holdings to Gatcombe. The deal then gave Seprod and Musson an equal share, 50 per cent each, in Gatcombe.

Seprod in October 2007 sold its 50 per cent holdings in Gatcombe to Musson. Under that transaction, Seprod essentially divested its holdings in Facey to Blades.

Two months later in December, Seprod sold its interest in CBM and Business Solutions to Wight Properties Limited, a company owned by Facey Commodity.

Group managing director Thompson has made the point that Seprod is increasingly a technology-driven company, modernising to meet the challenges of a competitive environment. Recent events underlined this fact.

In 2005, Seprod acquired Serge Island Dairies, a 2000-acre dairy farm and juice production facility in St Thomas, eastern Jamaica. In July, the company commissioned a new milking parlour at the complex.

Sector Analysis - Manufacturing

During 2007, the Jamaican economy grew by an estimated 1.2 per cent, a deceleration when compared to the 2.5 per cent recorded for 2006.

The pace of growth was hampered in the second half by the adverse effects of Hurricane Dean, resulting in $22.9 billion in damages to infrastructure and losses in production time, of which $7.1 billion was accredited to the manufacturing sector.

Real Gross Domestic Product (GDP) for the manufacturing sector increased by 0.9 per cent due to value added by the 'food, beverages and tobacco' and 'other manufacturing' sub-categories.

This growth was facilitated by higher output levels for carbonated beverages, cement, dairy products, sugar, molasses and poultry meat, and an increase in the repair of motor vehicles.

The global manufacturing sector contracted for the first time in five years in June 2008 as manufacturers faced record inflation and tighter market conditions. For the first half of 2008, Jamaica's manufacturing sector declined by 0.5 per cent.

Expansion work

The production of sugar, molasses and dairy all declined, while lower demand for beer and plant closure to facilitate expansion work caused production of beverages to slow.

The downturn in the sector has occurred in the context of increased production costs due to soaring energy and raw material prices.

Manufacturers also faced rising staff costs as the sharp rise in inflation fuelled demand for higher wages.

Bank of Jamaica data indicate that outstanding commercial bank loans to the sector increased by 66 per cent to $9.1 billion as at June 2008 compared to a year earlier.

In this regard, the Planning Institute of Jamaica (PIOJ) estimates the sector will experience growth in the range of 0.3 per cent to 1.0 per cent for the September quarter.

However, growth in the sector could be hampered by the effects of Tropical Storm Gustav and reduced consumer demand in Jamaica's major export markets namely the United States, Canada and the United Kingdom.

Seprod Limited emerged the number one ranked company based on an assessment of the companies in the sector across ten financial variables.

A rise in the company's EPS to $2.40 is projected. The stock currently trades at a P/E of 7, significantly below the industry average of 13. Assuming a P/E of 10, Seprod's stock price is expected to increase by approximately 30 per cent within the next 12 months.

The stock is recommended as a BUY.

www.stocktrack.com