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Is The “Undervalued” GraceKennedy Group an Acquisition Target? 3/4 Business Valuation

Is The “Undervalued” GraceKennedy Group an Acquisition Target? 3/4 Business Valuation

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But how much is the GraceKennedy Group really worth?

000  000  000  000  000 
  2016 2015 2014 2013 2012
Number of Shares*(including treasury shares) 994,887 992,837 993,669 1,000,977 1,005,957
Shareholders’ Equity JA$ 42,063,925 38,047,441 36,533,101 32,765,684 30,702,837
Percentage increase over prior year 11% 4% 11% 7% 7%
Market Capitalisation JA$ 40,083,997 26,889,363 20,214,540 18,374,601 16,769,303

2016 FINANCIAL HIGHLIGHTS:
􀂃 Group revenue for 2016 was J$88.27 billion, representing an increase of 10.7% or J$8.53 billion over 2015
(J$79.74 billion).

􀂃 Net profit attributable to the shareholders of the Company was J$4.00 billion for 2016 compared with
J$2.76 billion for 2015. Earnings per share was J$4.04 in 2016 compared with J$2.78 in 2015, a 45.3%
increase. As reported previously, a non-recurring gain was realised on the dissolution of some nonoperating
subsidiaries. Without this gain, net profit attributable to the stockholders of the Company
would have increased by 29.7% or J$819.85 million.

􀂃 Shareholders’ equity increased by 10.6% or J$4.01 billion moving from J$38.05 billion in 2015 to J$42.06
billion in 2016.

􀂃 Total assets grew by 16.4% or J$17.79 billion from J$108.69 billion in 2015 to J$126.48 billion in 2016.

􀂃 Dividends totaling J$1.01 billion or J$1.02 per share were paid in 2016 compared with J$820.03 million or
J$0.83 per share in 2015, an increase of 22.9%.

􀂃 At the end of 2016, the GraceKennedy stock price closed at J$40.29. When adjusted for the 3-for-1 stock
split which was effective August 11, 2016, this represented a 48.8% increase over prior year.

For Sushil Jain the valuation of a company depends on the context and the purpose for which it is done. “There are several different ways of valuing a company. One will have to do a detailed study to determine a range of values which can be used to represent the worth of the GraceKennedy Group.”

Julian Morrison is a Financial Advisor at Lawe Insurance Brokers in Kingston Jamaica and thinks that Grace Kennedy Group could be acquired for JA$45 Billion adding an extra 2 Billion premium to get rid of the rest of the bidders, likely to get into a bidding war.

Morrison in justify his acquisition price believes that the existing management team and leadership should be retained in order to maintain synergy and consistency in performance. “GraceKennedy’s business line”, he points out, “is primarily driven by financial services and less on food, which has a lower beta (risk) than strictly food and higher ability to scale into the long run, especially with the new venture into micro finance. GK spans into more territories than Lasco as well, which means more room for scaling and growth into the medium and long term.”

For Hylton the attractiveness of GraceKennedy as an acquisition target also takes into account the fact that they have highly satisfied and compensated employees.

“The company pays good dividends as a strategic policy, and for many years its share price was static despite growth of all the indicators which made a significant rise of the share price logical. I do not believe there was a free play of market forces and also use this to join those who have posited that the company is undervalued.” Hylton said.

Next 4/4  Should GraceKennedy be split into two separate companies – GK Foods and GK Financial Group?

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