Earnings Report /
Jamaica

Jamaica Broilers Group: Q3 FY20 results

  • JBG reported profits attributable to stockholders of $1.2B for 9-months ended January 2020; a 14.3% decrease from 2019.

  • JBG’s core revenues grew by a modest 0.8% to $40.6B, from $40.3B in 2019.

  • A potential capital gain of 10.02% and loss of 6.29% are expected for the 2021 FY relative to the last closing price.

Andre Thompson
Andre Thompson

Research Analyst

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GK Capital
6 May 2020
Published byGK Capital

Company Background

Jamaica Broilers Group Limited (JBG) is incorporated and domiciled in Jamaica. The principal activities of the company and its subsidiaries include the production and distribution of poultry, beef, fish, animal feeds, ethanol and agricultural items. In addition, one of the company’s subsidiaries, JB Ethanol Limited contractually processes hydrous alcohol into anhydrous ethanol on behalf of customers for a fee. During 2011, a new subsidiary, Wincorp Air Services Limited, was established by the Company. The principal activity of this subsidiary is aircraft ownership.

Recent Results

Jamaica Broilers Group Limited reported net profits (attributable to stockholders) of $1.2B for the nine-months ended January 2020, a period-over-period decrease of 14.3% when compared to the $1.4B for the corresponding period in 2019. The fall in profits comes amidst flat revenues primarily due to decreased revenues from the Company’s Jamaica’s Operations, as well as challenges to its Haiti Operations as a result of political unrest. The decline in profitability was also impacted by decreased finance income during the period. Against this backdrop, the Company’s net margin for the period was reported at 2.9% relative to the 3.4% for the comparative period in 2019. 

For the 9-months ended January 2020, JBG’s core revenues grew by a modest 0.8% to $40.6B from $40.3B in 2019. The Company’s Jamaica Operations and Haiti Operations saw revenues fall by 1.8% and 21.8% to $26.3B and $1.4B respectively. The fall in Haiti revenues comes as a result of the Company having to scale back on some of its operations largely due to the political unrest and economic instability being experienced on the island. The Company was, however, able to report a 10.9% increase in revenues for its US operations, which moved from $13.9B for the nine months ended January 2019 to $15.5B for the current period under review. This increase was largely influenced by the Company’s acquisitions of a feed mill in Georgia and a processing plant in South Carolina. Meanwhile, other income declined by 39.6% to $183.7M, and finance income fell by 88.9% to $36.5M primarily due to reduced foreign exchange gains, as well as reduced interest income from a loan sold during the July 2019 quarter.

Forecast and Valuation

JBG’s revenues are likely to experience challenges emanating from the lingering effects of recent political unrest in Haiti, as well as the imminent contraction in the global economy due to the COVID-19 pandemic, which will also adversely impact the performance of the Company’s Jamaica and US operations. The shutdown of the tourism and hospitality industry, social distancing protocols and school and business closures are expected to negatively influence poultry sales. Household purchases are however expected to be buoyant as people opt to stock up on groceries amidst panic buying. 

The company has stated that it has experienced a 40% decline in chicken sales as a result of the tourism shutdown. To cope with the deleterious financial effects of COVID-19, JBG is undergoing several cost-cutting measures such as ow the number of birds processed to better manage inventory, rationalizing production output for its Best Dressed line of products and feeds, and implementing a 5% cent cut in salary for all its staff. The company has however indicated that its operations in Haiti have returned to normal (Source). In addition to this, the Jamaican government has taken the initiative to temporarily halt the importation of chicken meat, a move which will support JBG’s sales in the coming months (Source). 


A return to normalcy (for which a timeline is currently unknown) is however expected to normalize Jamaica and US Operations. We forecast 2020 FY revenues to close at $52.7B, lower than the $55.1M for the 2019 FY. Revenues are however expected to later improve to $57.3M for the 2021 FY on the basis of an assumed return to normalcy. Net profits are likely to close at $1.5B for the 2020 FY and then grow to $1.7B for the 2021 FY. 

P/E Valuation

As at May 1, 2020, the close price of the stock was $25.04, which translates into a trailing P/E ratio of 13.86X. This compares to the main market average P/E ratio 16.33X for the Main Market. Given 2021 forecast estimates, and assuming the stock trades in line with the main market, we anticipate that the stock could trade as low as $23.47, which represents a potential loss of 6.29% relative to the last close price.

P/B Valuation

The last close price of the stock translates into a P/B ratio of 1.87X, which comes as a discount to the main market manufacturing industry average of 3.21X for key peer companies. Given forecast estimates and the Company’s historic dividend policy, the book value per share of the Company is anticipated to close at $15.01 at the end of the 2021 FY. Assuming the stock trades in line with its current P/B ratio, the stock could trade as high as $27.55, or 10.02% higher than the close price of $25.04.

Dividend Policy

Over the last five financial years to April 2019, the Company’s dividend payout ratio has averaged 17.1%. Equally important, the Company’s dividend yield has averaged 1.9% over the same period. Given 2021 estimates and assuming a pay-out ratio of 20%, dividend per share is estimated to be $0.29. This translates into a dividend yield of 1.15% or a taxable equivalent of 1.35% using the last close price.


Recommendation

The analysis of the company’s financial statements taking into consideration the current and future impact of COVID-19 suggests a potential capital gain of 10.02% and potential loss of 6.29%. Combined with the company’s dividend policy, the stock is recommended as a HOLD at the last close price.