Vantage Point with Keith Collister
At a Mayberry investors briefing held Wednesday, Caribbean Cement's marketing manager Alice Hyde gave a comprehensive presentation on the status of the company, clearly aimed at alleviating the concerns of the company's 23,000 shareholders.
Confidently stating that the company was in the "right business at the right time", she advised that "production was back to normal", with Caribbean Cement producing at an efficiency of above 80 per cent.
Brushing quickly past the company's recent problems, which she ascribed to the "equipment not being calibrated properly" and "ineffective quarantine and reworking" of the product, she outlined a rosy future for the company based on strong medium term local demand for the product projected to grow 10 per cent per annum, very tight world supply, particularly in the Americas with the U.S.' very strong import demand causing a global market shortage, and high international freight rates.
The latter makes far away China - the main international supplier with excess capacity - less
Hyde advised that Caribbean Cement was expected to produce close to 800,000 tonnes of cement in 2006, but that this would still mean a shortfall of between 200,000 and 300,000 tonnes that would have to be met by imports. In view of the tight worldwide supply situation, she was not overly concerned about imports, although she noted that a competitor had finally brought in a substantial shipment. In a recent interview on JNN, Mainland's vice president Jodie Myrie had confirmed the difficulty of sourcing imported cement in a highly concentrated industry with only five main groups controlling the market.
In fact, Caribbean Cement had itself sourced 100,000 tonnes of imported cement so far this year from Mexican multinational Cemex, who also happens to be a five per cent shareholder in Caribbean Cement.
Carib Cement's earnings per share collapsed in 2005 to 20 cents from approximately $1 in 2004 - although 2004 earnings per share were inflated by 27 cents, representing a one time deferred tax asset from its Jamaica Gypsum subsidiary as net profits fell to $168.9 million from $842.4 million on the back of a second half operating loss.
According to chairman Brian Young, this reflected the combination of a 10.5 per cent decline in vital clinker production to 542,114 tonnes - which according to Hyde's presentation occurred entirely in the second half of the year, and a significant increase in critical energy costs associated with rise in the price of oil.
Operating profit now appears to be largely getting back on track, but according to Hyde, another provision is likely in the third quarter on top of the second quarter provision of $160 million for over 1,000 claims against the company for faulty cement.
Combined with the fact that the key cost component of energy has only recently fallen in price, it may be a little late for short term traders to buy at current prices, which are substantially above its $3.70 low earlier this year.
Longer term, particularly if the company signals in its third quarter report that all potential claims have been provided for, Carib Cement could become one of the few growth stocks in our market deserving a higher multiple.
Unfortunately, the return to "growth stock" status for Supreme Ventures Limited (SVL) looks much less certain, as its earnings performance continues to be very disappointing.
In its prospectus, Supreme projected $438.8 million in profits on $17.46 billion in sales for its first full financial year, which translated into earnings per share of 17 cents.
After its disappointing six months earnings release of $113.36 million in July, SVL's lead broker NCB Capital Markets reduced the projection of their future earnings per share for the full year to 11 cents.
Barring an extraordinary final quarter, even this lower projection is very unlikely to be met, as third quarter profits more than halved to $15.7 million from $38.4 million in the second quarter, with the result that profits have declined every quarter in their financial year so far.
Nine month earnings per share of 4.9c has barely budged from the six months earnings per share of 4.3c, as Supreme has only generated nine months earnings of $129 million on $12 billion in sales.
Chief executive officer Brian George has estimated that a 33 per cent reduction in service fees to technology provider Gtech, which kicks in after its first quarter 2007, will result in more than a couple of hundred million falling to the
However, investors are likely to have a long wait to justify even the current share price of $2.15, and would be better advised to sell into any strength in the stock and buy