Apr 2009 Financial News

Will Wehby's return help GraceKennedy's stock price?

Apr 08, 2009

Analysts differ over whether Don Wehby's return to GraceKennedy Ltd will help the company's stock price, which lost one-third of its value since he left the firm in September 2007.

At the same time, they aren't sure what his new position will be at the company.

"No, Wehby returning won't have any impact or at best very little," said John Jackson, managing director of Investor's Choice magazine, about the stock's possible movement. "Grace getting back to $120 is not so much in (Grace's) hands as the market, the economy and most importantly lower interest rates. The latter has far more to do with stock valuation along with profits than anything else."

GraceKennedy's stock closed at $41.06 yesterday - from $62.05 in September 2007 - declining more than the JSE Market Index which lost 18 per cent of its value over the period to 78,872 points. The dip in the stock's price would have cut the value of Wehby's estimated 1.2 million GraceKennedy shares from $93 million to $50 million (which includes family and other parties).

Wehby, who was granted a two-year leave of absence to serve in the Cabinet, will return to GraceKennedy after his tenure in the Cabinet culminates at the end of July.

Yesterday, Jhana Saunders, research analyst at Stocks & Securities Ltd, said Wehby's return to the company "will definitely spur confidence in GraceKennedy's stock as he has an outstanding track record professionally and knows Grace inside and out".

But even an optimistic Saunders doesn't expect the stock to climb substantially before 2011. She blames high interest rates which have made stocks "less attractive".

"As a senior executive at GraceKennedy, Wehby has an unquestionable track record of delivering. Operational efficiencies and strong governance were hallmarks of his management style - both important elements in these challenging times," argued Rex Shettlewood, research manager at Mayberry Investments.

Shettlewood added that Wehby is constrained by the high interest rate environment. "Our local equities market is more responsive to earnings growth, and given the current economic climate, stock prices will be generally challenged," he said. "Investors should thus focus on those companies which present the best value prospects."

Grace's year-end net profit declined 32 per cent to $2.3 billion on revenues of $53.4 billion in 2008. The decline was due to its expenses which grew faster at 12 per cent than its revenues at 9.6 per cent.

Wehby was GraceKennedy chairman and CEO Douglas Orane's understudy for years. However, after Wehby took up the prime minister's offer to serve in the Cabinet as minister without portfolio in the finance ministry, Courtney Campbell assumed his (Wehby's) role as GK Investments CEO. Up to last night it was not clear what position Wehby would assume in the organisation on his return, as neither he nor Orane were available for comment.

Yesterday, Jackson stated that Wehby may still be in line as successor but others have joined the race. "I don't know if it's Wehby or Erwin Burton, who is around the same age as Orane," said Jackson. "(But) there are others such as young Robert Drummond or Campbell who just joined from NCB. Wehby may be the man if he returns because the financial controller in such an organisation, all things equal, is pivotally positioned to know first-hand about all the various operations. Plus, it would not hurt that he spent time at the Ministry of Finance garnering other experience."
But even so, GraceKennedy has a precedence of its executive chairman going beyond retirement age. "Dougie Orane has a lot of time to continue, it would appear," said Jackson. "I am not sure there are any restrictions on age at Grace, but Carlton Alexander, the long-serving chairman, stayed on for a long time. (he) must have been in his 70s before he retired. When the time is close for retirement, Orane may give up a fair bit of the day-to-day things that he now does and see to the grooming of likely successors."


Source:
Wednesday, April 08, 2009
Jamaica Observer

http://www.jamaicaobserver.com/magazines/Business/html/20090407T170000-0500_149046_OBS_WILL_WEHBY_S_RETURN_HELP_GRACEKENNEDY_S_STOCK_PRICE__.asp