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NML performs, NEL’s earnings dip

This week, we at Bourse review the performance for the nine months ended 31st December 2013 for National Enterprises Limited (NEL) and the performance for the first quarter ending 31st December 2013 for Neal and Massy Holdings Limited (NML).

National Enterprises Limited
For the nine months ended December 31st 2013, National Enterprises Limited (NEL) reported Earnings per share (EPS) of $0.57, $0.11 lower than the $0.68 reported in the comparative period the prior year. This represented a fall in EPS of 16.2 per cent. At the current price of $18.25 as at 21 February 2014, NEL’s trailing price to earnings ratio (P/E) is 24 times. Despite a fall in earnings, NEL has outperformed the Trinidad and Tobago Composite Index (TTCI) on a year to date (YTD) basis by 3.7 per cent (see Exhibit 1).
For the period, NEL’s Revenue grew 4.7 per cent from $322m to $337.7m. Cost of Sales climbed 7 per cent or $18m higher when compared to the nine months ending December 2012, resulting in a fall in Gross profit of 5.4 per cent. The Group generated Operating profit of $39m up 90 per cent from $20.9m conveyed for the prior year. This was mainly as a result of the 317 per cent increase in Other Income.
NEL’s Share of Profit of Equity Accounted Investees (SoP) fell to $308.8m or 21.7 per cent from $394m. The fall in SoP contributed to a fall in Profit for the period, which fell $65.6m or 16 per cent to $345m. NEL noted that investee companies, particularly NGC NGL, have paid out lower dividends so far for this financial year.
To diversify the company’s strategic asset mix, NEL has acquired exposure in the power sector through the acquisition of 10 per cent shareholding in Powergen from BP. In addition, NEL has expanded its financial asset holdings through the acquisition of units in the CLICO Investment Fund (CIF). The Powergen purchase of $211.8m added to NEL’s asset base whilst the CIF purchase added $21.7m. These purchases were funded by internally generated funds as seen from the 27.7 per cent fall in Current Assets from $1.1b to $784m.
At a price of $18.25, NEL is trading at a trailing P/E of 24.01 times, noticeably higher than its 3- year average of 15 times (see Exhibit 2).
The Company’s trailing dividend yield remains attractive at 4.2 per cent. With the last quarter of the financial year still to report and with NEL declaring that the expectation for the full financial year is not anticipated to be as good as the previous year, BOURSE recommends a HOLD on this stock.

Neal and Massy Holdings Limited
For the three months ending December 31st 2013, Neal and Massy Limited (NML) reported a 2.2 per cent increase in diluted Earnings per share (EPS) from $1.36 in the three months ending December 30th, 2012 to $1.39. As a result of this, NML’s trailing P/E dipped to 11.5 times at its current trading price of $66.25 as at 21 February 2014 from its 2013 P/E as shown in Exhibit 3.
Relative to the TTCI, which has increased less than 1 per cent YTD as at 21 February 2014, NML’s price has steadily appreciated and returned investors 10.4 per cent for the same period (see Exhibit 1).
For the period, NML’s top line grew by 6.3 per cent to $2.6b, due to stronger performances in all of the Group’s business segments, except the Other Investment Business Line. Operating profit increased during the period by 3.6 per cent to $220m when compared to the equivalent period a year earlier. However, Operating Profit Margin decreased to 7.7 per cent from 7.9 per cent in same period. This drop is mainly due to reduced revenue recognition and increasing operating expenses in Barbados.
For the first quarter of NML’s financial year, the Integrated Retail business line performed the best generating revenue of $1.6b or 58 per cent of the Group’s Revenue. NML’s Integrated Retail business segment’s core revenue generation comes from supermarkets stores, such as Hilo and Super Center located in Trinidad and Barbados respectively.
The Group’s Profit before Tax (PBT) from continuing operations rose 3.3 per cent to $212.5m This performance can be attributed to growth in PBT levels from NML‘s Energy and Industrial Gases (↑28.7 per cent) and Information, Technology and Consumer Business (ITC) (↑5 per cent) sectors. However, higher growth rates were hampered by a 49 per cent and 7.8 per cent fall in PBT on the Insurance and Other Investment sectors respectively. As a result of this, PBT margins dipped to 8.1 per cent from 8.4 per cent a year earlier.
The main business drivers of T&T’s largest, conglomerate sector, company remains the Integrated Retail, Energy and Industrial Gases and the Industrial Equipment segments, accounting for 51 per cent, 28.6 per cent and 21.7 per cent of total PBT respectively.
The diversification strategies and growth initiatives presented by the company at year end September 2013, including the acquisitions of 100 per cent stake in Industrial Gases Ltd located in Trinidad and a 60 per cent stake in Consolidated Foods St Lucia have begun to generate returns for the company. At a price of $66.25, NML is trading at a trailing P/E multiple of 11.5 times, a premium to its 5-year average P/E multiple from continuing operations of 10.2 times. At the current price investors are receiving a trailing dividend yield of 2.6 per cent on the stock. BOURSE maintains a HOLD on the stock.
For more information, investors can call Bourse at 628-9100 or visit us at any one of our offices. Further information is also available on Bourse’s website at www.bourseinvestment.com and Bourse Securities Limited Facebook page.
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