Aug 2007 Financial News

GKC Releases Half Year Results

Aug 06, 2007

Results for the Half Year Ended June 30, 2007
All figures quoted in Jamaica Dollars unless otherwise stated

GraceKennedy Limited (GKC) has had another successful quarter for FY07. The Group reported Earnings Per Share (EPS) of $1.56 for the second quarter which brought the Half Year EPS to $3.37 for FY07. HY07 on HY06 this represented a significant increase of 23.90 per cent or $0.65, while Q207 on Q206, the Group’s EPS grew by 21.88 per cent or $0.28.

For the period under review, the Group reported Revenues of $22.94 billion, up a noteworthy 33.42 per cent or $5.75 billion on the comparable period in FY06. Q207 on Q206, this figure grew 46.98 per cent or $3.95 billion from $8.42 billion (Q206) to $12.37 billion (Q207).
HY07 on HY06, Expenses also saw an increase, up 32.79 per cent or $5.34 billion to $21.63 billion. Q207 on Q206, this figure rose 46.57 per cent or $3.74 billion to $11.77 billion. As a result, Operating Income increased from $903.55 million (HY06) to $1.31 billion (HY07), a substantial increase of 44.75 per cent or $404.34 million. Comparing Q207 to Q206, Operating Income grew 55.35 per cent or $214.60 million to $602.29 million. Conversely, Other Income, for the six month period, fell 3.23 per cent or $12.38 million to $370.32 million. Thus, Profit from Operations amounted to $1.68 billion, up 30.47 per cent or $391.96 million when compared to HY06.

Interest Income fell 6.96 per cent or $14.11 million to end HY07 at $188.58 million, while Interest Expense saw a significant increase of 55.24 per cent or $119.20 million on the previous year’s total of $335 million. Share of Results of Associated Companies increased by a significant 177.84 per cent or $44.67 million to end the HY at $69.79 million.

For the HY ended June 30, 2007, Profit Before Taxation amounted to $1.60 billion, an increase of 23.36 per cent or $303.32 million on the comparable figure for FY06. The Effective Tax Rate for the period was 30 per cent which was the same Tax Rate for HY06. As such, Profit After Taxation stood at $1.121 billion, up 23.36 per cent or $212.33 million on HY06.

According to the Directors, all companies within the GK Foods division, including the Hi-Lo supermarkets, showed positive results. Grace Foods & Services, in particular, showed an outstanding performance, driven by the strong demand for the Grace brand. Additionally, the acquisition of WT (Holdings) Limited (“WT Foods”) on February 28, 2007, has met with the Group’s expectations. In the GK Investments division, First Global Bank Limited opened a new branch in Mandeville on June 26 and is scheduled to open another branch in Liguanea in September. Furthermore, the GraceKennedy Remittance Services Group (GKRS) performed well for the first half year with Profit Before Tax exceeding the prior year by 55 per cent due to reduced expenses from the reorganized corporate structure in December 2006, as well as increased volumes in the money transfer business. In addition, on July 19, GKC acquire 90 per cent of ONE1 Financial Limited, a financial services company in Trinidad & Tobago.

GKC shares are currently trading at a price of TT$5.66. In light of the current results, we are increasing our forecasted EPS for FY07 to TT$0.65. At the current price and this forecasted EPS, this share is trading at a price to earnings multiple of 8.71 times. Additionally using a multiple of 10 times and the forecasted EPS of TT$0.65, this share has an expected return of approximately 15 per cent on the current price or a target price of TT$6.50. Thus, we continue to recommend a BUY on this share.

Nancy Chen
WISE Equity Research Team