Grace mulls London Stock Exchange


Friday, May 30, 2014

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CONGLOMERATE GraceKennedy will consider listing on the London Stock Exchange (LSE) or a similar developed market in the medium-term, management has indicated.

It's all part of realising shareholder value for a stock that trades on the Jamaica Stock Exchange at roughly half its book value.

Concurrently, GraceKennedy bought 2.8 million of its own shares so far under its buy-back programme. This is aimed at increasing the demand for shares and influencing the stock price.

"Based on our strategy and vision going forward in terms of unlocking shareholder value, we believe we should look at the possibility of listing on a stock exchange outside of the Caribbean," GraceKennedy Group CEO Don Wehby told Caribbean Business Report following the company's annual general meeting at its Harbour Street, Kingston headquarters on Wednesday. Wehby set up an internal team to test the willingness of developed markets to accept a GraceKennedy listing.

"I have done my own research and I think London is the option," he opined.

The UK remains a key market for GraceKennedy and the listing would tap into its strong consumer base in that market. GraceKennedy earned $43 billion of its $67.2 billion revenues from Jamaica, followed by Europe at $11.1 billion, North America at $9 billion, Caribbean and other at $3.9 billion and Africa at $78.9 million, according to 2013 annual financials.

Last February, local-based National Commercial Bank of Jamaica (NCBJ) shelved an attempt to list on the New York Stock Exchange for pricing concerns. NCBJ wanted US$13-US$15 per share in an attempt to raise up to US$258 million. Overseas investors, however, wanted a lower price for the stock which locally traded at an equivalent price at US$0.22 a share. There were also concerns of a looming International Monetary Fund agreement.

In the 1970s, GraceKennedy reportedly considered listing on the LSE amid concerns of currency shortages in Jamaica, according to references within a Jamaica Observer column by Jean Lowrie Chin, lauding Grace's 90th anniversary in 2012. However, it never materialised, although the preparation allowed for easy listing on the Jamaica Stock Exchange in the 1980s. The LSE, founded in 1801, is the fourth largest global exchange based on market capitalisation.

Local companies with strong balance sheets face the problem of overseas investors and rating agencies lumping them with the sovereign/country rating. Wehby sought to allay such concerns in referencing the GraceKennedy vision to grow half of its revenues outside of Jamaica in the medium term. The implication would result in removing that country risk from the company.

"We are in 85 stores in Russia. We are in over 1,000 Tesco stores," he referenced as examples. "So the future will see GraceKennedy with strong earnings outside Jamaica."

In 1995, GraceKennedy developed a 2020 Vision which aims to transform the company from a Jamaican trading company to a global consumer group by 2020. Currently 36 and 35 per cent of GraceKennedy's annual revenues and profits respectively come outside Jamaica, stated Wehby.

"The company continues to view GK as undervalued. It has a book value of $102 and a share price of just over $55," stated chief financial officer Frank James in his address to shareholders at the annual general meeting. "So they are trading at a price book of somewhere in the region of 53 per cent, so we continue to view the share as undervalued and the share repurchase programme has been an important initiative for the group."

GK started repurchasing the shares in November 2013 and will continue until October.

"We do the repurchasing on the open market and at market prices," he said.

GraceKennedy reported $941 million in net profit for its first quarter ending March or 21 per cent higher year on year. Revenue grew 13 per cent to $18.2 billion during the review period as it benefited from stronger insurance and remittance performance. But the group's food division saw its profit decline, despite higher revenue that was driven mainly by growth in Europe and Belize.




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