Plipdeco Rights Issue: $7.70 a good buy

The Rights Issue is in the ratio of one new share for every two shares held at a price of $7.70 per share. The total number of shares to be issued is 13,208,561 bringing the company’s total share capital to 39,625,684.

The Rights Issue would raise $100 million, net of expenses. The company has proposed to use the funds to:
1. Purchase port equipment including cranes — $81.069 million;
2. Computerisation — $1.367 million; and
3. Civil and other works — $16.736 million.

The company has projected for 2003 an earnings per share of 60 cents based on the post Rights Issue capital of 39,625,684 shares. The comparable figure for 2002 was 66 cents per share, adjusted for the increased capital. Going forward the company expects to earn 73 cents, 76 cents, 80 cents and 86 cents per share for the years 2004, 2005, 2006 and 2007 respectively. The company’s projected 2003 operating profit before interest and taxes is $54.334 million, which is an increase of 30.09 percent over the 2002 figure. However there is a dip in after tax earnings during the same period because of two reasons. In 2002 there was a tax credit of $5.402 million resulting from the reduction in the corporation tax rate. Secondly during the construction period for Berth V the interest cost was capitalised, however, it must now be expensed. This is the reason finance cost jumped from $18.549 million in 2002 to a projection of $25.012 million in 2003, an increase of 34.84 percent.

On a strict PE Multiple valuation basis, the Rights Issue is priced at a PE of 12.83 based on 2003 earnings, which is above the market average. However, because earnings are estimated to improve beyond 2003 when the benefits from Berth V begin to accrue we would recommend this share to medium and long-term investors. Short-term players would view the subscription price’s steep discount to the market price as an avenue for immediate gains. However, these investors should be wary of the market, which usually brings back into line shares with high PE ratios. We recommend that all shareholders should exercise their rights and where possible, acquire further shares at or near the $7.70 price.

The Company
PLIPDECO, which was incorporated in 1966, is a multifaceted organisation mainly involved in:
1. Industrial real estate management;
2. Cargo handling; and
3. Marine services.
The company’s real estate operations involve the tenanting of 850 hectares of land. The tenants on the estate are supported by a port operation whose principal business activities centre on the provision of harbour management services and the operations of tugs providing towage and other marine services. The port also offers specialised facilities for liquid and dry bulk loading as well as the handling of containerised, break bulk and general cargo.

Past Performance
The company has achieved a consistent increase in turnover during the last five years moving from $99.219 million in 1998 to $136.847 million in 2002, an increase of 37.92 percent. During this time, the company’s revenue streams have diversified to encompass tug and towage services mainly from the Atlantic LNG Plant. In 2002, these operations contributed $13.070 million in turnover and $1.858 million to profit after tax.

In 1999, there was a fall of 39.98 percent in profit after tax. However, since then the company has achieved increases in profit for every year to 2002. The increase in 2000 over 1999 was 33.13 percent, 63.10 percent in 2001 over 2000 and by 14.09 percent in 2002 over 2001. During this time, the company has seen its tenant base grow to approximately 100 tenants. It has been the site for most of the phenomenal increases in the energy industry. This includes the development of multiple ammonia and methanol plants. There is also a world-scale gas processing facility. The company has also been actively expanding its port facilities while attracting new shipping lines. In the first phase, Berth IV was expanded to a draught of ten metres.  This was followed by the retrofitting and strengthening of the structure of the berth. The recent $160 million port expansion known as Berth V brings the combined dockside length to over 500 metres with Berth V measuring 200 metres and capable of accommodating Panamax-type vessels.

Future Prospects
The company’s strategic vision hinges on primarily two areas, the port and the industrial estate. The company’s goal is to achieve a throughput of 150,000 TEUs by 2004 and to grow incrementally by five percent thereafter. General and break bulk cargo is expected to grow to 600,000 tonnes. In 2002, the company’s throughput was 95,000 TEUs and 541,100 tonnes of general and break bulk cargo.

The catalyst for achieving this goal is the Berth V project, which not only includes the ability to accommodate Panamax-vessels but was also complemented by a major equipment upgrade, infrastructure expansions, and process improvements. The majority of the funds from the Rights Issue would be used for these upgrades. This propels the company into a new era because the majority of the world’s shipping lines are now acquiring the larger Panamax-vessels, which can carry as much as 9,000 TEUs. The challenge for the company is to attract these kinds of vessels to Point Lisas. It is an ideal platform to market Point Lisas as a major transhipment hub in the Caribbean. Most of the estate has already been successfully leased. The company is now seeking to establish greater strategic alliances with other landowners in the Couva area with a view of making additional industrial sites available.

The company has signed a Memorandum of Understanding with the company charged with the responsibility of developing Caroni land. While not in the projections, the company is the project leader for the development of Port Galeota, a multi-purpose facility servicing the gas and petroleum market. The company is also looking at the constructions of Berths 6 through 11 with the participation of strong and progressive joint venture partners. There is also the possibility of new strategic alliances with foreign ports. The towage service continues to expand as more LNG trains are developed. There is also the possibility of providing services at all local industrial and commercial ports. The company has many projects, which are on the verge of bearing fruit. Thus, the challenge is for the company to turn these projects into increased profitability. The company’s forecast for profit after tax calls for an annualised compounded growth rate of 7.43 percent over the next five years. This we believe is fairly conservative and achievable given the current favourable economic outlook.