RJRs Bottom Line.
The last quarterly results speak volumes of the new era that The RJRGleaner Group is currently entering and the challenges being faced by the company. For the quarter ending December 31st 2017 the company recorded a reduction in after tax profits compared to the same period a year earlier. For the nine months period, profits were down to $43 million compared to $209 million in the previous year. Administrative cost improved slightly to $919 million compared $934 million in the previous period.
The company attributed these loses to decline in Ad revenues and a lag time in certain gains being realized. Companies have been looking more to new media platforms to promote their products and services rather than through the traditional media. Just take a casual scroll through your Facebook or YouTube and you will see many local companies’ Ads popping up. The company has recognised this challenge having highlighted the fact that some larger advertisers have been reducing their spend on traditional advertising. A $160 million reduction in expenses demonstrate the board’s dedication in keeping the Group lean and efficient.
For the period October 2017 to December 2017, the festive season, RJR anticipated a big boost in profit. The company recorded after tax profit of $79 million. However, the results represented a 10% decrease in net profit when compared with the similar period of 2016, confirming that advertisers have truly begun to depart from traditional media and in the wake of social media.
The merger between RJR and Gleaner was a costly one for the group that resulted in a net loss of $224.8 million in the period ended March 2016. This was followed by a net profit of $145 million in the following financial year which was the year of the Olympics. This brought the earnings per share to $0.06 which contributed to the stock price falling from $1.80 to $1.00 over the last couple months, bringing the PE down to 16x at $1.00. Investors clearly weren’t impressed, and this selling pressure has continued to appear over the trading sessions as soon as the stock makes an attempt to rise above $1.10. This has left the stock moving sideways. If the cost of buying and selling weren’t at an average of 6% many traders could take advantage of this movement.
In the financial year ending March 2015 that had the World Cup, RJR saw profits jumped from $59 million to $113 million. RJRGleaner payed dividends of some $17.5 million compared to none in the previous year. Having exclusive rights to the World Cup is not cheap and with neither the Reggae Boyz nor any other Caribbean country having a place in Russian, expect no windfall in cash. Football, however, is as popular as Track and Field in Jamaica and if promoted correctly, the hype around European and South American countries that have most of the star players can be profited on. (Author’s aside: Maybe RJR’s directors and its shareholders should take over Jamaica Footfall Federation since there is a direct correlation between national pride in sports and profits.)
This year will be uncertain for the Group on whether they can get earnings back on track. Based on the last financial year and quarters, the group’s PE is about 17.7x earnings, book value is $1.04 and debt to equity stands at 59%. Caribbean Value Investor does expect an improvement in earnings in the upcoming year from the World Cup coupled with continued cost cutting measures. However, new revenue streams are needed. One way the company plans to generate more revenue is from its online platform OneSpotMedia. This alone won’t be enough to lure advertisers back, therefore RJR needs to invest more in content production. The company has invested heavily in upgrades to its transmitters and has been completed its transition to High Definition (HD) broadcasting.
Therefore, all is not gloomy for RJR. The local economy is performing relatively well, and the Tax Authority of Jamaica (TAJ) is reporting higher corporate taxes. This may translate to more Ad revenues for RJR as companies would be spending more on marketing. With these factors in mind Caribbean Value Investor puts RJR as a HOLD until the Audited Results results have been released. Interested buyers should buy close to the book value to reduce their risk. Current shareholders can use this time to average down as the stock has found support between $1.00 and $1.05.
Investors should always consult their financial advisors before investing.
Disclaimer: The opinions expressed in this article are solely those of the authors and are in no way intended to reflect management’s views. Further, all information provided on Caribbean Value Investor is strictly for educational purposes. Caribbean Value Investor, its Directors, Employees and Stakeholders accept no liability in respect to gains or losses experienced by readers.