LJ Williams Limited (LJWB) earlier notified the Trinidad and Tobago Stock Exchange that the Group would be changing its year end from December 31 to March 31. As such, the 2008 financial year was reported as a fifteen-month period ended March 31, 2009.
This fifteen-month period was essentially made up of what would have been a normal twelve-month period (January 2008-December 2008) and the following quarter (January 2009-March 2009). As such, the fifteen-month results would be analysed accordingly.
For the first twelve months of FY 2008, LJWB reported an EPS of $0.29, representing a 21 per cent growth rate when compared to operational earnings in 2007. The 2007 earnings exclude the $9.2M gain on sale of Century Elson Limited shares as well as the $1.2M settlement from ALGICO which was recorded in Operating Profit. However, by the end of the fifteen-month period LJWB’s recorded a loss of $0.11 per share, thereby indicating that for the three-month period (January 09-March 09) the Group would have incurred an EPS loss of $0.40.
LJWB reported Sales of $178.6M for the first twelve months of FY 2008, representing a 22.9 per cent improvement when compared to FY 2007. By the end of the fifteen-month period, Sales amounted to $207.6M. As such, for the period January 9-March 9 LJWB would have reported Sales of $28.9M, a 14.7 per cent decline when compared to Q1 2008.
Operating Profit for the first twelve months of FY 2008 was $10.4M or 48.1 per cent higher than FY 2007. Additionally, for the period January 9-March 9, the Group had an Operating Loss of $7.2M compared to a Profit of $1.4M in Q1 2008. As such the fifteen-month FY 2008 reported Operating Profit of $3.2M.
The Group has a significant portion of its Revenue absorbed by Operating Expenses. This is seen in the fifteen-month period as the Operating Profit margin was a mere 1.6 per cent. Exhibit 1 below graphically illustrates the percentage of Revenue that is absorbed by Operating Expenses and what portion filters down to Operating Profit over the last two years.
LJWB reported Profit before taxation (PBT) of $7.6M for the first twelve months of FY 2008 compared to operational PBT of $5.9M for FY 2007, a 28.2 per cent increase. Given that at the end of FY2008, the Group reported a Loss before taxation of $0.4M, indicates that for the period Jan 9-March 9 LJWB had a Loss before taxation of $8M.
Commenting on the fifteen-month performance of the Group, the chairman noted that the January-March period has historically been the slowest period for LJWB. Further, the chairman indicated that The Home Store which was opened in November 2008 posted a loss of $8.5M; however, the Group has seen some improvement in Sales level over the past three months. With respect to new business, The Food Division will be introducing four new lines while the Hardware Division has been appointed a Masterlock distributor.
Looking forward, given the reduction in consumer spending as a result of the weak economic conditions that currently exist, LJWB would be challenged to grow top line. Cost containment which has been a major challenge for the Group over the last few years would be a crucial factor if the Group is to maintain the level of earnings experienced in the first twelve months of FY 2008.
At a current price of $1.09, BOURSE maintains its HOLD recommendation.
Prestige Holdings Limited
Prestige Holdings Limited (PHL) reported a diluted EPS of 27.6 cents for the first nine months of FY 2009 ended August 31 2009, compared to a loss of 0.44 cents for the same period of 2008. It must be noted that 2008 results were impaired by a $13.3M loss from the discontinued Puerto Rico operations. Excluding this one-off item, PHL would have recorded a 31.6 per cent increase in EPS from continuing operations.
The Board has resolved that the Group pay an interim dividend of $0.07 per common share for the period after having deferred dividend payments in FY 2008 due to the losses suffered in Puerto Rico. The interim dividend is payable on October 22, 2009 to shareholders on record as at October 15, 2009.
The Group recorded a four per cent increase in Sales which moved from $542.3M to $564.1M. This was accompanied by a reduction in the Cost of Sales margin which fell to 67.4 per cent from 68.2 per cent year-on-year. In absolute figures, Cost of Sales increased 2.8 per cent to $380.1M from $369.8M.
As a result of the reduction in the Cost of Sales margin, Gross Profit for the period rose to $184M from $172.5M, a 6.6 per cent improvement.
The improved cost containment noted at the top was also seen in Operating restaurants expenses which as a margin (as a percentage of Gross Profit) fell from 81.8 per cent to 80.2 per cent at the end of the period. As an absolute figure, this expense moved from $141.1M to $147.6M. Operating restaurants profit increased 15.8 per cent moving from $31.4M to $36.4M.
The Group’s Finance cost (net) rose to $13.2M from $11.3M, representing a 17 per cent deterioration. Profit before taxation from continuing operations improved 22.7 per cent, ending the nine-month period at $23.2M versus $18.9M in the comparable nine-month period.
With an effective taxation rate of 33.9 per cent for the period, Profit after taxation from continuing operations was up 18.1 per cent to $15.3M from $13M. These results were generated from an average number of 88 restaurants compared to 84 in the comparable period of 2008.
PHL continues to exhibit improved profitability since exiting the Puerto Rico market. However, the Group still experienced mixed results from the other countries in which it operates. The Trinidad and Tobago market continued to produce reasonable results while the Jamaican operations posted a modest profit according to the chairman. The two other markets, Dominican Republic and Barbados once again recorded losses.
It must be noted that PHL was able to reduce its Liabilities by 10.4 per cent year -on-year. This may prove beneficial to the Group going forward as Finance costs may be reduced. The reduction in Liabilities was highlighted by the chairman in his report in which he indicated that total debt has been reduced by $10M and as such the total debt to equity ratio now stands at 56:44 as at August 31, 2009 compared to 61:39 for the same period of last year.
Looking forward, in addition to an improved debt position, PHL operations may reap the benefits of lower cost inflation generally in the Trinidad & Tobago market. However, given the weak economic conditions that exist in all the markets in which the Group operates, top line growth may prove a challenge as consumers alike reduce spending. Cost containment may prove to be critical in maintaining profitability.
At the current price of $3.50, the stock is trading at a trailing multiple of 10.6 times compared to an average multiple of 11.5 times during 2000-2001. Improved efficiency in the Group is evident, but given the difficulties that PHL may have with top line growth going forward coupled with a 25 per cent increase in share price to date, BOURSE maintains its HOLD recommendation.
