Nov 2007 Financial News

GKC Releases Nine Months Results

Nov 20, 2007

GraceKennedy Limited (GKC)
Results for the Nine Months Ended September 30, 2007
All figures quoted in Jamaica Dollars unless otherwise stated

Earnings Per Share
GraceKennedy Limited (GKC) has had three successful quarters for fiscal 2007, with the third quarter showing the largest growth, year on year. The Group reported Earnings Per Share (EPS) of $1.72 for Q307, up an outstanding 38.71 per cent or $0.48 on Q306. This brought the EPS for the Nine Months (NM) Ended September 30, 2007 to $5.09, an increase of 28.21 per cent or $1.12 on NM06.

Financials
For the Nine Month period under review, the Group reported Revenues of $35.37 billion, up a noteworthy 33.78 per cent or $8.93 billion on the comparable period in FY06. Q307 on Q306, this figure grew by 34.43 per cent or $3.18 billion from $9.25 billion (Q306) to $12.43 billion (Q307). NM07 on NM06, Expenses also saw an increase, up 32.40 per cent or $8.15 billion to $33.30 billion. Q307 on Q306, this figure rose by 31.68 per cent or $2.81 billion to $11.67 billion. Other Income for NM07 amounted to $533.09 million however this figure was down 6.90 per cent or $39.53 million on the same figure for the corresponding period in FY06. Q307 on Q306, Other Income was down by a larger margin of 14.30 per cent from $189.92 million to $162.77 million. Thus, Profit from Operations for NM07 stood at $2.60 billion, up a noteworthy 39.84 per cent or $741.42 million on NM06.

Interest Income (non- financial services) for the period under review was $271.03 million, down 15.41 per cent or $49.36 million on the same figure for NM06. Q307 on Q306, this figure was down by 29.95 per cent or $35.25 million to $82.44 million. While Interest Expense (non-financial services) amounted to $514.26 million for NM07, a substantial increase of 53.49 per cent or $179.22 million on NM06. Q307 on Q306, this figure was also up by a large percentage of 50.34 per cent from $119.24 million to $179.26 million.

Share of Results of Associated Companies increased by a significant 346.06 per cent or $67.16 million to end at $86.57 million for NM07. As such, Profit Before Taxation was $2.45 billion, up a notable 31.08 per cent or $580 million on NM06.

The Effective Tax Rate for the period under review was 30 per cent compared to a Rate of 28.50 per cent for NM06. Ultimately, Profit After Taxation ended the period at $1.71 billion, an increase of 28.21 per cent or $378.01 million on the corresponding period in the last financial year.

Divisional Performance

„« GK Foods
The Chairman has noted that all the companies in the GK Foods division had shown profitable results for the period and is optimistic about this business as there is great potential in the markets in which the Company operates. During the third quarter, the Company launched a new range of Grace frozen meals in Canada and the United States with the brand name ¡§Grace Caribbean Traditions¡¨.



„« GK Investments
The Chairman also pointed out that strong performance was also reflected in GK Investments, which continues to generate satisfactory results with both revenues and profits exceeding last year¡¦s performance. In Q307 this arm received approval by VISA of First Global Bank as a principal member, which would allow the bank to be more flexible and innovative in expanding its credit card business. Additionally, First Global Financial Services, the other member of the First Global Group, successfully rolled out two new products in Q307, namely FGFS Investor Line and FGFS Managed Assets Portfolio. Other companies under this division also continued to perform well in the third quarter.

Acquisitions and Disposals
On July 19, 2007, GraceKennedy Limited, through its subsidiary, First Global Holdings Limited (FGH) acquired 90 per cent stake in ONE1 Financial Limited, a financial services company in Trinidad & Tobago.

On November 01, 2007, GKC completed the sale of 25 per cent of the shareholding in GraceKennedy Money Services Caribbean SRL (GKMS Caribbean) to The Western Union Company (Western Union) for a consideration of US$29 million. In addition to the purchase of an equity interest in GKMS, Western Union also renewed its agreement with GraceKennedy and its subsidiaries to offer Western Union services for another ten years.

Recommendation
GKC shares last closed at a price of TT$5.71 on the local market. In light of the current results, we are increasing our forecasted EPS for FY07 to TT$0.70. At the current price and this forecasted EPS, this share is trading at a price to earnings multiple of 8.16 times. Additionally using a multiple of 10 times and the forecasted EPS of TT$0.70, this share has an expected return of approximately 23 per cent on the current price or a target price of TT$7.00. Thus, we continue to recommend a BUY on this share.

Gia Singh
WISE Equity Research Team