Oct 2007 Financial News

PHL Releases Nine Month Results

Oct 24, 2007

Results for the Nine Months Ended August 31, 2007

For the Nine Month (NM) period Ended August 31, 2007, Prestige Holdings Limited (PHL) reported Earnings Per Share (EPS) of 24.09 cents, down 8.82 per cent or 2.33 cents on the 26.42 cents reported for the same period in FY06. Q307 on Q306, the Group’s EPS was down a substantial 47.77 per cent or 6.20 cents from 12.98 cents to 6.78 cents.

According to the Chairman, the Group’s Profits reflected pre-opening expenses of $1.96 million, for a new T.G.I. FRIDAY’s Restaurant in Barbados which opened on August 30, 2007 as well as continuing losses in T.G.I. FRIDAY’s restaurants in Puerto Rico. Additionally, several of the Group’s restaurants in Trinidad and the Dominican Republic were renovated, having a negative impact of lost sales and significant carrying costs in the third quarter of 2007.

NM07 on NM06, Sales rose 12.09 per cent or $52.55 million to $487.06 million while Cost of Sales grew by a similar margin of 12.89 per cent or $37.63 million to $329.62 million. As a result, Gross Profit increased from $142.52 million (NM06) to $157.80 million (NM07), an increase of 10.72 per cent or $15.28 million.

Operating Restaurants Expenses for NM07 amounted to $126.52 million compared to $111.41 million for the corresponding period in FY06, an increase of 13.56 per cent or $15.11 million. Consequently, Operating Restaurants Profit totaled $31.28 million, up by a minimal 0.57 per cent or $0.18 million when compared to NM06. Net Finance Costs increased a significant 16.65 per cent or $1.30 million to $9.07 million. Thus, Profit Before Taxation from Operating Restaurants fell 4.80 per cent or $1.12 million to end the Nine Month period at $22.21 million. Pre-Opening Expenses were up a considerable 50.81 per cent or $0.66 million to $1.96 million. Hence, Profit Before Taxation declined from $22.03 million (NM06) to $20.26 million (NM07), down 8.07 per cent or $1.78 million.

The Effective Tax Rate for the period under review was 37.75 per cent compared to a Tax Rate of 31.50 per cent for the comparable period in FY06. Ultimately, Profit After Taxation was $12.61 million, down 16.46 per cent or $2.48 million on the same figure for NM06.

The Chairman also gave the following synopsis of the Company’s Brands:

KFC Operations
The 49 restaurants in Trinidad and Tobago continued to perform well in sales and profitability but continue to be challenged by labour shortages and cost inflation. Four weeks of sales were lost due to closure of the two larger restaurants for renovation. The 11 units in the Dominican Republic had good sales and reasonable profits in the period. The flagship restaurant in Santo Domingo was closed for renovation for two weeks and since its reopening, the improved level of sales was much better than planned. A new restaurant was also opened in Santo Domingo on October 6 and sales were as planned.

T.G.I. FRIDAY’S
The Company’s flagship T.G.I. FRIDAY’S in Port of Spain was closed for four weeks and the Chaguanas restaurant was partially closed for three weeks for renovations. This had a significantly negative impact in the third quarter due to lost sales and carrying costs but it is anticipated that future benefits will be substantial. Strong growth in sales and profitability was maintained in Santo Domingo and the Dominican Republic. The second restaurant in Santiago is scheduled to open in February 2008 due to construction delays. Jamaica has turned around and is delivering consistent profits. The Puerto Rico economy, which is in recession, is severely challenging for the casual dining sector and as a result the three T.G.I. FRIDAY’s restaurants have suffered significant losses. The Company is closely monitoring the condition of the economy and performance of the business, and are reviewing all of its options. The first restaurant in Barbados was opened on August 30, 2007, and sales have exceeded expectations.

OTHER BRANDS (Pizza Hut, Long John Silver’s and TCBY)
The seven Pizza Hut restaurants performed well and an eighth restaurant is scheduled to open in Arima in November 2007. The two Long John Silver’s restaurants at Movie Towne, Port of Spain and Gulf City Mall have established the viability of this brand in the Trinidad market and this business unit will be expanded in the future. TCBY has improved slightly but is still unsatisfactory.

The Chairman has also stated that the Company expects that the benefits of the remodeling of the restaurants undertaken in Trinidad and Dominican Republic as well as the opening of the new T.G.I. FRIDAY’s restaurant in Barbados, to begin flowing in the fourth quarter.

The Board has resolved that the Company pays an interim dividend of 7 cents per share (2006 – 7 cents) in respect of the financial year ending 30 November 2007. The interim dividend is payable on 31 October 2007 to shareholders on record on 26 October 2007.

The shares of PHL last closed at a price of $5.76. In light of the current results we are revising our Forecasted EPS downwards to 36 cents. At this forecast and the current price, this share is trading at a price to earnings multiple of 16 times. Given that PHL usually trades between 12 to 15 times, we recommend a SELL on this share.

Nancy Chen
WISE Equity Research Team