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First Citizens: ANSA McAL undervalued

Wednesday, August 27, 2014

The ANSA McAL Group of companies is undervalued, First Citizens Investment Services Ltd (FCIS), a subsidiary of First Citizens Bank Ltd, told investors in its August 2014 Cribsheet on ANSA McAL released August 22. According to FCIS, the ANSA McAL stock is worth $72.03 a share, but is trading at $66.30 per share.

“Based on ANSA McAL’s consistent performance, positive fundamental ratios and steady dividend payments, this stock is valued at $72.03. Trading at $66.30, with a price-earnings ratio (P/E) of 15x and yield of two per cent, it is currently undervalued by the market,” FCIS said.

In its half-year results ANSA McAL reported a net profit of $316 million, a two-per cent increase over the $310 million generated for the same period to 2013, FCIS reminded investors. The increase was supported by a similar increase in operating profit of 1.4 per cent, it said.

“Return on equity was positive, dropping marginally from the previous year due to a ten-per cent increase in the equity holdings. Overall, the three year performance of the group has shown consistent profit margins and liquidity ratios, supported by healthy and increasing cashflows. 

“Working capital growth and revenue growth both declined in 2013 to five per cent and 12 per cent respectively, from the prior year but have remained positive. ANSA McAL has maintained low debt to capital ratios in relation to its competitors, an indicator of its financial strength and low default risk,” FCIS said.

ANSA McAL is one of three major conglomerates in the Caribbean region, FCIS said, with its headquarters based in T&T. The group’s main competitive industries are automotive, beverage, distribution, retail, financial services, manufacturing, retail and services.

“The automotive, trading and distribution sectors lead revenue growth and accounted for 43 per cent of total revenue for the period ended June 2014, while manufacturing accounted for approximately 45 per cent of profits,” the analysts said. FCIS said the motor vehicle industry has shown improvement in the last year, as data from the Ministry of Works, Transport and Industry reported cumulative new car sales for 2014 of 8,813 to June 2014, an 11 per cent increase over last year’s new car sales to June 2013 of 7,944.

Massy Holdings undervalued, also
FCIS also gave investors its valuation for Massy Holdings Ltd. It said: “Massy has maintained its positive performance and profitability within the last quarter and over the past three years. With the recent rebranding and strategic aligning of its operations, we expect shareholder value to be enhanced over the long-term. We maintain our valuation on the stock of $70.66. Trading at $68.51, the company is slightly undervalued.”

FCIS reminded investors that the Massy Group reported a net profit of $396 million for the nine-months ended June 2014, a 6.9 per cent decline compared to the same period to June 2013. The drop in profit was due to the $59 million charge related to the group-wide rebranding programme. Excluding the rebranding charges profit before tax was $208 million, an increase of five per cent over 2013.

Massy has reported consistent profits over the last three years, with steady dividend payouts to shareholders. However, the group growth rate trends have been unpredictable. Revenue growth fell 2.6 per cent in 2013 compared to an eight-per cent growth for the year end 2012. 

Similarly operating income grew by less than one per cent in 2013 versus a 22 per cent growth in the prior year. Working capital growth which has seen a three-year decline, saw negative growth in 2013. Liquidity indicators are positive with a three-year current ratio average of 1.5, but cash flow performance has been marginal with both cash flow from operations and free cash flow dropping in 2013. Leverage ratios have improved but are higher than its competitors,” FCIS said.

FCIS said Massy Holdings’ main competitive industries were automotive and industrial equipment, integrated retail, insurance, energy and industrial gases, information technology and investments. The integrated retail segment accounts for core revenues and profits, representing 59 per cent of group revenue for the results ended June 2014 and 46 per cent of profits.


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