Feb 2008 Financial News

GKC Releases Year End Results (YE07)

Feb 19, 2008

Results for the Year Ended December 31, 2007

All figures quoted in Jamaica Dollars unless otherwise stated

Earnings Per Share
GraceKennedy Limited (GKC) had a commendable fiscal 2007. For the Year Ended December 31, 2007, the Jamaican conglomerate reported Earnings Per Share (EPS) of $10.45, up a significant 86.3 per cent or $4.84 on the comparable EPS of $5.61 in fiscal 2006. This exceptional growth is largely due to the fact that the Group completed the sale of 25 per cent of its shareholding in GraceKennedy Money Services Caribbean SRL (GKMS Caribbean) to the Western Union affiliate MT Caribbean Holdings (Western Union) for a consideration of US$29 million. The actual profit realized from the sale was approximately 62 per cent of the consideration value or $1.3 billion. Excluding this one-off gain, the Group’s EPS was still up an outstanding 35.3 per cent year on year, from $5.61 (FY06) to approximately $7.59 (FY07).

Financials
For the period under review, Revenue increased a significant 35.1 per cent or $12.7 billion to $48.7 billion and Expenses rose 33.1 per cent or $11.4 billion to $45.7 billion. Thus, Operating Income amounted to $3.0 billion, up a noteworthy 74 per cent or $1.3 billion on FY06. Profit from Operations rose a substantial 101.7 per cent or $2.6 billion to $5.1 billion while Profit Before Taxation ended the fiscal year at $4.8 billion, up a commendable 90.2 per cent or $2.3 billion on the previous financial year.

Return on Equity and Return on Assets (excluding the impact of the gain on the sale) was 11.3 per cent and 3 per cent respectively. For FY06, these performance indicators stood at 11 per cent (ROE) and 2.9 per cent (ROA).

Dividends
A second dividend payment of 70 cents per share was paid on December 10, 2007 bringing the total dividend paid for the year to $1.15 (2006: $1.05).

Outlook
It is evident from the Group’s performance in fiscal 2007, that GKC is starting to reap the benefits from the reorganized corporate structure established in December 2006. After showing negative growth in EPS over the period 2004 to 2006, the Group has made a healthy turnaround in fiscal 2007. The improved efficiencies, the expansion of the Grace line into the international market, and developments within their financial services division will continue to serve the Company well in fiscal 2008.

Recommendation
For FY08, we have forecasted an EPS of TT$0.83, which at the current price of TT$7.70 translates to a P/E of 9.3 times. At the forecasted EPS and a multiple of 10 times, this share has an expected return of approximately 8 per cent on the current price or a target price of TT$8.30. We continue to recommend a BUY on this share.


Nancy Chen
WISE Equity Research Team