Alright – Here’s the Christmas Biz!
The TROPICAL Battery Company Limited: A bit on the Cheap, Heading into 2022 for your Portfolio
Tropical Battery Company Limited (JSE: TROPICAL) has reported an extremely strong profit for the year, coming in at +203% year over year. TROPICAL has always been known historically as a high volume/ turnover business with low net margins. Over the past few years, and particularly since listing, the Directors & Management, clearly have been assiduously working on getting the margins right sized and the results are now showing the hard work.
Profit for the year-end 2021, was J$ 88 million versus J$ 29 million for 2020. Revenue approached J$ 2 billion, closing September 30, 2021, at J$ 1.997 billion. TROPICAL registered a net margin for year-end 2021 of 4.4% versus 1.55% for year-end 2020. This is where the difference is for TROPICAL.
We do not expect TROPICAL to maintain this level of profit growth heading into 2022 and beyond, as they had got their act together, listed the Company and the September 30, 2022, year-end profit figure was a lower base denominator but let’s make some assumptions around some headline financial figures for 2022 for TROPICAL. Besides IC Insider, and a very limited number of parties in Jamaica, there are not many earnings projections or forward earnings to pick from. Let’s assume, TROPICAL delivers J$ 2.5 billion for 2022 in top line, and improves its net margin to 5%, resulting in approximately, profit for year-end 2022 of J$ 125 million. TROPICAL’s current share price has been trading between J$ 1.30 – J$ 1.35/ share, and with these results out, we will see what happens; it would be normal and expected to see a short-term “pop”. With a current market cap of approximately, J$ 1.7 billion, TROPICAL is trading at 0.86x Price-to-Sales, 2.08x Price-to-Book, 19.4x Trailing 12 months Earnings, and potentially, 13.75x Forward 12 months Earnings.
TROPICAL does seem cheap. Additionally, it is not one of the glamorous companies on the JSE, as it sells “batteries”, but it has been delivering and diversifying recently; they did their re-branding and have been clearly spending more time on investor relations, marketing, and public relations as well.
One of the ones to watch in 2022 for your Portfolio!
Market Moves:
- Instagram, part of Metaverse, Facebook, et al, now has more than 2 billion monthly active users! A key metric for Facebook, now the Metaverse… In the analyst world, the acronym is known as “MAU”. Analysts are always searching to gain knowledge or data around the MAU as Facebook does not disclose active data or any data or breakout financial information more importantly about “Instagram” in their financial statements.
Interesting statistic is that Instagram crossed the 1 billion mark in June 2018 or so, and once accurate, approximately 3 years and change later, that has now doubled for monthly active users to surpass the 2 billion milestone… Even with all the legislative, regulatory pressure on the “Zuck” and his companies, Facebook, is not just accelerating, their metrics are booming exponentially.
- Indies Pharma Jamaica (JSE: INDIES) released their unaudited 12 months results for the year-end October 31, 2021, including the 4th Quarter. INDIES, still going through the motion a bit. The 4th Quarter was reasonable, and gets them back on track, but we were expecting more from them given the high expectation level set by the Company and the benchmarks mentioned by INDIES. The existing net margin is incredible and that’s the industry that INDIES is in. They are maintaining this, therefore, it’s the top line growth that has been a bit disappointing for this fiscal year and the 4th Quarter.
For the full year, INDIES profits slid by 22% to J$ 160 million for 2021 from J$ 206 million in 2020. Revenue increased on the other hand, hitting J$ 846.8 million in 2021 versus J$ 765.9 million in 2020, up 11%. The Company’s net margin for October year-end 2021 was, 19% versus 27% for October year-end 2020. Finance Cost of J$ 67 million in 2021 versus J$ 9 million in 2020, given the long-term loan carried on the balance sheet of J$ 805 million, admin & other expenses hampered results in 2021, however if INDIES can get revenue to J$ 1 billion (with more dedicated sales & focus, the INDIES Platform easily has the potential for J$ 1.5 – J$ 2.0 billion in the near term) or higher which it should in 2022-2023, and improve its net margin to 25%, the Company should get back on track with its profitability streak & growth.
- Jamaica Broilers Group (JSE: JBG), talk about their U.S. operations/ segment firing on all cylinders. In hindsight, this strategy for the Board and shareholders of JBG has worked! It does take risk to make money, and increase shareholder returns over the long-term and JBG historically has always been willing to take risk, if you are willing to go along for the ride as a minority shareholder. If you have invested or have knowledge of the JSE long enough, and are acquainted with JBG as well, you would know they have dabbled in several investment plays over the years, inclusive of but not limited to:
- Content Beef
- Aquaculture, Tilapia
- Ethanol
It seems in hindsight, the key with what they did as several of their previous diversification plays did not work out upon review, but you must “big them up” as they tried, is that each investment play had a significant amount of real estate, so in the end if it didn’t work out, JBG ended up okay and their shareholders. Sometimes, as an investor you may not always understand a publicly traded company’s strategy and we do not recall JBG mentioning this during their past decade of AGMs but its clear, the company values real estate whenever doing a major investment, like McDonald’s and this has been one of JBG’s secret sauces.
Jamaica Broilers just released their 6 months of half-year earnings, and the revenue popped again by 35% hitting J$ 35.8 billion, while the earnings fell off by approximately 14% to EPS of J$ 88 cents per share versus J$ 1.02 per share in the previous year comparative. The takeaway from the numbers is that Jamaica Broilers has been and continues to grow much faster in U.S. operations than the Jamaica operations. U.S. operations revenue grew by a huge 65% year over year comparative while Jamaica operations revenue grew by a surprising 31%. Jamaica margins continue to compress during the pandemic (7.5%) while U.S. margins (6.3%) improved slightly. JBG’s finance costs swelled over the year, increasing to J$ 600 million for the half-year 2021, demonstrating the increasing use of leverage by JBG. The Company continues to bet on its U.S. operations and that growth and in return cash flow will clearly outpace the leverage. In JBG’s MD&A, the revenue composition between Jamaica/ U.S. is now almost 50/50, with the exact composition for the half-year standing as at 52.2% versus 47.8%. Expect by JBG’s year-end for U.S. operations revenue to surpass Jamaica’s on a simple revenue majority basis for JBG.
The long-term FX translation hedge and play in JBG for investors based on US$ domiciled fixed assets, cash holdings, and profits is something that the Market hasn’t fully factored in yet.
- Peloton Interactive Inc (NASDAQ: PTON) made new LOs this week, 52-week LOs on the back of negative reports that the CEO immediately claimed were false, that they would stop development of new connected fitness products, as well as bad public relations from a “sex and the city episode”, a popular U.S. show… PTON fired back immediately in both cases, with their own viral PR, advertising, celebrities, etc. but it just hasn’t been enough to help the share price and Mr. Market… The whole thing must be quite worrying not only if you are an existing shareholder but also an actual PTON equipment owner… the red flags have been up for several months now, or quite some time, that is “what is the future of Peloton?” The share price re-approached US$ 36.70 and change this week, and potentially seems destined to go lower in the interim. The continuing saga for PTON has been, people are going back to gyms, and the commentary that their equipment is just expensive. Additionally, is it a one-off trend or will this be a lifestyle phase that will continue long-term?
Now, the CEO must do his job of course. This past week, he has come out “flying” on the offense… CEO John Foley, came out swinging, screaming about the Company’s product pipeline for 2022 and innovating for their members.
This is a risky play, as the share price is down 73% Year-to-Date, but its in one of those “crisis/ opportunity sagas.” Meaning, if you believe in the “story” here and the brand, and their actual pipeline, and the pivot of their product guide, e.g. rowing machine, connected fitness products, fancy retail stores in high end malls, the “onepeloton” brand, and think this will become a “permanent part” of a market share of peoples lifestyle/ wallets to make money long-term for PTON – then PTON will make you a lot of potential upside and money in 2022 & beyond…
Don’t compare them to crisis/ opportunity play of a Boeing or Carnival, as PTON is not too big to fail like those guys, it’s a different proposition, but if you like the above points, it’s an interesting play for 2022.
Happy December and stay safe for Christmas:)
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