Friday, December 15, 2017

Manufacturing shares up

Today we at Bourse update investors on 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) based on results for the half year ended June 30th 2014.



For the HY ended June 30th 2014 (1H2014), WCOís Earnings per share (EPS) rose 18.8 per cent to $2.65 from $2.23. WCO, currently the largest company in the manufacturing sector on the Trinidad and Tobago Stock Exchange (TTSE) with a market cap of $9.9b, or 9 per cent of the overall market of $110B, is trading at a trailing PE multiple of 22.3x (see Exhibit 1). This is 25 per cent higher than its 5-year average PE of 17.7x and supports consistently high growth in earnings over the period.

The Board has declared a second interim dividend of $1.20 per share, payable on 15th August 2014, with an ex-dividend date on the 4th August 2014. This brings the total dividends paid for the 1H2014 to $2.18 versus $1.86 for the previous 1H2013, a 17 per cent increase. With a consistent dividend policy and a high payout ratio of over 80 per cent, WCOís trailing dividend yield stands at an attractive 4.12 per cent.

With two price increases in 2013, WCO realised a strong performance for 1H2014 of a 6.0 per cent increase in Revenue, climbing from $440.8m to $477.8m. Coupled with an effective cost management strategy, both Cost of Sales (?4.5 per cent) and Distribution cost (?27.8 per cent) fell from $115.8m to $110.6m and $10m to $7m respectively. These reductions in costs led to a 19.2 per cent increase in Profit for the year of $223.6m, up from the $187.5m recorded at the end of June 2013.

With the passage of the Tobacco Control Regulations 2013, by the Trinidad and Tobago Parliament, WCO is now legally required, by 2015, to alter its cigarette packaging graphics and to adhere to new requirements for dispensers. This development is likely to have limited impact on the companyís performance, given the historically inelastic nature of WCOís product portfolio.

At a price of $118.00, the trailing dividend yield on the stock stands at 4.12 per cent, one of the highest on the local market (see Exhibit 2). The companyís apparent on-going cost management strategy, coupled with the stable demand for its products should continue to accrue benefits to its investors. Though tempered by a trailing P/E of 22.3x (well above its 5-year average), given WCOís consistent earnings growth, attractive dividend payout and yield BOURSE revises its rating of WCO to a BUY from a HOLD.

Unilever Caribbean Limited

For the period ended June 30th 2014, UCL reported EPS of $1.17 or an increase of 12.5 per cent from the $1.04 recorded in the 1H2013. Currently, UCL trades at a trailing P/E multiple of 22.3x, 48 per cent above its 5 year average of 15x.

Despite a very competitive environment, the Groupís Revenue for the HY 2014 grew albeit marginally from $280.9m to $283.3m, an increase of 0.86 per cent. As a result of a tight cost control strategy, UCL was able to reduce Cost of Sales by $334,000 for the period. Positive sales mix and operational efficiencies resulted in a 1.5 per cent increase in the Gross Profit Margin, from 39.8 per cent to 39.2 per cent. Gross Profits experienced an increase of 2.4 per cent to $112.8m from $110.2m.

At the current price of $63.00 and a year to date increase of 12.10 per cent, UCL is trading at a trailing P/E multiple of 22.3x, the highest together with WCO in the manufacturing sector. The dividend yield stands at 3.3 per cent, below its 5-year average of 4.7 per cent and just above the marketís average dividend yield of 3.1 per cent.

Like WCO, investors should note that UCLís availability of shares on the market is quite low, speaking both to the low liquidity of the stock and the high value placed on these shares by current shareholders. With 26 million shares outstanding, trading volumes are as shown in Table 1.

Year to date, 32,543 shares (or 0.06 per cent of total volume traded ytd) of UCL crossed the floor representing an average value of $1.9m (0.28 per cent of total value traded). Relative to the other market participants on the TTSE, UCL was the third least traded stock on the market. Due to the illiquid nature of UCL and rich valuations, BOURSE rates the stock a HOLD.

One Caribbean Media

For the six months ended June 30th 2014, One Caribbean Media (OCM) reported an increase in EPS of 1.75 per cent from $0.57 to $0.58 versus the comparable period last year. At a price of $23.30, OCM is trading at a trailing P/E Multiple of 18.5x, close to the Market P/E of 18.6x. The stock is paying a dividend of $0.27 on 30th September, 2014 with an ex-dividend date most likely in the first week of September 2014.

The company reported growth in both Revenue and Profit after Tax (PAT) for 1H2014. Revenue increased from 1H2013 by 5.09 per cent from $255m to $268m whilst PAT improved by 2.34 per cent from $38.4m to $39.3m. OCMís results represent strong performance in light of economic challenges experienced in the Barbados and Eastern Caribbean markets.

As of May 29th 2014, OCM acquired a 60 per cent interest in a small digital media company. OCM has stated that the acquisition represents less than 0.02 per cent of OCMís Net Book Value. This is in-line with the company strategy of continued selective investments in enterprises in order to create shareholder value.

Despite the expectation of continued economic challenges in the second half of the year, the company maintains that growth should be driven by strategic initiatives which it has implemented. There is a positive outlook on OCM due to the upcoming General Elections in Trinidad and Tobago and the 2016 Summer Olympics for which the company has the rights to present through its television station CCN TV6.

One of Bourseís top local equity picks at the beginning of 2014, OCMís stock price has advanced a considerable 25.9 per cent on a year-to-date basis, on expectations of increased revenue generation from CCN TV6ís coverage of the 2014 FIFA World Cup and the approaching general elections. Currently trading at a price of $23.30 and a trailing P/E of 18.5x, the stock appears to be trading above its fair market value relative to its 5-year P/E of 14.6x. On the basis of a continuing positive outlook, earnings growth and a reasonable trailing dividend yield of 3.2 per cent, BOURSE rates the stock as a HOLD.

Manufacturing Sector Outlook

The manufacturing sector index has advanced 4.2 per cent in the 2Q 2014 after contracting 1.7 per cent in 1Q 2014. With consumer demand and Government spending expected to increase in the coming quarters, investors may see more favourable results being posted from companies listed in this sector. The Manufacturing Sector average P/E multiple stands at 20.8x, serving as a benchmark for comparison within the sector. Whilst some of the companies listed in the manufacturing sector may seem relatively expensive on a P/E multiple basis, alternative value drivers, earnings consistency and quality may also influence investor interest in these stocks. Dividend yield also comes into consideration, particularly in the prevailing low interest rate environment.

For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100 or email us at The production of this publication is not to in any way establish an offer or solicit for the subscription, purchase or sale of the any securities stated herein to US persons or to contradict any laws of jurisdictions which would interpret our research to be an offer.