Fontana expects to adapt and grow
Fontana Limited, which operates the largest chain of pharmacies, thinks it can continue to adapt and grow earnings amid new variants of the coronavirus and related curfews.
The key is to allow customers various methods to shop safely, said CEO Anne Chang.
“We have found a way to respond to all the challenges associated with COVID-19,” she said, listing reduced work hours, reduction in consumer visits, plus the state of emergency curfews that were set up in designated areas as a crime-fighting measure, even before COVID-19 curfews.
“We found a way to allow consumers to shop on their terms, to trust us with their safety, and they responded favourably,” she said,
This includes providing kerbside pickup, e-commerce, and direct text orders via messaging app WhatsApp.
The formula is already delivering for the pharmacy company, which made record profit for year ending June 2021, beating some analysts’ expectations. The company earned net profit of $512 million, compared to $276.5 million in 2020 and $306.6 million in 2019. The growth came from an uptick in revenue to $5.2 billion in the review period from $4.5 billion in 2020 and $3.7 billion in 2019.
Its earnings per share for the period was $0.41, versus $0.22 in 2020 and $0.26 in 2019.
VM Investments Limited released a Fontana price target of $6.69 for 2021 on the high end and $5.92 on average, according to analysis done in December 2020. The brokerage said the target was in line with Fontana’s peer group, and that it reflected growth in cash flow, while also reflecting a market multiple of about 22 times earnings, which equates to roughly $0.30 per share. VM Investments said then that investors could consider increasing the weight of the Fontana shares in their portfolio.
Another broker, NCB Capital Markets, recommended in May that investors hold the stock when it was trading at $6.39.
Fontana argued that it outperformed its peers based on a quarter-by-quarter comparison with the “Jamaica retail trade”, which declined in three of four quarters, while Fontana grew in all four quarters.
Planning Institute of Jamaica data shows that the ‘Wholesale & Retail Trade, Repair and Installation of Machinery’ segment of the economy declined by 8.1 per cent in the July-September 2020 period, 8.8 per cent in October-December 2020, and 5.1 per cent in January-March 2021, but grew 13.2 per cent in the April-June 2021 period.
Fontana, over the same period, grew revenue by 20.9 per cent, 10.3 per cent, 4.2 per cent and 25.2 per cent, respectively.
Shares of Fontana jumped 11 per cent to $6.57 on Monday which was the first trading day after the release of its yearly results, and further to $6.75 on Tuesday. Year to date, the stock is up 19.3 per cent.
Fontana operates six locations, with plans to open a seventh in Portmore, St Catherine, late next year.
“We are aiming for Christmas 2022,” Chang said.