Dec 2006 Financial News

NEL Releases Half Year Results

Dec 01, 2006

For the Half Year ended September 30, 2006, National Enterprises Limited (NEL) reported Earnings Per Share of $0.34, this was down by a considerable 19.05 per cent or $0.08 on the corresponding period in 2005. The Chairman has attributed the fall in Earnings primarily to the performance of Telecommunications Services of Trinidad and Tobago Limited (TSTT) and National Flour Mills Limited (NFM).

In respect of TSTT, in which NEL holds a 51 per cent stake, Profit After Tax was adversely affected by additional costs due to strategic actions taken to deal with the competitive environment of the mobile phone market. The Chairman has stated that these costs will be non-recurring and has also noted that despite the competitive environment- the revenue of TSTT has grown by 4.9 per cent when compared to the first half of the prior year. Thus for the period under review, NEL’s share of Profit Before Tax from TSTT amounted to $20.34 million compared to $118.45 million in the same period last financial year. This represented a fall of $98.13 million or 82.84 per cent.

With regards to NFM, in which NEL also holds a 51 per cent stake but which is treated as a subsidiary, financial results were negatively affected by a provision for voluntary separation costs in addition to lost sales from the closure of the Edible Oil Complex in October 2005.

NEL also holds interests in: Trinidad Nitrogen Company Limited (TRINGEN) - 51%; NGC NGL Company Limited (NGC NGL) - 20 % and NGC Trinidad and Tobago LNG Limited (NGC LNG) - 37.84 %. All of which, like TSTT are treated as Equity Investments and in which NEL receives a share of Before Tax Profits. Thus, for the Half Year period ended September 30, 2006 NEL’s share of profits in TRINGEN amounted to $140.95 million, a marginal fall of 2.45 per cent or $8.05 million on the corresponding half year period in 2005. With respect to NGC NGL, NEL received $39.97 million compared to $48.02 million in the first half of financial year 2005. While NGC LNG contributed $72.05 million to the current period, which was up by 101.74 per cent or $36.34 million on the same period last year. Thus, for the period under review, NEL’s total Share of Before Tax Profits of Investments stood at $273.30 million, a fall of $73.39 million or 21.17 per cent on the comparable period in 2005.

Turnover for the period under review, which would include revenue from NFM, amounted to $198.75 million and was down by 32.44 per cent or $95.42 million on the comparable half year in 2005. Trading Income stood at $13.94 million compared to $36.45 million in the same period last year. The Company’s Operating Expenses increased significantly over the first half of the last financial year, up by 106.96 per cent from $20.19 million in 2005 to $41.79 million in the current period. As previously discussed, this significant increase in Operating Expenses is mainly due to NFM’s high voluntary separation cost, which is estimated at a total of $57 million, all of which will be absorbed this year. As a result, the Company’s Operating Profit amounted to $27.85 million and was down by a substantial 271.33 per cent or $44.10 million on the corresponding period last year.

After Operating Profit was added to Share of Before Tax Profits on Investments, the Company ended the period with $245.45 million in Profit Before Taxation. This figure was down by 32.37 per cent or $117.49 million on the comparable half year in 2005. The Effective Tax Rate for the period under review stood at 24.58 per cent compared to a rate of 30.07 per cent in corresponding half year in 2005. Net Profit for the period under review amounted to $185.12 million compared to $253.79 million in the same period last year; this represented a fall of 27.06 per cent.

The Board of Directors of NEL has declared an interim dividend of 19 cents per share to be paid on December 19, 2006. It is the policy of NEL to have a Dividend Payout Ratio of 90 per cent of dividends received less administrative expenses.

In light of the current results, we have revised our forecasted EPS downwards to $0.65. The shares of NEL are currently trading at a price of $6.69. At the current price and revised forecasted EPS, these shares are trading at a multiple of 10.29 times. This multiple is relatively low for NEL and for the sector. Additionally, we are forecasting a dividend of $0.60 for the financial year ended 2007 and as such at the current price of $6.69 the dividend yield on this share is 8.97 per cent, which is currently the highest on the market. Thus, based on this analysis we recommend a BUY on this share. However we do advise some caution as we do not foresee improved results for the rest of the year.


Gia Singh
WISE Research Team

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