0

Carreras Limited Stock – Investment Analysis

Common Stock: Carreras Limited

Current Market Price: $9.22 JMD

Market Capitalization: $44.8 billion JMD ($290.6 million USD)

*All values in this article are expressed in Jamaican Dollars (JMD)unless otherwise noted.

**The bulk of this analysis is based on the company’s most recent audited financial report, which can be found by following this link.

Carreras Limited - Stock Chart
Carreras Limited – Stock Chart

Carreras Limited Stock – Summary of the Company

Carreras Limited is a Jamaican tobacco company that is a subsidiary of British American Tobacco. Their main cigarette brands in Jamaica are Dunhill, Rothmans, Craven, Matterhorn, and Pall Mall. They market and distribute their products throughout Jamaica and are headquartered in Kingston, Jamaica. The company was founded in 1962.

The company states that its number one risk is illicit trade, from smuggled, counterfeit, or tax evaded cigarettes.

Revenue and Cost Analysis

For the fiscal year 2020 Carreras had revenues of $14.1 billion, an increase from $12.9 billion in 2019. Their COGS were $7.1 billion in 2020, representing a gross margin of 50%, equal to their gross margin in 2019.

The company was profitable in each of the past two years. In 2020 Carreras had net income of $3.5 billion, representing a profit margin of 25%, a slight decrease from 27% in 2019.

Balance Sheet Analysis

Carreras has a strong balance sheet. They have a sound near term liquidity position and low long term liability levels..

Debt Analysis

As of the fiscal year end 2020 the company does not have any debt outstanding, only lease obligations.

Carreras Limited Stock – Share Dynamics and Capital Structure

As of the fiscal year end 2020, the company has 4.9 million common shares outstanding. The company’s 10 largest shareholders own 70.7% of the company, with their largest shareholder, Rothman Holdings (owned by British American Tobacco) owning 50.4% of the company.

Carreras Limited Stock - Largest Shareholders
Carreras Limited Stock – Largest Shareholders

Dividends

For the fiscal year 2020 the company paid total dividends of $0.64 cents per share. At the current market price this implies a dividend yield of 6.9%.

Carreras Limited Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$2.5 billion / $1.7 billion = 1.4

A debt to equity ratio of 1.4 indicates that Carreras uses a mix of debt and equity in its capital structure, but is leveraged, and relies more heavily on debt financing for funding.

Working Capital Ratio

Current Assets/Current Liabilities

$3.4 billion / $2 billion = 1.7

A working capital ratio of 1.7 indicates a sound liquidity position. Carreras should not have problems meeting its near term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

$9.22 / $0.46 = 20

Carreras has a book value per share of $0.46 cents. At the current market price this implies a price to book ratio of 20, meaning the company’s stock currently trades at a significant premium to the book value of the company.

Carreras Limited Stock – Summary and Conclusions

Carreras Limited is a solid company. They are well run and financially healthy, being backed by one of the largest tobacco groups in the world. They regularly pay dividends to shareholders.

Although Carreras is a solid long term investment opportunity and a good case study for what a well-run operation can achieve financially in Jamaica, I would prefer to find other industries to invest, as I am not a tobacco user.

Investors can also consider Caribbean Cement stock.

Disclaimer

This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.

This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.

Patrick Flood, CFA

Leave a Reply

Your email address will not be published.