NEL
gets energy boost
By
Cherelyn Elbourne
Research Analyst
Trinidad
Express
Port
Spain
Petroleumworld.com 07 23 06
National Enterprises Limited (NEL) benefited from
strong growth in its Energy, LNG and Petrochemical
holdings in the financial year 2005. These holdings
contributed an average of 83 per cent to NEL's overall
profits and translated into a healthy dividend payout
of TT$0.79, a substantial 64 per cent improvement
over the TT$0.48 distributed in 2005. Noteworthy
was the company's change in accounting treatment
to comply with International Accounting Standards
(IAS) by consolidating its results with National
Flour Mills (NFM), which is now treated as a subsidiary.
Added to this TSTT which maintains a 16 per cent
weighting in profits contribution recorded a fall
in profits before tax of around TT$16 million within
the first year of a more liberalised telecommunications
environment.
Change in accounting procedure
Previously,
NEL reported the income earned on its investments
from NFM on the Profit and Loss statement and the
reported value was based on NEL's share of the assets
of NFM. This accounting policy is usually adopted
when a company has a substantial influence over
another. NEL does not have significant control over
the operations of these other investments. This
accounting procedure should help NEL to better gauge
the overall health of the group of companies instead
of individual corporate standings.
Financial Review
Share
of profits before tax of associates recorded a marginal
decline in 2005 and profit before tax retreated
by 3.3 per cent but a reduction in the effective
tax rate of 21 per cent helped to boost Net Profits
to TT$488 million, an improvement of six per cent.
Accordingly EPS was up eight per cent to TT$.81.
Turnover reflected revenue generated from the operations
of NFM in 2005. NEL's overall performance over the
last two years has been propelled by the strong
performance of its holdings in energy and petrochemical
companies - Tringen, NGC LNG and NGC NGL. However
the inclusion of NFM's financials weighed on the
company's results given that the results were negatively
impacted by the effects of Hurricane Katrina and
an explosion at the edible oil complex. NFM's growth
capabilities may be limited in the medium term considering
that it operates in a highly competitive and mature
market. Also high operating costs continue to plague
the company, a challenge management need to address.
Contributions by NFM to NEL in the short term are
expected to be far less substantial than that of
other investments. Return on Equity and Return on
Assets ratios were flat at 16.9 per cent and 15
per cent,
respectively.
Industry
review
A
major challenge TSTT has been the liberalisation
of the telecommunications industry and the inevitable
penetration of new kid on the block, Digicel. TSTT's
share of the industry pie is expected to contract.
Management however seems to be satisfied with the
strategies implemented to maintain its market share
given the success of its rebranding (through the
launch of bmobile) and aggressive marketing strategy.
In addition, the company's CFO recently revealed
that TSTT has been plagued by fraudulent practices,
which are eroding TSTT's revenue losses in the range
of TT$30 to TT$50 million per annum. In a broader
global perspective, the country's technological
aptitude, pre- competition fell 15 spots to the
75th position on the Global IT Report compiled by
the World Economic Forum. Despite major upgrades
done over the years by the then sole telecom provider
TSTT, the country's preparedness for participating
in Information Communication Technology (ICT) developments
slipped as other nations, some smaller, have progressed
at a faster rate. The introduction of Digicel and
soon Laqtel and other small scale telecom providers
like CCTT should improve the benefits from increased
technological developments and usage.
The
energy sector is expected to continue to boost NEL's
bottom line. The performance reflects a combination
of elevated crude oil prices as well as increased
production capacity from two petrochemical plants
(LNG and methanol). Crude oil prices, as measured
by West Texas Intermediate, are expected to remain
at high levels, above US$60/ barrel for the remainder
of the year. The outlook for the energy sector therefore
remains quite optimistic.
Regional market review
Equity
Indices lagged the prior week's performance as the
TTSE Composite Index retreated 0.4 per cent along
with the All Trinidad Index (-0.5%). CCMB led the
advances with an upswing of 6.8 per cent, while
DB&G had the biggest spill of eight per cent.
In terms of volumes traded, JMMB emerged as the
market leader accounting for 36 per cent of total
trades for the period.
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
been verified by us. All opinions and estimates
constitute the Author's judgment as of the date
of the documentation which are subject to change;
however neither its accuracy and completeness nor
the opinions based thereon are guaranteed. As such,
no warranty, express or implied, as to the accuracy,
timeliness or completeness of this documentation
is given or made by CMMB in any form whatsoever.
Consequently, CMMB assumes no liability for the
accompanying information, which is being provided
to you solely for general information.
Trinidad
Express
Wednesday, July 12th 2006
Copyright
©2006 Trinidad Express. All Rights Reserved.
