Aug 2008 Financial News

GKC Releases Half Year Results

Aug 14, 2008

GraceKennedy Limited
Results for the Half Year Ended June 30, 2008

All figures quoted in Jamaica Dollars unless otherwise stated

Earnings Per Share
GraceKennedy Limited (GKC) for the Half Year Ended June 30, 2008, reported a diluted Earnings Per Share (EPS) of $3.51, up 4.2 per cent or $0.14 on the corresponding EPS of $3.37 in HY07. Q208 on Q207, GKC’s EPS grew a minimal of 1.9 per cent or $0.03 from $1.56 to $1.59. According to the Directors, GK Foods had a challenging quarter due to rapidly escalating fuel and food prices while GK Investments performed creditably for the second quarter.

Financials
• Revenue, up 19.1 per cent or $4.4 billion to $27.3 billion
• Expenses, up 19.3 per cent or $4.2 billion to $25.8 billion
• Operating Income, up 16.0 per cent or $209.0 million to $1.5 billion
• Other Income, up 0.4 per cent or $1.4 million to $371.7 million
• Operating Profit, up 12.5 per cent or $210.5 million to $1.9 billion
• Interest Income from Non-Financial Services, up 7.7 per cent or $14.6 million to $203.2 million
• Interest Expense from Non-Financial Services, down 13.7 per cent or $45.8 million to $289.2 million
• Profit After Tax, up 13.4 per cent or $150.1 million from $1.1 billion (HY07) to $1.3 billion (HY08)

Business Divisions
GK Foods
For the period under review, GK Foods saw Revenue increase by 18 per cent. However pre-tax profit was below that reported for the same period in fiscal 2007. As previously mentioned, this was due to escalating fuel and food prices which evidently would have increased GKC’s production costs. Despite these challenges, the Jamaican conglomerate proceeded with its expansion in the international markets. Grace Instant Porridges was launched in the US market while Grace Tropical Rhythms Refreshers and Grace Snacks were launched in the UK.

GK Investments
The Money Services segment performed well and continued to exceed the company’s expectations with inbound remittance volumes growing positively. The Banking, Investments and Insurance segments secured consistent profits in reaching the company’s expectations. However, the Retail and Trading segment under performed as a result of tightened consumer spending and rapidly escalating costs within the last few months.

On June 26, 2008 GraceKennedy Money Services (UK) Ltd was appointed as a master Agent for Western Union in the UK. This, as stated by the Chairman, represents a major step towards further expansion in serving Grace’s Diaspora outside the Caribbean and other immigrant groups.

Recommendation
GKC is currently trading at a price of TT$7.80. In light of the above, we are revising our forecasted EPS for fiscal 2008 to TT$0.75. At the current price and revised forecasted EPS of TT$0.75 for FY08, this share is trading at a price to earnings multiple of 10.4 times. Additionally, using a multiple of 11 times, this share has an expected return of approximately 6 per cent on the current price or a target price of TT$8.25. We continue to recommend a BUY on this share.


Nancy Chen
WISE Equity Research Team