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Seprod Stock – Investment Analysis

Common Stock: Seprod Limited

Current Market Price: $71.95 JMD

Market Capitalization: $52.8 Billion JMD ($342.7 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.

Seprod - Stock Chart
Seprod – Stock Chart

Seprod Stock – Summary of the Company

Seprod is a Jamaican food manufacturing and distribution company. They are one of the largest food companies in the English-Speaking Caribbean, offering a wide range of products.

The company operates under 3 distinct business segments; ingredients, dairy, and distribution.

Some of the products manufactured by the company are as follows; milk, meats, sauces, juices, cereals, and bread, among others. In addition to their manufactured products, Seprod also distributes products for some of the largest companies in the world, for example Bayer, Heinz, and Twinings.

The company sells its products in 18 different countries and employs over 1,500 people globally. Seprod was founded in 1930 and is headquartered in Kingston, Jamaica.

Revenue and Cost Analysis

The company has consistently grown its revenue for the past 5 years. In 2020 Seprod had total revenue of $37.7billion, an increase from $32.7 billion in 2019. Their COGS was $27.3 billion in 2020, representing a gross margin of 27%, equal to their gross margin in 2020. 62% of the company’s revenue in 2020 was from exports.

Seprod was profitable in each of the last two year. In 2020 the company had net income of $2.9 billion, representing a profit margin of 7.6%, a significant increase from 3% in 2019.

Balance Sheet Analysis

Seprod has a sound balance sheet. They have a strong base of long term assets and sufficient liquidity in the near term. They are leveraged, but debt levels are reasonable.

Debt Analysis

As of the fiscal year end 2020 Seprod has total debt outstanding of $13.1 billion, $3.7 billion of which is classified as current.

Seprod - Debt Table
Seprod – Debt Table

Seprod Stock – Share Dynamics and Capital Structure

As of the fiscal year end 2020, the company has 733.5 million common shares outstanding.

Dividends

In 2020 Seprod paid a cash dividend of $0.30 cents per share. At the current market price this implies a cash dividend yield of 0.4%.

In addition the company paid out a one-time dividend in the form of shares in CPFV stock, a property company acquired by Seprod. Seprod shareholders owning less than 20,000 shares received cash in lieu of the CFPV stock.

Seprod Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$21.2 billion / $16.9 billion = 1.25

A debt to equity ratio of 1.25 indicates that Seprod 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

$17 billion / $9.9 billion = 1.7

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

Price to Book Ratio

Current Share Price/Book Value per Share.

$71.95 / $23.03 = 3.1

Seprod has a book value per share of $23.03. At the current market price this implies a price to book ratio of 3.1, meaning the company’s stock currently trades at a premium to the book value of the company.

Seprod Stock – Summary and Conclusions

Seprod is an impressive company. They have a long history of successful operations in Jamaica, and effectively operate in international markets, deriving 62% of revenues from exports. The company is financially healthy. It has consistently grown its revenues and remains profitable. Their balance sheet is healthy with manageable leverage, sufficient liquidity, and a strong base of long term assets. Management returns capital to shareholders via a dividend.

Seprod stock is certainly not undervalued in terms of price to book and dividend yield. Although it is a solid company, it needs to be compared to other Jamaican food manufacturers such as Salada Foods and Jamaica Broilers to determine which is the best investment opportunity.

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

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