New shares needed

West Indies Stockbrokers, Wise, says that Prestige Holdings, franchise holders for KFC and TGI Fridays, must think about issuing new shares, if it wants to meet its debt obligations and expand. In its analysis of the company’s results for the first quarter ended  February 28, WISE said the  deterioration of working capital represents some concern about the ability of the company to meet its short-term debts.

Noting that long-term debt of $72.3 million was negotiated with bankers to refinance $57.5 million of the short-term debt and to fund future expansion, Wise said this leaves the company with approximately $19.2 million negative working capital and provides some short term ease of financial pressure, but may not be the solution to Prestige Holdings’ problem.  “A very viable alternative would be to issue new shares on the stock market,” it was noted. Wise noted that most of Prestige’s capital is tied up in non-current assets due to its rapid expansion policy. “Prestige Holdings, it seems, may need to negotiate stratified long-term debt payments and suspend expansion to allow cash profits to build sufficiently to cover operating expenses as well as meet debt obligations when they become due,” said Wise.  

On the balance sheet, Prestige’s non current assets increased by 18.75 percent to $213.17 million, on the other hand, working capital deteriorated from a negative $26.5 million to negative $76.7 million, down 189.44 percent, while non current liabilities of $56.48 million were down 37.18 percent resulting in Net assets of $80 million. According to Wise, Prestige reported growth of 21.67 percent in sales for the three month period ended 28 February 2005, compared with the corresponding period last year. Sales reached $135.1 million while cost of sales rose 18.72 percent to $90.4 million, resulting in gross profit of $44.6 million, up 28.11 percent. Gross profit margin increased from 31.39 percent in the first quarter 2004 to 33.05 percent in the first quarter 2005.

Operating profit of $12.17 million represented a 20.69 percent increase over the previous year with operating profit margin slipping marginally from 9.08 percent to 9.01 percent. Profit before tax was up 27.95 percent to $9.94 million, while Profit after tax grew by 33.39 percent to $6.0 million. However, Profit attributable to shareholders was only up 10.49 percent on account of negative minority interest for the period of $85,000 compared with a positive minority interest of $858,000 in the previous comparable period. Net profit margin fell from 41.94 percent to 4.39 percent. Earnings posted for the period was 9.59 cents, up from 8.83 cents.

The Trinidad and Tobago market performed creditably over the three months, said Wise. The Dominican Republic operations reported a turnaround from a loss of $880,000 last year to a slight profit this year and improved results are expected from the operations in Jamaica and Puerto Rico. Prestige Holdings also expects to expand into the Barbados market in the second quarter this year, having received a license to operate the TGI Friday’s brand in that country. At the current price of $9.65 per share, Prestige Holdings, according to Wise, is trading at an earnings multiple of 24.74 times-historic earnings of 39 cents per share.