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Carib Cement stock rewarded for earnings beat

Published:Wednesday | May 1, 2019 | 12:10 AMSteven Jackson/Senior Business Reporter
Peter Donkersloot Ponce, general manager of Caribbean Cement Company Limited.
Peter Donkersloot Ponce, general manager of Caribbean Cement Company Limited.

Caribbean Cement Company Limited beat expectations when it tripled first-quarter profit in results ­released on the weekend, and the market has ­rewarded the company with a record stock price near $80.

Earnings per share at the cement maker totalled $1.33 for the March quarter, compared with $0.39 a year earlier.

“Peter Donkersloot, Carib Cement’s general manager, has done a tremendous job turning around the company. We expect the earnings will continue to increase as the efficiency gains continue, coupled with increased demand for cement,” said Gary Peart, CEO of brokerage house Mayberry Investments Limited.

Last year, Caribbean Cement bought back its manufacturing assets from immediate parent company Trinidad Cement Limited, a transaction financed by a loan from ultimate parent Cemex of Mexico. The company attributed a fall in operational expenses in March to the buy-back.

Mayberry had championed the call for Caribbean Cement to refinance its debt for increased operational efficiency.

Other brokers, including VM Wealth and JMMB Investments, in January and February, respectively, advised clients to hold the stock based on research analysis which factored in expected cost savings related to the asset buy-back. They separately expected the low-end value of the stock to remain in the mid-$40 range in the short term. The stock traded at a year’s low of $38.

“It is anticipated that this is fair, due to the additional gains expected from the removal of the lease agreement as well as continued synergies between Cemex and Carib Cement in its operations,” said VM Wealth, which put its target price for the stock within a range $46.05 to $50.92 over the mid-term. JMMB’s target also begins in the $40 range, but extends at the high end to nearly $80.

“If the stock trades towards the high end of our forecast of $79.71, there would be meaningful upside,” said JMMB in its research note, that also cautioned that the March quarter could see lacklustre growth due to external factors, but projected that growth with persist beyond that period.

Peart also said Mayberry both “expected the increased earnings” and “expect it to continue”.

On Tuesday, Caribbean Cement shares traded at an all-time high over $79.50, but lost some ground to close at $77.36. On Friday before the release of the earnings report, the stock traded below $65.

The Rockfort, Kingston-based cement maker reported modest revenue growth of two per cent in the quarter to $4.45 billion. But last year’s debt refinancing and buy-back of Kiln 5 and Mill 5 resulted in big savings which went straight to the bottom line.

Caribbean Cement made $1.13 billion in net profit, up 237 per cent from $334 million a year earlier and its highest profit outturn for at least 12 straight quarters. Consequently, the company has now wiped out all its accumulated deficits.

Its net book value, or shareholder, equity now stands at $7.5 billion.

On the downside, its working capital deficit expanded to $1.2 billion, compared to $91 million a year earlier. The deficit was due to the current payments on the redemption of preference shares held by TCL.