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Mixed results for TCL, RML

Today we at Bourse will be reviewing the 2013 performance and outlook for Trinidad Cement Limited (TCL) and Readymix Limited (RML).

TRINIDAD CEMENT LIMITED
Following the $1.32 loss per share recorded in the year 2012, Trinidad Cement Limited (TCL) delivered an EPS of $0.24 for 2013 boosted by increased sales locally and regionally. Sales came in at $1.941b, 20 per cent higher than the comparable period of 2012. An increase in sales of domestic cement volumes and export levels along with higher profit margins contributed to TCL’s strong earnings before interest, tax, depreciation and amortisation (EBITDA) levels.
EBITDA came in at $423m in 2013 which was more than doubled the $154.5m attained in 2012. On a quarterly basis, EBITDA levels have outperformed those of 2012 despite the overall downward trend throughout the year and even excluding the $38.8m tax credit included during the second quarter. EBITDA margins have also improved, increasing from 9.6 per cent in 2012 to 21.8 per cent in 2013.
This improvement is attributed to increases in key operating metrics with domestic cement sales volumes (especially in Trinidad and Jamaica) increasing by 13 per cent year-on-year (y-o-y), cement export volumes increased by 22 per cent y-o-y and clinker production increased 15 per cent y-o-y.
PBT of $52.9m was a marked improvement over the $384m loss experienced in the previous year. Lower depreciation of the Jamaican dollar, impairment charges, finance costs and a deferred tax credit provided major benefits to the 2013 results.
Looking at the balance sheet, TCL’s asset base fell by 1.5 per cent to $3.61b from $3.67b while its liabilities decreased by 4.3 per cent from $2.99b to $2.86b.
At a current trading price of $2.15, TCL’s stock price is down 2.3 per cent YTD with a trailing P/E of 9.1 times. As seen in Exhibit 1, TCL’s stock price traded as high as $10.95 in July 2008 before falling to a low of $0.95 in May 2013. TCL’s results in 2012 were dampened by production difficulties in the region and a 92-day labour strike in the Trinidad cement plant. For 2013, the Group’s financial position and liquidity strengthened throughout the year with all loan payments being made and financial ratio covenants being achieved.
The Group is optimistic about its performance in 2014 as critical repairs at its Barbados plant have been completed and exports are being made to buoyant markets such as Guyana. While demand in Jamaica during January to February 2014 was slower than the comparable period of 2013, economic growth for 2014 is estimated to come in at 1.25 per cent vs. 0.42 per cent in 2013 which can benefit the construction sector. Most recently in December 2013, the Jamaican subsidiary Caribbean Cement Company Limited, struck a US$8.5m deal to supply 100,000 tonnes of clinker to Venezuela that runs to April 2014. Negotiations are currently on hold to wrap up an agreement to supply an additional 240,000 tonnes of clinker while Venezuela deals with its social unrest.
The Trinidad and Tobago market is forecast to remain buoyant as economic conditions strengthen which may contribute to improved cement and concrete business. An increase in TCL’s market share will bode well for the Group’s revenue and its ability to finance $2b in outstanding debt obligations as at December 2013. Based on the notes to its financial statement, TCL’s debt service (inclusive of principal and interest) is forecast to be $368m for 2014. The ability of TCL to generate and grow sufficient cash flows to service its debt remains the biggest challenge to the Group coming out of the restructuring of its debt portfolio. BOURSE recommends a HOLD on the stock.

READYMIX (WEST INDIES) LIMITED
For the year 2013, Readymix Limited (RML) recorded a loss of $0.06 per share vs. a loss of $0.67 per share in 2012 (Exhibit 2). Overall the reported loss was $1.58m in 2013 compared to a loss of $8.56m in the prior year. Higher revenue as a result of increased activity in the construction sector in Trinidad boosted 2013 revenue to $175.6m, 29 per cent higher than the $136.5m in 2012.
By segment, revenue from Trinidad and Tobago accounted for 94 per cent of RML’s revenue while Barbados contributed 6 per cent. Finance costs improved by 20 per cent moving from a total of $1.6m in 2012 to $1.3m in 2013. Barbados recorded a loss before tax of $5.1m while Trinidad recorded PBT of $1.1m in 2013 compared to a loss of $11.4m in 2012. Consolidation adjustments of $5.57m boosted the overall PBT levels to $1.58m compared to a $9.9m loss for the comparative period of 2012.
Total assets fell 10 per cent from $158.5m to $143m. Total liabilities also fell to $55m from $71.7m resulting in a marginal increase in net assets to $87.9m from $86.8m. Based on shareholders’ equity of $90.3m, the net asset value per share on RML approximates to $7.53, significantly lower than its current trading price of $21.00.
At a price of $21.00, RML’s share price is down 4.5 per cent YTD with a total of 800 shares trading for the year which speaks to the illiquidity of the stock. Like its parent company TCL, RML faces the challenge of servicing its debt obligations with $8.6 million in borrowings due to third parties as at 31 December 2013. BOURSE recommends a SELL on the stock.
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