Berger Paints Limited

Berger Paints Limited “Berger’s restructuring reaping benefits” Analysis for the 9 Months Ended September 2009

Financial Summary for the Nine Months Ended September 2009

•

Net Finance cost amounted to $5.73 million as opposed to a net finance income of $809 thousand the previous year. The rise in finance costs is linked to a bank overdraft which the company recorded at its December year end.

•

Net profit reversed from -$9.59 million to a creditable $17.97 million for the nine months period.

Stock Highlights as at November 2, 2009 Recommendation: BUY Industry Grouping:

Manufacturing

Fiscal Year End:

Dec 31

Current Price:

$1.20

Current PE:

5.96X

EPS Last 4 Quarters:

$0.20

Book Value Per Share:

$1.97

52 week High/Low:

$2.81/$1.56

Shares Outstanding:

214,322,393

Fair Value:

$1.53

On the Income Statement:

J'000s Income Statement Turnover Operating Costs Operating Profit Income from Investments Finance Costs Profit before Tax Net Profit Per Share Data Earnings per Share (cents) Ratios Operating Margin Net Margin P/E Ratio

•

9 Mths ended Sep 2008 2009

%-age

1,020,379 1,016,884 3,495 11,675 809 -15,475 -9,594

993,906 961,896 32,010 681 -5,730 29,961 17,974

-3% -5% 816% -94% -808% 294% 287%

0.020

0.025

3%

-0.2% -0.6% 15.29

1.9% 0.9% 20.65

Berger Paints Limited for the 9 months ended September 2009 saw a 3% decline in revenues from $1.02 billion to $993 million and the fall is attributed to the decline in the construction sector.

•

Operating Profit grew eight-fold to $32.01 million compared to $3.45 million in the previous year which was plagued with rising costs.

•

Operating Margin saw a significant improvement from 0.32% to 3.45% and was attributed to cost containment measures and the correction in raw material prices.

J'000s Balance Sheet Non-Current Assets Current Assets Total Assets Non-Current Liabilities Current Liabilities Total Liabilities Total Equity Per Share Data Book Value per Share Price to Book Value Ratios Current Ratio R.O.A. - Average R.O.E. - Average

9 Mths ended Sep. 2008 2009

%-age

290,108 504,706 794,814 89,601 326,468 416,069 378,745

273,984 512,925 786,909 95,114 269,722 364,836 422,073

3% 2% 3% 6% -5% -2% 7%

1.77 1.13

1.97 0.61

11% -46%

1.74 -1.2% -2.3%

1.88 1.4% 2.7%

On the Balance Sheet: •

Total Assets slipped 6% from $290 million to $273 million mainly due to a fall in fixed assets.

•

Total Equity however improved 11% from $379 million to $422 million due an increase in retained profits.

•

The company’s current ratio increased from 1.77 to 1.97 and illustrates the improved liquidity within the period.

•

ROE and ROA stood at 1.4% and 2.7% respectively compared to negative positions of 1.2% and 2.3% respectively.

Outlook Berger’s fourth quarter is traditionally the strongest as it coincides with the Christmas season and generally provides a boost in earnings correlated with social practices. A profitable outturn for the first nine months has done well to support the final quarter ending December 2009. The company also enjoys greater margins in the final quarter due to the spike in demand. The construction sector has been trending down since 2008 and for the first six months of 2009 it contracted a further 6.0% due to the postponement of major housing & hotel construction projects as well as cuts in government capital expenditures. Creditably, the company has not seen the same levels of falls in its revenues. Operating costs were skillfully contained by BRG and the implementation of cost cutting measures which included cutting the company’s 5 day work week to 4 days were successful. The company’s Productivity (Litres per Man-hour) also improved 31% for the first six months of 2009. These are clear attempts by the company to increase efficiency and they augur well for future periods of economic recovery in Jamaica.

Berger, over the last couple years has attempted to increase their competitive advantage in the paint market by the introduction of computerized systems aimed at ensuring continued production of quality products. Notwithstanding, Berger’s operating margins have fallen and this partly due to the increased competition it faces with a wide variety of products on the market which are sometimes more affordable. Projections For the 12 months to September 2010, we expect revenues to reach $1.49 billion. Operating Profit is expected to show improvements due to staff cuts and cost containment measures and should region around $78.1 million. Net Profit is anticipated at $46.70 million or an EPS of $0.22. Forward projecting the stock price on a PE ratio of about 7 times the fair value of the stock is $1.53. With Berger’s positive outturn in challenging circumstances we have changed our recommendation from a sell to a BUY.

FINANCIAL SUMMARY

2004

2005

2006

2007

2008

2008

2009

%-age

12 Months to Sep 2009

1,107,405 1,003,775 103,630 1,796 50 105,376 67,017

1,174,469 1,077,212 97,257 993 535 97,715 65,791

1,286,955 1,233,824 53,131 469 -525 53,075 38,487

1,454,602 1,375,747 78,855 949 -3,210 76,594 47,363

1,527,014 1,497,908 29,106 292 -7,919 21,479 15,560

1,020,379 1,016,884 3,495 11,675 809 -15,475 -9,594

993,906 961,896 32,010 681 -5,730 29,961 17,974

-3% -5% 816% -94% -808% 294% 287%

1,500,541 1,442,920 57,621 -10,702 -14,458 66,915 43,128

153,923 530,184 684,107 52,566 213,271 265,837 418,270

195,883 557,415 753,298 67,336 257,424 324,760 428,538

231,749 587,890 819,639 78,674 316,604 395,278 424,361

264,316 673,698 938,014 89,574 415,094 504,668 433,346

292,738 687,594 980,332 95,114 481,120 576,234 404,098

290,108 504,706 794,814 89,601 326,468 416,069 378,745

273,984 512,925 786,909 95,114 269,722 364,836 422,073

-6% 2% -1% 6% -17% -12% 11%

273,984 512,925 786,909 95,114 269,722 364,836 422,073

0.31 1.95 2.91

0.31 2.00 1.89

0.18 1.98 2.12

0.221 2.02 1.48

0.073 1.89 0.94

(0.04) 1.77 1.13

0.08 1.97 0.61

0.20 1.97 0.61

9% 6% 2.49 10% 16% 18.13

8% 6% 2.17 9% 16% 12.31

4% 3% 1.86 5% 9% 23.39

5% 3% 1.62 5% 11% 13.58

2% 1% 1.43 2% 4% 24.52

0.34% -0.94% 1.55 -1% -2% 14.88

3.22% 1.81% 1.90 2% 4% 5.96

3.84% 2.87% 1.90 11% 7% 5.96

Year ended Dec. J'000s Income Statement Turnover Operating Costs Operating Profit Income from Investments Finance Costs Profit before Tax Net Profit Balance Sheet Non-Current Assets Current Assets Total Assets Non-Current Liabilities Current Liabilities Total Liabilities Total Equity Per Share Data Earnings per Share Book Value per Share Price to Book Value Ratios Operating Margin Net Margin Current Ratio R.O.A. - Annualized R.O.E. - Annualized P/E Ratio

9-mths ended Sept.

12-m ths Projection to Sep 2010

1,487,397 1,409,308 78,088 676 -8,000 70,764 46,704

0.218

5.51