Jamaica Broilers | Equity Analysis

Valuations & Recommendation

We estimated a price target for JBG using an average of two approaches, the first being based on an applied justified price-to-earnings (P/E) ratio, and the second being based on an applied justified price-to-book (P/B) ratio.

P/E Valuation – For this approach, we estimated a 1-year forward earnings per share (EPS) of $3.23. The expected growth compared to the outturn of $3.06 per share for FY 2022 is anchored by our expectation of continued strong revenue growth, particularly in the US segment, partially offset by the impact of elevated commodity prices on margins and the likelihood of higher finance cost following the refinancing of debt coming due this year. We then applied a P/E multiple of 17.74x, which is the Justified P/E multiple, calculated based on a discount rate of 14.6% (using the capital asset pricing model CAPM) and a long-term growth rate of 8.9% (adjusted sustainable growth rate). In applying this multiple to our expected forward EPS, we arrive at an estimated fair value of $57.25.

P/B Valuation – The P/B multiple applied was derived by calculating the justified P/B based on the discount rate and long-term growth rate inputs above, as well as the average ROE over the last 5 years, excluding FY 2020 as an outlier, arriving at an outturn of 1.15x. This multiple, when applied to the 1-year estimated forward book value resulted in an estimate of the fair value of $27.40.

Finally, using an average of the valuation results of both approaches, we arrive at a price target of $42.33, representing a 49.67% potential upside to its last closing price. Lastly, given a justified P/E multiple of 17.74x and the last closing price of $28.28, JBG would need to earn an EPS of $1.59 (net profit of $1.6billion) to be considered fairly valued at that P/E level. In our view, it is highly unlikely that JBG would, in its current state, produce such low levels of profit. One would have to go back to FY2016, to find a time when JBG last reported that level of profitability (ignoring FY2020’s one-off results due to the Covid-19 pandemic). Given the above, we believe the current price of $28.28 provides investors with a sufficient margin of safety. JBG’s financial performance has rebounded nicely from the lows seen in FY2020, driven by the recovery in the Jamaican economy and tourist arrivals, coupled with JBG’s growing presence in the large US market and the increasing production of the Best Dressed Chicken line of products. Offsetting this, however, is JBG’s small yet struggling Haiti operations. JBG’s liquidity and solvency position seem strong, despite a slight increase in the debtto-equity ratio. Also, JBG’s return on equity is improving, however, free cash flow has weakened, with the last time JBG produced a positive outturn being in FY2020. Lastly, as the stock is trading at a material discount to our estimate of fair value, we assign an OVERWEIGHT recommendation to JBG.

Stock JBG
Close Price J$28.28
Estimated Value J$42.33
Potential Upside 49.67%
Dividend Yield 1.10%
Total Return 50.77%
YTD Return 0.21%
52 Week High J$36.60
52 Week Low J$25.00
Trailing P/E 9.09x
Forward P/E 8.76x
Sector Average 16.19x
Recommendation OVERWEIGHT

As at August 11, 2022

Jamaica Broiler's Group Equity Report

Market News Signup

Signup to get updates to your inbox
  • This field is for validation purposes and should be left unchanged.

Keep Reading...

Let's Make Your Money Work For You