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Interim results, share prices and related matters

Published: 
Sunday, December 6, 2015

This week, we look at a number of companies and comment on their recent results, price movements and related matters.

Trinidad Cement Ltd

Particularly in the current year, investors have seen a rapid transformation in the fortunes of TCL. The most dramatic was the reduction of debt and the refinancing of its total debt of US$200 million; less than two years ago this figure was closer to US$300 million.

The exercise shown in the table suggests that TCL can and will pay a dividend for fiscal 2015. This payment can be as low as $0.22 or, if the credit on the debt restructuring exercise is included, as high as $0.39. For our purposes, we will use the lower figure.

In the worksheet, the consolidated leverage ratio is calculated as 2.93:1.00. However, if we assume that the total debt is US$200 million, which equates to $1.29 billion, then the leverage ratio improves to 2.70:1.00.

The price closed on September 30, 2015 at $3.15. Following the release of its third quarter results on October 24, 2015, the price of TCL’s shares have risen consistently. On the next trading day, October 26, 2015, the price closed at $3.30 and it continued trending upward closing at $4.00 on November 12, 2015, when 872,000 shares changed hands.

Assuming that a dividend will be paid, probably in March or April 2016, investors willing to accept a yield of 4 per cent are probably eager to pay as much as $5.50 for this share. (Projected dividend of $0.22 divided by 4.0 per cent.) On the other hand, investors, who prefer a higher yield of say 5.0 per cent, would not want to pay more than $4.40 for TCL at this time.

These are some of the considerations that would continue to drive the demand, supply and price of this share in the weeks and months ahead.

Recent media reports concerning its commitment to boost profitability at Arawak Cement in Barbados and improve distribution arrangements in Jamaica with a new partner, Tank-Weld Metals, should result in additional efficiencies.

Earlier in the year, some commentators expressed their concerns. First, the pricing of the rights issue above the then-current market price was seen as a device to discourage local investor interest and facilitate the participation of Cemex, which now owns 40 per cent of TCL.

However, many shareholders bought additional shares on the secondary market at less than $2.90 and are now enjoying the benefits of that significant capital appreciation. Also, those with foresight and confidence, who bought at less than $1.00 back in April and May 2013, are now smiling from ear to ear!

In addition, the rights issue document did not provide any profit projections. This is a valid point. However, potential investors familiar with the company could have developed their own scenarios. The prospectus gave several clues, for example, the recurring annual savings of $50.00 million was disclosed. (Refer to page 50 section 7.1 of the prospectus.)

Of course, one of the biggest (perhaps, unquantifiable) advantage is the active participation of a single large shareholder, which has a substantial stake in the success or failure of the enterprise and which operates in the same industry.

By way of analogy, most investors in Witco, Unilever and Scotiabank do not grumble that their largest shareholder is a foreign entity; they simply enjoy their dividends and capital appreciation and, mostly, keep quiet.

National Flour Mills Ltd

When NFM released its stellar results to September 2015 on October 29, 2015, the share price actually rose to $2.00 from $1.96 at the end of the previous session. It again fell below $2.00 and stayed under that level until November 18, 2015.

The announcement of the payment of a dividend of $0.06 on December 22, 2015, sparked renewed interest and the price again broke through the $2.00 mark, closing at $2.50 on November 30, 2015. Also, its 2014 AGM will be held on December 10, 2015.

The EPS for the nine months to September registered at $0.25, which was more than twice the $0.12 earned for the comparative 2014 period. Most of this improvement was attributed to smarter grain procurement, higher sales and productivity gains in both operations and working capital management.

Praetorian Property Mutual Fund

The life of the PPMF was first extended to November 14, 2015. However, reliable information suggests that it is now likely to be further extended to November 2016.

The major reason for this is that it has not yet been able to sell its two largest properties. One of these is located in the Cayman Islands (Bermuda House) and the other is sited in Barbados (Bay Corporate Centre). All its Trinidad-based properties have been sold.

The additional time should see investors derive a break-up value that is a little closer to the original offer price of $5.00.

We should get a further update on this development when the fund releases its audited results to September 2015 in late December.

T&T NGL Ltd

The start of trading in NGL saw the price quickly appreciate to $25. The major reason for this was the purchase by the NIB of 7,400,000 shares at $25 on October 20, 2015. This was quickly followed by additional purchases by the same institution totalling 718,342 shares at prices ranging from $23.00 to $24.65. Thereafter, the share price languished from lack of serious interest from other institutional buyers.

On November 12, 2015, the price closed at $21.49. On November14, 2015, the interim results for the nine months to September 2015 were released. Not unexpectedly, this report showed a significantly lower EPS of $0.85 versus $1.78 for the seven months to September 2014.

As expected, an interim dividend of $0.50 was declared and will be paid on December 16, 2015. Against the background of lower energy prices and related concerns, this news sparked renewed interest from retail investors, who bid up the price to $22.00; this is 10 per cent above the IPO price of $20.00.

Republic Bank Ltd

Despite operating in several difficult markets, RBL’s diluted EPS advanced to $7.57 from $7.39.

In addition, its final dividend, which was paid on December 1, was improved to $3.10 from $3.00. This increase raised its total dividend to $4.35 from 2014’s $4.25. These positives were insufficient to boost its share price, which has remained stubbornly at around $112.00, both before and after its profit announcement.

A big question hanging over this institution is how and to who will the government (Ministry of Finance and/or Central Bank) dispose of Clico-related shareholdings in this iconic entity. If a single buyer is selected, that could see a major change in the way the bank operates.

Clico Investment Fund

Investors in this fund received their first dividend for the year of $0.64 in February 2015. This was followed by an interim dividend of $0.33 paid in August 2015.

Relating the recent price of $22.65 to the 2015 dividend of $0.97 investors enjoy a yield of 4.28 per cent.

The recent share price of $22.65 represents a discount of 10.8 per cent from the NAV of $25.40 as at September 2015. The fund is often used as a means to buy Republic Bank shares, its major asset, at a discount while providing a good current yield.

In about seven years’ time, investors would have their shares cancelled and be issued with RBL shares and the value of the bond holdings. Given that RBL recently paid a higher final dividend, one expects that this increase would flow through to CIF holders in February 2016.

Unilever Caribbean Ltd

One of the stocks on the local exchange that defies gravity is Unilever Caribbean Ltd. UCL’s share price closed at $65.00 on January 15, then advanced to $66.00 on April 2 and moved up to $67.00 on July 31 before closing at $68 on November 17.

Starting in the first quarter, turnover was lower by 16 per cent while EPS contracted to $0.22 from $0.53. The major reason for this decline was given as serious problems in the deployment of a new IT platform system.

This problem was solved by the second quarter, but still sales continued to be lower than the prior year. But, by the third quarter, the shortfall in sales had narrowed somewhat. Even so, the third quarter EPS, at $0.40, was lower that the EPS of $0.48 recorded for the second quarter.

The cumulative EPS up to the end of September reached $1.10 compared with $1.70 for the same period in 2014. If it earns $0.60 in the current quarter, which is usually its best period, then the full year’s EPS would amount to $1.70. Based on previous experience, shareholders can expect that the entire EPS will be disbursed as dividends. Having previously paid an interim dividend of $0.20 in August, the final dividend should be $1.50.

This dividend, when related to the $68.00 market price, gives investors a reasonable yield of 2.5 per cent. Consequently, the upward share price movement would have correctly anticipated the dividend payment.