Angostura Holdings Ltd

For the quarter ended March 31, 2012 AHL reported an 80 per cent increase in EPS from $0.05 to $0.09, reaffirming the Company’s path of recovery. A reduction in foreign exchange losses and increase in share of profit from Associates were major contributors to this quarter’s year on year performance.

For the quarter, net sales suffered a 4.9 per cent decline to $143.1m. Similarly, cost of sales fell 5.7 per cent, resulting in a marginal improvement in the cost of sales margin from 44.1 per cent to 43.7 per cent. These movements resulted in a 4.3 per cent decline in gross profit. An analysis of segmental operating profit showed that the alcohol division grew by 1.1 per cent to $30m while the non-alcohol segment fell by 51 per cent to $5m.

Among the expenses reported by AHL, selling and marketing reported an increase from $27.5m to $28.8m while administrative expenses stayed fairly flat. Operating profit fell 12.3 per cent to $35m due mainly to the fall off in segmental operating profit of the non-alcohol division. Finance costs fell 20.8 per cent to $11.1m due to a retirement of $121.9m in debt. The group’s chairman noted that sustained interest savings will be seen in the remainder of the year as AHL partners with its lenders to review the debt position and extract benefits.

The group’s foreign exchange losses were reported for the year albeit reduced from $18.5m to $8.8m year on year as a result of an appreciation of the euro (from TT$8.55: euro 1 on December 31, 2011 to TT$8.78: euro 1 on March 31, 2012) which impacted the Group’s interest payment on euro 39.7m debt. In this quarter, the Company should benefit from reduced foreign exchange losses as the Euro has struggled against the US dollar.

Share of profit from associate grew by 165 per cent to $11.7m. This represents the performance of Burn Stewart Distillers Ltd of which AHL holds a 28.9 per cent stake as at December 31 2011.

Profit before tax grew to $27m in Q1 2012 up from $11.9m in Q1 2011 (127 per cent increase) and profit after tax increased by 88.6 per cent to $20m. The effective tax rate for the quarter was 25.8 per cent compared to 10.7 per cent in the comparative quarter last year. This reflects normalisation of the group’s earnings.

Due to the relative unfamiliarity of AHL’s rum brands in the international markets, the Group embarked on a three-year plan (2012 – 2014) to introduce its “Caribbean Rum” range to emerging rum markets and to re-launch it in countries like the United States. As part of its promotion, AHL held its first ever annual Angostura’s International Distributors’ Forum during Carnival, at the same time as its Global Cocktail Challenge was re-launched as an annual event (previously held every two years).

AHL’s Executive Manager of Export and Business Development noted that 80 percent of their global export sales are bitters. The top three bitters markets are Australia, US and the United Kingdom and the group has been using the markets where they are successful in bitters to introduce the rum brands. Additionally it was pointed out that the company recognised the importance of having a presence in Eastern Europe and Asia; two of the main emerging markets for rum consumption, as well as in established markets such as the US and Canada. The group is certainly demonstrating pursuit of a rigorous brand awareness campaign internationally, that once successful, can greatly improve the company’s performance. It was noted that entry into the emerging markets can takes time, and that AHL took three years to get into Russia.

The company has financially begun to recover and this coupled with its promotion campaigns can result in growth in revenue and profitability over the medium to long term as the success of its initiatives may not be immediate.

With a price of $8.50, AHL is trading at a P/E of 10.7 times. In 2011, the Group declared the first dividend since 2007. Based on the group’s early signs of recovery, but subdued levels of revenue, BOURSE recommends a HOLD in the short term.

Scotia Investments Jamaica Ltd

For the six months ended April 30, 2012, SIJL reported EPS of J$2.24 or an 11.4 per cent increase year on year. Performance was largely attributable to declines in major expenses and gains on securities and net fee and commission income. The group declared a dividend of J$0.43 payable on July 05, 2012 to shareholders on record as at June 14, 2012.

SIJL recorded a 3.8 per cent decline in Net Interest Income (NII) to J$1.4b year on year which they indicated was impacted by lower market yields on the securities portfolio. Despite this decline, NII Margin improved from 51 per cent in HY 2011 to 54 per cent in HY 2012. For the period, it was observed that the Group’s Impairment Losses on Loans fell 77.7 per cent to J$5.8m. This decline is highly commendable particularly in an environment where the financial sector has been reporting significant increases in this expense across financial companies. In a sector characterised by growing provisions for loan losses, investors must be cautious as to the sustainability of keeping this expense at relatively low levels.

Examining the group’s other income categories, we see mixed performance. Net fee and commission income grew by 35.4 per cent to J$408.1m; and as a percentage of Total Operating Income it increased from 15.4 per cent to 19.7 per cent. The gains attributable to all securities (inclusive of gains on securities trading and gains on assets available for sale and held for trading) was 56.7 per cent to J$215.7m. While commendable, this income stream is variable and not the main stay of the group. Combining all these income streams, total operating income grew 5.8 per cent to J$2.1b.

Turning now to the group’s expenses, we notice that among the largest expenses, salaries and staff benefits was fairly flat declining by 0.8 per cent to J$368.1m, while other operating income grew by 26.7 per cent to J$234.1m. Overall, the Group’s Productivity ratio posted a marginal improvement from 32.2 per cent in HY 2011 to 31.7 per cent in HY 2012. Profit before tax grew 6.5 per cent and profit after tax by 11 per cent to J$1b.

Reviewing the balance sheet SIJL reported an increase in assets of 3.2 per cent as investments grew by J$898m year on year. Liabilities grew by 1.2 per cent to J$62.4b and equity by 14.8 per cent to J$11b.

We note once more that fee and commission income bolstered performance for the half year and reiterate the importance of this income stream in a low interest rate environment. The group noted that cost management initiatives are ongoing. They also stated that positive growth in its Scotia Premium Fixed Income Fund, Caribbean Income Fund and newly launched Scotia Premium Money Market Fund reaffirmed SIJL’s dominant position in the Unit Trust Industry.

At a current price of $2.24, SIJL is trading at a P/E of 6.2 times, slightly below its 6.8 times 5 year average. With the recent increase in dividend payments, SIJL continues to pay one of the most attractive dividends in the local market, commanding the position as highest dividend yielding stock with 5.4 per cent. Based on modest expected growth and attractive dividend yield, BOURSE recommends a BUY on this stock.