Jun 2008 Financial News

GKC Releases First Quarter Results

Jun 12, 2008

GraceKennedy Limited
Results for the First Quarter Ended March 31, 2008

All figures quoted in Jamaica Dollars unless otherwise stated

Earnings Per Share
For the First Quarter Ended March 31, 2008, GraceKennedy Limited (GKC) reported a diluted Earnings Per Share (EPS) of $1.94, up 7.2 per cent or $0.13 on the corresponding EPS of $1.81 in Q107. According to the Directors, for the First Quarter, GK Foods revenues performed well against targeted performance while GK Investments recorded mixed results.

Financials
• Revenue, up 30.4 per cent or $3.2 billion to $13.8 billion. Q108 on Q107, all of the Group’s segments showed improvements in Revenue. The Food and Trading segment was the largest contributor, accounting for 60 per cent of Total Revenue or $8.3 billion.
• Expenses, up 31.2 per cent or $3.1 billion to $12.9 billion
• Operating Income, up 19.1 per cent or $134.7 million to $840.3 million
• Other Income, up 32.2 per cent or $43.3 million to $177.9 million
• Operating Profit, up 21.2 per cent or $178.0 million to $1.0 billion
• Interest Income from Non-Financial Services, down 8.3 per cent or $8.6 million to $94.7 million
• Interest Expense from Non-Financial Services, down 7.2 per cent or $11.3 million to $145.7 million
• Profit After Tax, up 17.8 per cent or $105.0 million from $590.7 million (Q107) to $695.7 million (Q108)

Business Divisions
GK Foods
During the period, the Jamaican conglomerate launched the Grace Cranberry Juices in the Caribbean markets outside of Jamaica and three new variants of flavoured Corned Beef in the Jamaica market. A major consumer promotion, Dash for Cash, was launched in March and it is anticipated that this will provide a major boost to the Grace brand sales in the next two quarters.

GK Investments
First Global Bank Limited opened a fifth branch in Liguanea and is currently in the process of acquiring a new banking information system geared at improving operational efficiency. Jamaica International Insurance Co. Ltd performed well and expanded its operations to Dominica through an appointed agent. The performance of Allied Insurance Brokers Ltd improved over the prior year period with revenue and profits up. Hardware & Lumber Ltd successfully implemented a new information system geared at improving the overall operational efficiencies within its nineteen retail outlets and central warehouse.

Dividends
The Board of Directors has approved an interim dividend of 50 cents per share (2007: 45 cents) which was paid on May 27, 2008.

Outlook
With escalating fuel and food prices, inflation continues to be of concern to the Jamaican economy and in particular to GKC which would be impacted by increased production costs. To counteract the shortage of food supplies and increase in prices, GKC has mitigation measures that it intends to implement to ensure that food supplies continue to be available. These measures include entering into long-term contracts for supplies, strengthening of supply chain capabilities and looking to new markets for supplies such as Indonesia, Brazil and Philippines.

On the international front, the Group intends to expand its business through the introduction of new products, new brands and distribution of the Grace brand to new channels.

Recommendation
GKC is currently trading at a price of TT$8.35. At the current price and forecasted EPS of TT$0.83 for FY08, this share is trading at a price to earnings multiple of 10.1 times. Additionally, using a multiple of 11 times, this share has an expected return of approximately 9 per cent on the current price or a target price of TT$9.13. We continue to recommend a BUY on this share


Nancy Chen
WISE Equity Research Team