Jun 2006 Financial News

GraceKennedy to offer share buy-back

Jun 02, 2006

HAVING WATCHED their company's share price shrink sharply over the past year on the Jamaica Stock Exchange bear market, GraceKennedy's executives have won approval from stockholders for a share buy-back to boost the company's stock price.

It was not immediately clear what, if any effect, news of Grace's plans has had on investors in the days since the May 28 public announcement of the plan, as its share price has continued to meander, closing yesterday at $61, up 75 cents but still 50 cents lower than the May 30 close.

Moreover, the company's share price is way down from its high of $118 at May 17 last year, a decline that has halved the company's market capitalisation to just over $38 billion.

"We have decided to buy back the shares from people who are looking grocery money," said GraceKennedy's chief financial officer, Don Wehby, lamenting the low volumes on which his company's stock price has tumbled.

PRICE SLIP

He noted, for instance, that in the period January 20 to April 26 when where Grace's stock price slipped from $86.50 to $63, the decline was on daily trades of between 100 and 500 units.

While GraceKennedy's stock has tumbled faster than the market as a whole, the decline has been also in a context where the bears have had leeway. For example, one day in May last year when Grace price was at its peak, Kingston's main tracking index stock at 117,168.44. By yesterday it had declined to 86,676.46, a drop of 26 per cent.

While the impact of the bears and the caprice of investors played the major roles in slashing GraceKennedy's share price, market analysts suggest too that soft profit growth has had an impact.

For the financial year up to 31 December 2005, GraceKennedy reported net profit of $2.07 billion on sales of $33 billion. While sales were up 7.59 per cent, from $30 billion in 2004, profit declined by 4.61 per cent.

Further, at a recent investor briefing GraceKennedy's chairman and CEO, Douglas Orane, projected that profits would be up or down by five per cent, but expected that shareholders would begin to see the effects of innovation, translating into improved share price.

"We project 2006 growth to be negative five per cent to positive five per cent," Orane told financial analysts at the briefing. "But we will turn around our fortunes through innovation. We expect the market to see the results of these efforts by the end of 2006."

But with the market continuing to lop value from his stock price, Orane was clearly not about to await until year end for the return of the bulls to drive Grace's stock price.

"There are many in the stock market who do not value the stock like you and I, especially in a soft or bear market," he said at this week's annual general meeting. "We don't know what external shocks or the direction of the interest rates (will be). The price may go down to the point where directors decide that a prudent use of the company money is to offer to buy back shares and retire those shares."

He declined to say how much cash Grace was willing to commit to the share buy-back, but indicated that the company would move quickly to implement the plan.

"I believe directors will act quickly on the matter as shareholders would like a decision sooner rather than later," he said.

However, Wehby explained that under stock exchange rules companies have to give shareholders 21 days notice of a share buy-back scheme.

"Expect to hear from us soon," Wehby said.

Dennise Williams, Staff Reporter
Jamaica Gleaner
Friday, 2nd June, 2006
http://www.jamaica-gleaner.com/gleaner/20060602/business/business1.html