Sunday, December 17, 2017

Key players in the manufacturing sector deliver

Today we at Bourse review the performance of some of the major players in the manufacturing sector: West Indian Tobacco Company Limited (WCO), Unilever Caribbean Limited (UCL) and One Caribbean Media Limited (OCM) for the fiscal year ended December 31, 2013.


For the financial year ended December 31, 2013, WCO’s earnings per share (EPS) rose 17.3 per cent to $4.88 from $4.16. WCO is currently the largest company in the manufacturing sector on the Trinidad and Tobago Stock Exchange (TTSE). With a market cap of $9.9B, it is trading at a trailing PE multiple of 24.2x which is 23 per cent higher than its 5-year average PE of 17.7x (Exhibit 1).

The Board declared a final dividend of $1.60 per share, payable on April 29. This brought the total dividends paid for the year to $4.54 versus $3.82 for the previous year, an 18.8 per cent increase. Accordingly, WCO’s dividend pay-out ratio stands at 93 per cent while the trailing dividend yield is 3.85 per cent.

WCO’s strong performance for 2013 was mainly attributed to an 8.8 per cent increase in Revenue which moved from $868M to $944.8M and a 1.3 per cent reduction in Cost of sales from $246.9M, in the previous year, to $243.8M. Cost of sales margin decreased to 25.8 per cent from 28 per cent in 2012. Gross profit climbed to $701M, a 12.9 per cent rise year on year.

Operating profit increased 16.8 per cent, due to a 10.3 per cent reduction in Distribution costs from $20M in 2012 to $17M. WCO’s Profit for the year stood at $411M, a 17.4 per cent increase, from $350M the prior year.

Over the past four years WCO’s cigarette prices have steadily increased. Due to the nature and price elasticity of WCO’s products, the volume of cigarettes sold has remained stable and is expected to persist in this pattern. During 2013, WCO increased product prices, firstly, on the 11th February by 4 per cent and then on November 3 by an additional 2 per cent, contributing to revenue growth. Proposed legislation, expected to come into effect during Q2 2014, calls for new package labelling on cigarette cartons and additional dispenser requirements. This development is likely to have limited impact on the company’s performance, given the nature of WCO’s products. WCO’s performance continues to be solid in addition to maintaining an attractive dividend policy. At a price of $118.00, the trailing dividend yield on the stock stands at 3.85 per cent, one of the highest on the local market, but lower than its 5-Year Average due to the stock’s price appreciation.

Additionally, WCO is currently trading at a trailing P/E multiple of 24.18x, a premium to its 5 year average of 17.7x. On this combination of WCO’s P/E multiple expansion and its relatively attractive dividend yield, BOURSE recommends a HOLD on the stock.

Unilever Caribbean Limited

For the Year Ended December 31, 2013, UCL reported EPS of $2.69 of 21.2 per cent from $2.22 in the previous year. Currently UCL trades at a trailing P/E multiple of 20.5x, higher than its 5yr average of 15x.

The Group’s Revenue moved from $567.1M to $579.3M, an increase of 2.2 per cent. Reporting a less than 1 per cent decrease in Cost of Sales, Gross Profits experienced an increase of 6.5 per cent increase to $233.7M from $219.5M. This resulted in a 1.6 per cent increase in the Gross Profit Margin, from 38.7 per cent to 40.3 per cent.

Despite increasing Selling and Distribution and Administrative Expenses by 2 per cent and 15.3 per cent respectively, UCL’s Operating Profit increased by 9.4 per cent, from $78M to $85.3M.

The major catalyst to the increase in Profit After Tax came from an $8M gain in Other Income. Net Income for 2013 jumped 21.1 per cent from $58M in 2012 to $ 70.4M.

The performance of UCL was driven by strong underlying volume growth in all product lines, especially in the domestic market (Exhibit 2). However, the regional export markets continue to be affected by sluggish economies and increasing competition but continue to focus on operational efficiencies.

At the current price of $58.22 and a year to date (YTD) increase of 3.59 per cent, UCL is trading at a trailing P/E multiple of 20.5x, at a premium to its 5-year average of 15x. The dividend yield has remained constant at 3.3 per cent, below its 5-Yr average of 4.7 per cent. BOURSE recommends a HOLD on this stock.

One Caribbean Media Limited (OCM)

For the fiscal year ended December 30th 2013, One Caribbean Media Limited (OCM) reported EPS of $1.25, a 13.6 per cent increase when compared to the $1.10 the company reported in the previous year. Currently, OCM, is trading at a trailing PE multiple of 16.7x.

OCM’s profit for the year grew 15.0 per cent, reaching $84.4M from $73.3M a year ago (Table1). This performance for 2013 was linked to the profitability of OCM’s diversified product lines, especially the Print and Media segments which saw favourable revenue growth due to the intense media coverage surrounding the four election campaigns held in 2013.

The impending General Election, carded for 2015, adds to the favourable outlook for OCM. All of the company segments are expected to receive a boost in revenue until the elections in 2015.

Readers may recall OCM as being one of Bourse’s top local equity picks for 2014 at the start of the year. The stock has rallied 9.24 per cent YTD. The security is currently trading at a P/E of 16.17x, which continues to make it relatively attractive. As such, Bourse recommends a BUY on the stock.

Manufacturing Sector

YTD the manufacturing sector index has contracted by 1.67 per cent, largely due to the decline in the two largest companies that make up the sector. WCO and Angostura Holdings Limited both declined by 1.67 per cent and 11.79 per cent respectively, suggesting that investors may be taking profits from their positions and also that these stocks may be viewed as relatively expensive compared to the rest the market. The Manufacturing Sector P/E multiple stands at 17.68x, serving as a benchmark for comparison within the sector. OCM is currently trading below the Manufacturing Sector’s multiple while WCO and UCL are both trading at a higher P/E. (Investors should note that companies, while in the Manufacturing Sector, are engaged in a variety of business lines. Assessing these stocks on both a stand-alone and sector basis is therefore warranted).

Despite the decline in the Manufacturing Sector Index, the companies that make up the manufacturing sector continue to produce positive results broadly in-line with investor expectations.