Wednesday, July 23, 2008

Jamaica producers - the energetic option

Published: Wednesday July 23, 2008

When we think of Jamaica Producers Group (JP), bananas are the first things that come to mind. For most, the two go hand in hand. This association has negative implications for JP somewhat, as the banana industry has been struggling in the past few years. Not only was the termination of Jamaica's preferential trade agreement with Europe a major blow, but Hurricane Dean, which wiped out JP's crops, added fuel to the fire.

However, what people tend to overlook is that there is much more to JP than bananas. Besides JP Farms, which owns two of Jamaica's largest banana farms, JP is also the parent company of JP Foods, the co millionercial food segment which sells both processed and fresh produce. JP Shipping, which also falls under the JP umbrella, has four state of the art reefer vessels providing a weekly service to Jamaica, the UK, Continental Europe, Costa Rica, and the Dominican Republic. Sunjuice (parent to Serious Food Company), which is currently carrying the torch for JP, is the UK's market leader in the short shelf life juice and smoothies market.

JP has ensured that it doesn't stop there. For 2008, the Company's goal is to expand and focus on the profitable sectors of the business and wipe out the areas that are operating at a loss. Its fresh juice and smoothie business, which is booming in Europe, is on the top of its priority list. As this is proving to be the most successful sector in the Group, JP has decided to make it its core business.

JP recently bought Holland's leading fresh juice and smoothie manufacturer, Hoogesteger Fresh Specialists BV for EUR 9.2 million (J$950 million) which brings in 130 employees and annual revenues of approximately EUR 32 million (J$3.67B using an indicative rate of J$114.82: EUR 1.00). This is projected to increase JP's net margin by 5-10 per cent. For now, Hoogesteger will operate as a separate business unit, but in 2009, the plan is to join forces with Serious Food Company in the UK with the intention of becoming Europe's largest and best fresh fruit juice and smoothie provider. In the mean time, Hoogesteger will draw on management support and expertise from the UK.

After the acquisition, JP did not waste any time. The Company quickly ditched its dessert subsidiary Serious Desserts, which was bringing in less than three per cent of the Group's revenue. Serious Desserts was sold to Nobile Foods Ltd in a deal valued at J$400 million. This is in line with the JP's plan to divest certain non-core business to give the juice and smoothie business the attention that it warrants.

These strategic moves are a clear indication of JP's resilience and innovation. Though a number of uncontrollable factors were a setback for the Company, particularly escalating energy costs and extreme weather conditions, JP has not buckled over.

Apart from the acquisition and sale, JP has a number of other initiatives on its plate. It has put new senior management in place, and implemented cutting edge technology to streamline the measurement of banana quality. The novel software gathers information on the ageing process of the bananas and the quality in bagging on the plants. Also, JP strategically decided to relocate its snack manufacturing factory to Dominican Republic to take advantage of cheaper fuel and electricity costs. It is also pursuing Fair Trade Certification (FTC) in the UK that will certify that JP is an ethical banana producer. With FTC, the bananas will receive a fair price premium which is expected to boost revenues by 11-12 per cent.

There is no denying that JP is on a roll. It certainly has not let the effects of Hurricane Dean and rough quarters hold it down. If anything, it has fuelled JP's energy and determination to expand. Though EPS is currently not strong, the Company is on the right track, with its acquisitions and European growth outside of the UK. Whether or not buyout speculation is still in the air, this is definitely a stock that investors should not overlook and pick up at levels below J$35.00. Let's not forget JP's GraceKennedy shares, and its Book Value per Share which stands at J$48.75. The stock is trading at 0.72 times book value and is a very good long term BUY. Lascelles, which was also a long term BUY is a great example of a Company that turned itself around - we can put JP in the same

Source: Jamaica Observer

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