Cement
woes goes into overtime
By
Cherelyn
Elbourne
Research Analyst
Trinidad
Express
Petroleumworld.com
06 18 06
Trinidad Cement Limited (TCL), Caricom's sole cement
provider, recently released much anticipated results
and those of its subsidiaries for the financial
year ending December 2005 as well as financials
for first quarter ending March 2006. The Group recorded
an increase of eight per cent in revenue to TT$1.43
billion, driven mainly by strong domestic demand
across its three cement companies.
Operational woes continued to plague TCL, however,
as the operating profit margin fell from 22.9 per
cent in 2004 to 12.9 per cent in 2005. Several factors
contributed to this outcome including higher clinker
import costs and interruptions in production prompted
by inclement weather conditions. One- off losses
suffered by its two subsidiaries - Caribbean Cement
Limited and Ready Mix Limited - weighed heavily
on the Group's operating profits.
Although
profits attributable to shareholders were buoyed
by a deferred tax credit of TT$66.9 million this
was unable to prevent a 16 per cent year on year
retreat in profits for 2005. The Group's profitability
ratios dipped over the period with Return on Assets
and Return on Equity falling from 6.6 per cent and
15.3 per cent to 5.4 per cent and 14 per cent, respectively.
As a result, Earnings Per share (EPS) remained relatively
flat at TT $0.66 in 2005.
The
Group's weak financial performance continued into
the first quarter of 2006, worsened by concerns
about product quality. Caribbean Cement was challenged
after a batch of cement (471 tonnes) was recalled
due to its substandard quality, production halt
and a consequential provision of TT$160 million
in anticipation of settlement claims. Closer to
home, Ready Mix Limited posted a net loss of 50
per cent year on year due to higher financing costs
and a weaker performance from its St. Maarten subsidiary.
TCL's operating profit margin fell to 9.7 per cent
in the first quarter of 2006 from 10 per cent in
the first quarter of 2005.
Rising
costs associated with cement and aggregate are major
concerns for the construction industry, which prompted
the government to suggest the imposition of price
controls on building materials even as demand for
these resources also spiral on the international
scale. The building boom is not unique to the Caribbean
but also evident in China, India and the US, spurring
phenomenal price increases in construction material
including steel. TCL is focusing on increasing its
production capacity and completed the first phase
of its expansion at the end of 2005. The new plant
is designed to produce 1.2 million tonnes of cement
per year, but is currently producing 80 per cent
of this target with full capacity expected by the
third quarter of 2006. Demand, on the other hand,
continues to climb surpassing 2005 levels of 52,000
to reach 62,000 per month. TCL's cement price rose
in 2005 in Jamaica to help offset the increases
in energy costs and seems to be comparable to prices
of neighboring cement producing countries. TCL should
have the capacity therefore to meet local demands
once the plant is fully operational.
Government's
frenetic pace of construction and high demand in
Barbados in anticipation of Cricket World Cup 2007
should continue to boost the Group's revenue. However,
more focused management on operational performance
is needed, especially in the wake of another busy
hurricane season (the main catalyst for the weak
performance of Caribbean Cement), which could also
face supply challenges until the expansion program
is completed in 2008. The Group may also be challenged
by rising input costs inclusive of volatile fuel
prices and the cost of servicing its debt obligation
could result in a significant financing burden.
Our projected EPS for TCL is flat at TT$0.66 for
the financial year ending 2006. The stock is fairly
valued in the range of TT$8.23 to TT$8.39.
Regional Market Review
The
first trading week of June ended with negative returns
as the TTSE closed at 942.15 points and a year to
date return of -11.7 per cent. Noteworthy was the
positive return on the All Trinidad Index which
rose 0.3 per cent and a month on month return of
6.2 per cent, suggesting that TT listed stocks had
a better showing than their cross- listed counterparts.
Trading activity fell in the review period by 41
per cent, with 3.7 million shares traded. NFM emerged
as the most popular stock among investors, ending
with 35 per cent of the total trades. In close pursuit
was RBL which accounted for 31 per cent of shares
traded. Trinidad Publishing recorded an increase
of 8.5%; the most significant price appreciation
followed by Unilever (6.3%) and Capital and Credit
Merchant Bank (3.2%). TCL's results weighed on its
stock price which ended at $8.34 on June 6th, 2006,
a fall of 4.3 per cent. National Flour Mills and
NCBJ also retreated by 4.2 per cent and 3.6 per
cent respectively. In other news, a bonus issue
was approved by Scotiabank shareholders who are
expected to receive one ordinary share for every
two shares held in the stock.
In
Jamaica, the JSE closed with 87, 828.99 points,
growing 0.8 per cent for the period and inching
past its' peers. The ALL JA and JSE select fell
marginally by 1.4 per cent and 1.2 per cent, respectively.
Trading volumes improved by 26 per cent over the
prior week; 11 shares advanced while 18 retreated
and 11 remained unchanged. Stocks gaining the most
value in terms of price appreciation were Ciboney
(20%), Guardian Holdings (13.8%), and Grace Kennedy
(3%). Poor first quarter results for the Caribbean
Cement Company led to a sharp decline to a low of
J$3.70 and ended this review period with the biggest
decline of 24 per cent. Montego Freeport also retreated
by 13 per cent and Supreme Ventures fell by eight
per cent.
The
much anticipated listing on the BSE of new comer
Duty Free Caribbean has been deferred. The new listing
was expected to inject new life and boost market
activity. However the lacklustre performance of
regional markets and slowdown in tourist arrivals
forced the company to postpone the initial public
offering.
The
information contained in this documentation is for
your information only. All information contained
in this documentation has been obtained from and
is based on sources, including but not limited to,
newspaper and magazine articles that CMMB believes
to be accurate and reliable. However such information,
facts, calculations, methodology, assumptions and
estimates contained in this documentation have not
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constitute the Author's judgment as of the date
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to you solely for general information.
Trinidad
Express
Wednesday, June 14th 2006
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©2006 Trinidad Express. All Rights Reserved.
