Shane Ingram, Contributor
INGRAM
ANALYSTS AND brokers expect local equities to benefit from the recent confidence-boosting report of the IMF on the economic prospects of Jamaica.
As part of its regional outlook for Latin America and the Caribbean, the IMF projected that "barring further adverse shocks, economic growth should pick up and inflation should decline to single digits." The Fund also appeared pleased with the Government's efforts to achieve its fiscal targets despite the shocks experienced this year. The IMF also held a positive outlook for the global economy, which has favourable implications for international commodities such as bauxite and alumina.
The IMF's projection appears to be on track as inflation came out at only 0.3 per cent for November 2005. This together with the strong foreign exchange inflows expected from the winter tourist season augurs well for the restoration of calm to the currency market.
COMPANY SPOTLIGHT: CARRERAS GROUP LIMITED
Profits at Carreras Group Ltd lifted 23.7 per cent to $1.5 billion for the six month period to September 2005. Driven by the 12 per cent growth in revenues from its cigarette division, gross operating revenues reached $3.3 billion or 11.7 per cent higher than results posted at the same interval last year. Cost of operating revenue increased eight per cent to $1.7 billion, which allowed gross operating revenue to rise to $1.6 billion - approximately 16 per cent better than in the corresponding period last year.
Interest and other investment income dipped 39 per cent to $418.6 million on account of the reduction in Carreras' stock of investments as well as lower local rates. And despite exchange rate volatility in recent months, exchange gains were only $59.3 million or just about one-half of that achieved last year. 'Other income' of $594 million was essentially the $592 million booked in capital gains from the sale of the hotel to Couples Resorts.
Marketing expenses absorbed $219.2 million, up from $188 million a year earlier. However, administrative expenses declined 31 per cent consequent on the downsizing. Thus, total operating expenses declined by 22 per cent to reach $787 million, which facilitated the 8.6 per cent upturn in pre-tax profits. However, a lower effective tax rate caused net profits to jump 23.7 per cent to $1.5 billion. This translated into an EPS of 306.7 cents as opposed to 247.9 cents earned in the prior year period.
By the end of 2005, Carreras will outsource the manufacturing of cigarettes to WITCO in Trinidad and Tobago and concentrate on marketing and distribution in Jamaica. Although this decision is likely to create a leaner, more efficient entity over the medium to long term, restructuring costs related to redundancies will likely have an adverse effect on short-term profits. The Company contends that the decision to outsource relates to heavy under-utilisation of the manufacturing operation in Jamaica owing to the reduction in demand for cigarettes. Given the apparent maturity of its markets as well as restricted marketing, Carreras is likely to rely on higher product prices to invigorate future revenues.
Simultaneously, Carreras continues to appeal the Court's ruling that Cigarette Company of Jamaica, a former subsidiary, is liable to pay a total of $5.7 billion to the Government of Jamaica for income taxes. Of course, Carreras is hopeful of a favourable outcome and so no provision has been made for this amount. Despite these uncertainties, Carreras' propensity to pay healthy dividends (in excess of 60 per cent of earnings) makes the stock a very appealing option for an investment portfolio. This dividend tradition should be enhanced when the firm actually offloads the costs associated with the manufacturing operations.
RECOMMENDATIONS
Investors are advised to continue using stocks as long-term vehicles for wealth creation. We continue to hold favourable long-term outlooks for NCBJ, JPG, CWJA, PJAM, Carreras, BNS, and RJR. Short term gains could surface from CRTS, KW, Seprod, D&G, and Goodyear. Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G.
