Company Analysis - Commissioned /
Jamaica

GraceKennedy Ltd: Big money in small transfers

    Nirgunan Tiruchelvam
    Nirgunan Tiruchelvam

    Head of Consumers Equity Research

    Tellimer Research
    17 October 2019
    Published by
    • GraceKennedy (GK JA) is a diversified conglomerate in Jamaica, with interests in food & beverage (F&B) and financial services.
    • More than 67% of GK JA’s operating profits come from the finance segment, with the money transfer business being the mainstay.
    • Its growth prospects will be driven by its vice-like grip on the money transfer business, which has generated an operating margin of 33%.
    • GK JA’s high investment in branding and distribution in the F&B business should drive the consumer segment.
    • We calculate a fair value for GK JA of JMD85.00 using a sum-of-the-parts (SOTP) valuation.

    GK JA is a diversified conglomerate in Jamaica, with leading interests in F&B and financial services. It was founded in 1922 as a small trading company and wharf operator. Today, the group has 45 subsidiaries and associated companies globally, with 1,789 workers in 20 offices.

    GK JA’s FY 18-22 earnings CAGR of 5% will be driven by its dominance of the payments business in the Caribbean. It is the exclusive agent for Western Union – the region’s dominant money transfer platform. Remittances represent over one-tenth of GDP and we expect them to grow by 7% CAGR in the next three years. 

    GK JA has invested heavily in branding and distribution, which will boost its earnings profile. The company is one of biggest food producers in the Caribbean. Its flagship food brand is Grace, which has regularly ranked as one of the top brands in the country and in the diaspora. One-quarter of Grace’s items are produced in six factories in Jamaica. Branding and distribution is a major defence against competition; we expect food business operating earnings CAGR of 11% in FY 19-22.

    We value GK JA at JMD85.00, using SOTP methodology. We ascribe separate multiples to the four constituent businesses that generate GK JA’s earnings. The discount amounts to 59% and 51% in relative FY 19f PE and EV/EBITDA terms. At 12x FY 19f PE, GK JA is cheap for the 20% earnings growth forecast in FY 18-22f. It is also a marquee Jamaican stock.

    Table 1: Summary financials

    JMDmn2016201720182019f2020f2021f2022f

    Group revenue

    88,267

    92,476

    97,545

    105,534

    112,327

    119,573

    127,303

    Gross profit

    3,583

    3,531

    3,140

    5,199

    5,550

    5,910

    6,276

    Total EBIT

    5,967

    5,619

    6,626

    7,666

    8,042

    8,427

    8,819

    PBT

    6,103

    5,819

    6,963

    7,881

    8,263

    8,653

    9,050

    Taxation

    1,568

    1,047

    1,319

    1,970

    2,066

    2,163

    2,263

    PAT

    4,535

    4,772

    5,644

    5,911

    6,197

    6,490

    6,788

    Source: Bloomberg, Tellimer Research

    This report has been commissioned by GraceKennedy and independently prepared and issued by Tellimer for publication. All information used in the publication of this report has been compiled from information provided to us by GraceKennedy and publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Tellimer at the time of publication. The sponsor has had no editorial input into the content of the note, and Tellimer’s fees are not contingent on the sponsor’s approval of the research.