Vantage Point with keith collister - File
Dehring, Bunting & Golding Limited released earnings on Friday for its July-September second quarter of 61.95 cents per share, compared to earnings per share of 48.51 cents, an increase of 13 cents or 27.7 per cent over the corresponding period last year. However, the critical net interest income line for the quarter was flat at $196.6 million compared with the corresponding period last year.
Profit after tax improved to $196 million from $150 million, but this was mainly due to lower quality trading gains.
The difficulties that money market players such as DB&G are going to have in diversifying their income streams beyond core interest income to compensate for the negative effect of further falls in interest rates on spreads, suggest that investors would be well advised to take BNS' offer of $21.08.
Our advice in a previous Vantage Point column that investors should be cautious in chasing the price of DB&G too much beyond two times book as BNS is likely to be a disciplined financial buyer appears to have been "on the money".
JAMAICA BROILERS
At its annual general meeting, Jamaica Broiler's outlined a very positive future driven mainly by its previously announced move into the ethanol business.
Losses on its fish business increased sharply instead of breaking even as promised at the 2005 annual general meeting, but Broilers may be poised to become an "energy" play, and as a consequence, one of Jamaica's few true growth stocks over the next couple of years.
For its full financial year to April 29, 2006, Broilers earned net profits of $645 million on sales of $9.94 billion.
At the AGM, held October 28, Broilers projected sales of $10.96 billion for 2006/07 and a massive further 54 per cent increase in sales to $16.9 billion for 2007/08, the latter increase being driven mainly by ethanol sales after completion of the proposed new ethanol plant in May 2007.
Net profits were projected at $592 million for 2006/07, and a further increase of 30 per cent in the following year to $769.8 million.
At first glance this suggests a dip in net profits for the coming financial year.
These projections are for "operating profits" and do not include "other operating income", which has been a significant portion of Broiler's overall earnings. Last year's fall in net profits reflected a more than halving of "other operating income" to a still significant $242.7 million, of which half represented the "negative goodwill" from the acquisition of the cogeneration plan.
At its current price of $4.20, Broilers still looks cheap from a long term perspective, even after its recent sharp rise, assuming even a portion of the current growth plans are realised.
COURTS JAMAICA
Courts released better earnings for its second quarter, July to September, of nearly $181 million, or nearly 9.4 per cent above the corresponding quarter a year earlier.
This represents earnings per share of 7.54 cents compared to 6.9 cents in its corresponding period last year.
Analysing the second quarter results, stockbroker NCB Capital Markets has Courts as a hold, despite predicting that earnings per share will increase to 42 cents.
NCB-CM also predicts an expansion of the current price earnings multiple from the current 10 to 11 times earnings, giving a projected share price of $4.62.
While this projection appears quite reasonable, it justifies rating Courts as a buy and not a hold, even without the likely prospect of the long awaited bid being completed by then.
Courts is still significantly below its 52 week high of $4.75 - and far below its all time bull market high - in a market that has become significantly more bullish of late, with a potential shortage of stock.
BOND RATING
Bear Stearns moving Jamaica's international bond from market perform to outperform is, amongst other things, a recognition of Jamaica's improving macroeconomy.
However, while the possibility of growth going above 3 per cent in the coming quarters is encouraging, this rate of growth is still insufficient to break Jamaica out of our debt trap.
Our very high debt makes Jamaica very vulnerable to shocks, whilst the impact of new U.S. passport requirements for tourists will be highly negative according to the Caribbean Tourist Association. Looking internationally, a hard landing for the U.S. economy, as opposed to the soft landing currently expected by Wall Street, became closer with last week's 1.6 per cent rate of GDP growth for the U.S. economy. This was significantly below the expectations of virtually all U.S. economists other than RGE Monitor's Nouriel Roubini (Bear Stearns excessively bullish David Malpass predicted over 3 per cent for the quarter). Jamaica's economy has performed poorly whilst the U.S. has boomed, so a U.S. recession would be extremely unwelcome just as we are starting to recover.
keith.collister@gleanerjm.com
