HIGHLIGHTS

GKC FY 2021

• Earnings:  Earnings Per Share 31.2% higher from TT$0.27 to TT$0.36
• Performance Drivers:
  • Improved Segment Performance
  • Improved Cost Management Strategies
  • New Product Initiatives
• Outlook:
  • Potential Growth in Insurance Segment
  • Improving Operational Efficiency
• Rating: Assigned at MARKETWEIGHT

PHL FY 2021

• Earnings:  Loss Per Share 59.3% higher from $0.29 to $0.45
• Performance Drivers:
  • Restaurant Closure
  • Lower Revenue
• Outlook:
  • Earnings recovery from stabilizing demand
  • Economic Uncertainty

Rating: Assigned at MARKETWEIGHT

GraceKennedy Limited (GKC)

GKC reported Earnings per Share (EPS) of $0.36 for the financial year ended December 31^st 2021(FY 2021), 31.2% higher than the EPS of $0.27 reported in FY 2020.

Product and Services Revenue improved 12.3% from $4.85B to $5.45B, while Interest Revenue advanced 5.6%  to $201.8M. Overall, Total Revenue increased 12.0% to $5.65B in FY 2021 from $5.04B in FY 2020. Direct and Operating Expenses grew 12.5% to $5.31B and Net Impairment Losses on Financial Assets contracted 15.6% to $19.3M. Consequently, Total Expenses expanded by 12.3%. Profit from Operations increased 21.1% from $429.5M to $520.1M FY 2021. Resultantly, GKC’s Operating Profit Margin moved from 8.5% to 9.2% in the period under review. Interest Income from Non-Financial services was up 25.3% year on year (YoY), followed by an 8.5% increase for Interest Expense from Non-Financial Services. Share of Results of Associates and Joint Ventures declined 23.7% to $18.1M. Profit Before Tax (PBT) amounted to $510.2M, up 20.3% from $424.3M in the corresponding period. Taxation expense was $119.6M relative to the prior $124.6M, with the Taxation rate moving from 29% to 23% in FY 2021. Ultimately, Net Profit Attributable to Owners of GKC stood at $358.0M, 31.7% higher than $271.7M reported in the prior period.

Food Trading Advances

Food Trading, the largest contributor to PBT (47%), grew 40.1% in the period to TT$176M, driven by revenue growth and improved margins across the Group’s international and domestic business lines. Demand for GKC’s core products remained strong in its main jurisdiction of Jamaica. The Group achieved meaningful growth in domestic sales through its Hi-Lo Food Stores, complemented by the launch of Hi-Lo’s e-commerce platform, ‘Hi-Lo Online’, offering a web-based online shopping solution for customers. The Group reported increased product penetration through UK, US, and Canadian retailers, while also noting that it could continue to be impacted by high inflation in the price of raw materials and supply chain delays, possibly affecting production costs.

GraceKennedy Money Services (GKMS), the second largest contributor to PBT, (35%) marginally increased 2.1% to TT$176M, driven by an 80.0% increase in Direct to Bank (D2B) transactions. This was prompted by the GKMS Electronic Registration service which expanded to Guyana and Trinidad allowing customers to receive funds directly to their bank accounts.

The Group’s Insurance Segment, which accounted for 12% of GKC’s PBT expanded 34.6% from TT$44M to TT$59M in FY 2021. Underpinning this performance was the launch of new insurance solutions and the growth of their digital footprint. In 2021, GraceKennedy General Insurance Company Limited’s (GKGI) launched “GKI Family Motor Insurance” and “GK Weather Protect.” Key Insurance Limited launched a web portal allowing customers to view their policies online and the offer of two new products; “KeyBiz Protect,” aiding small business owners and “PPV Protect,” a specialized motor insurance policy for public passenger vehicles.

Banking and Investments (6% of PBT) declined 9.3% from TT$26M to TT$22M. Despite this, GKC’s Jamaican-focused First Global Bank Limited (FGB) achieved growth in all key areas and continued the Group’s digitization theme with the relaunch of its online banking platform, “Global Access Plus.” In addition, the GraceKennedy Financial Group (GKFG) completed its “GK One” mobile app and is carded to launch publically in Q1 2022, offering customers digital access to several GKFG services in one virtual space.

Margins Improve

GKC’s margins continued its positive momentum from FY2019, reflecting the Group’s more efficient approach to managing its expenses and pass-through pricing power for its key revenue generating Food Trading segment (78% of Total Revenue). Operating Profit margin increased from 8.5% in FY2020 to 9.2% in FY2021. The Profit Before Tax Margin followed suit, moving from 8.4% to 9.0% in the current period. Looking forward, the Group stated that supply chain and inventory management, innovative solutions and new delivery channels remain key areas of focus, signalling potential for further margin improvement.

The Bourse View

At a current price of $5.72, GKC trades at a P/E ratio of 15.9 times, marginally above the Conglomerate Sector average of 16.1 times. The Group announced an interim dividend of $0.02 payable on April 8^th 2022 to shareholders on record by March 18^th 2022. The stock offers investors a trailing dividend yield of 1.5%, below the sector average of 2.4%. While GKC has continued to foster organic growth (in addition to acquisitions), a reversion to more traditional consumer trends introduce potential headwinds to the continued pace of earnings improvement. On the basis of improving overall performance and acquisition activities, but tempered by food inflation concerns and economic uncertainty, Bourse assigns a MARKETWEIGHT rating on GKC.

Prestige Holdings Limited (PHL)

Prestige Holdings Limited (PHL) reported a Diluted Loss per Share (LPS) of $0.45 for the financial year ended November 30^th 2021 (FY 2021), a wider loss than the LPS of $0.29 recorded in the previous period. Revenue fell 20.6% from a previous $896.9M in FY 2020 to $712.1M in FY 2021. Despite a 20.1% decrease in Cost of Sales to $480.9M, Gross Profit declined 21.6% to $231.2M. Resultantly, PHL reported an Operating Loss of $12.2M relative to a previous Operating Profit of $5.5M, a 322.8% decline. Finance Costs fell 8.4% to stand at $19.5M. The Group recorded a Loss Before Tax (LBT) of $31.7M, 101.3% higher than a LBT of $15.7M in the prior period. Overall, PHL reported a Loss Attributable to Owners of the Parent Company of $28.3M.

Revenue Lower

PHL’s revenue generating abilities were impacted in FY 2021 for a second consecutive year as the Group continued to grapple with the socioeconomic effects of the Covid-19 pandemic. Government mandated operating restrictions such as limitations on in-house dining and the closure of all restaurants for a period of 80 days significantly impacted revenues, as illustrated by a 20.6% decline in revenue growth. The Group’s revenue subsequently fell from $897M in FY 2020 to $712M in FY021. Heading into the new financial year, the likelihood of forced closures – against a backdrop of higher vaccination and lower mortality rates – appear to be lower, which could aid recovery in the Group’s performance.

Margins Trend Lower

PHL’s Gross Profit Margin declined marginally from 32.9% in FY 2020 to 32.5% in FY 2021, which can be viewed as commendable given the rising cost of food and supply chain challenges at a global level.

Operating Profit Margin moved from0.6% to -1.7% in FY 2021, negatively impacted by Covid-19 Pandemic restrictions that were placed on the restaurants. This would have filtered into its Profit Before Tax (PBT) margin, falling further from -1.8% to -4.5%. Overall, margins were affected by the slump in top line performance with its Quick Service Restaurant and Casual Dining segments dipping 23.1% and 11.4% respectively, year-on-year.

The Bourse View

At a current price of $7.10, PHL trades at a market to book ratio of 1.7 times compared to the Trading sector average of 1.4 times. The Group made a decision not to declare any dividends for 2021.

The normalization of restaurant operations and a general increase in economic activity is likely to positively influence PHL’s performance in subsequent periods. Ongoing economic pressures, particularly the rising cost of living, could potentially reduce disposable income available to consumers. The Group expects to drive further growth in its digital, delivery and drive-thru channels, while also developing new supply chain and operating initiatives with local and foreign suppliers, to curtail the impact of rising commodity, transport and energy costs.

On the basis of a highly likely return to profitability in subsequent periods, tempered by increasing headwinds to operating margins and weaker continued economic uncertainty, Bourse assigns a MARKETWEIGHT rating to PHL.

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