Susan Gordon, Business Reporter

Jamaica Producers' true value is not reflected on its balance sheet and is in fact understated, some analysts are contending in a push for the agro-processing conglomerate to revalue its assets.

They also argue that there needs to be a realignment of the company's market to book value, and amendment of the articles of association to remove the 10 per cent restriction on the ownership of shares.

"The stock is trading at 50 per cent below the book value reflected on the balance sheet," said Steven Gooden of Pan Caribbean Asset Management (PCAM).

JP's book value is $50.53 per share. The trading value of the company's stock was $26 at the time of its annual general meeting two weeks ago, but has since increased to $30.

Gooden later commented to the Financial Gleaner that the book value was a conservative figure and rare for a company like JP, which has many quality assets.

Grossly understated

Nigel Goffe, research manager of Barita Investments, points to the valuation on the company's landholdings, saying it was grossly understated.

"JP owns many estates in Jamaica," he said.

But for 2006, the company valued its land holdings at $33.5 million, a steep drop on the $265 million in 2005. The net book value of its freehold and leasehold land and buildings was down from more than $1 billion in 2005 to just over $504 million in 2006.

Goffe also charged that more timely disclosure of dividends would have steadied the market's nerves and contained some of the volatility in the stock's price over the past few months, when JP dropped as low as $22.10, after hitting a high of $46, to reflect the market's uncertainty about where the company was headed after the disposal of its majority interest in JP Fruit Distributors Limited to minority partner Dole Foods.

JP announced interim dividends of 25 cents per share and another $2.25 cents per share at the AGM, to be paid on July 20, with an ex-dividend date of June 27.

Goffe said if the $2.50 returns were announced earlier it might have tempered the decline of the stock after a less than impressive first quarter, which recorded losses of $102 million for the conglomerate.

But board members, reacting to the comments when the criticisms first surfaced at the company's annual general meeting in June, said JP did not execute its decisions based on the stocks performance.

"As Marshall said, we don't take the decision simply to move the price of the stock up or down," said chairman Charles Johnston, endorsing earlier comments by group managing director Dr. Marshall Hall who departs the company after today.

However, Goffe quickly shot back: "It's the market that does that, Sir. People invest to get a return, and in the calculation dividend is one of the returns - not just the price movement of the stock."

Gooden also contended that the stock's illiquidity, resulting from restrictions on share ownership, contributed to its price volatility.

Johnston said lifting the two restrictions in the articles on share ownership has been under active consideration by the board, but noted that its execution would likely require an act of Parliament.

"It would have to go to Parliament to change the law and once it is changed it cannot be changed back," said Johnston - an indication that JP was still weighing whether it stands to lose more than it gains.

Restrictions

JP's articles of incorporation restricts the number of shares the company can sell, transfer or allot to persons who are not residents of Jamaica. It also prohibits the directors from registering or transferring shares in the company if it results in an individual owning, jointly or otherwise, more than 10 per cent of the aggregate shares in the company.

Although analysts agree that the limit on foreign ownership safeguards the company from a takeover by an overseas investor, they also felt it contributed to holding back the stock.

"I strongly encourage you guys to make the decision so that shareholders wealth can be maximised," said the PCAM general manager.

Gooden later commented to the Financial Gleaner that JP's current mix of businesses had long transformed it from the banana company it was in the 1930s into a global operation.

The intent of the provisions back then was to safeguard the banana industry.

Goffe similarly noted that "There may be parties who would be willing to buy beyond the 10 per cent; so for persons who want to sell, it would spur a more constructive demand." However, JMMB's research analyst Keisa Ansine, says removing the provisions may end up being bad for the stock.

"Lifting the limitation could lead to an increase in liquidity and could put more pressure on the stock when there is bad news," she said.

Jamaica Producers reported net assets of $9.45 billion at the end of its financial year, but the directors were criticised both for not providing a more current reading on the asset value and residual value of the sale of JP Fruit to Dole, which as Goffe noted, was arranged years ago when JP first sold a portion of the UK operation to the American company in 1994.

"You are quite right, the exit was staged," responded CEO-in-waiting Jeffrey Hall. "We believe the exit price was very attractive to shareholders and we are very satisfied with that price."

The company gained $2.34 billion from the sale of its 65 per cent controlling interest.

"As far as the recognition of assets on the balancesheet your allusion is correct except the assets are held on the balance sheet according to accounting principles," Hall said.

Apply historical costs

The company's auditors KPMG said the accounting policy adopted by the company is to apply historical costs except for investments, which are carried at fair value.

"There is an option to carry these assets at valuation but that option was never used, so the accounting principle used is consistent," said the KPMG representative at the meeting.

"Effectively, if you want to do your analysis, what you would have to do is look at what your present value of these properties might be given the information available to you."

However, Ansine noted that the company could have revalued its fixed assets in the same way it treats its investments.

susan.gordon@gleanerjm.com