The Jamaica Broilers Group Corporate Finance

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University of Technology, Jamaica

School of Business Administration

Corporate Finance

Group Members:

Kimberly Mcfarlane 1301868

Shanoya Chung 1104870

Jana Walters 1406183

Charlene Dixon 1300206

Rickella Laing 1307525

Lecturer: Mr. Samuel Parkes

Date: April 10, 2017

Table of content

Corporate Governance Analysis        2-3

Stockholder Analysis        3-4

Risk and Return        5-6

Measuring Investment Returns        6

Capital Structure Choices        7-8

Optimal Capital Structure        8-9

Mechanics of Moving to the Optimal        10

Dividend Policy        10-11

Framework for Analyzing Dividends        12-14

Valuation.....................................................................................................................…...14-15

References …………………………………………..………………………………………16

Appendices…………………………………………………………………………………17-42

Corporate Governance

The Jamaica Broilers Group is a publicly listed company with one of the most advanced agricultural producers that started in 1958 as Jamaica's pioneer producers of broiler meat on a commercial basis. The company currently operates from seven Locations Island wide with two divisions located in the USA. It is now seen as a fully integrated poultry operation which involves feed milling, cattle rearing, beef production and fish farming. The Jamaica Broilers Group are also involve in resources and services, the wholesale and retail of full range of farm products and premixing of feed ingredients.

Jamaica Broilers is a family run company where Robert Levy, the former CEO has four children including Christopher Levy, who is currently the CEO and intend to maintain the course set by his father. The board of directors consist of eleven (11) members with four (4) of which is retiring, having the role to provide an oversight and guidance to ensure compliance in all interactions, deliver value to shareholder and encourage growth. Some of the board of directors sit on the board of other firms. The largest shareholder is Jamaica Broilers Trust (JBT) which owns 14.92% of the Jamaica Broilers Group. There is not much separation between management and ownership.

The company is recognize and committed to upholding the highest levels of corporate transparency and social responsibility. It is therefore seen to have a good reputation as a corporate citizen and has earned this reputation through involvement in activities like the annual sigma run and other charity programmes. By giving back to the community, the company has not been recently targeted by social criticism. There was one instance when an employee was accused of stealing $3.8m from the company, Mrs. Kadine Small-Mckenzie, who was a sales representative, was charged with falsification of accounts and fraudulent conversion.

Jamaica Broilers Group interact with financial markets by expanding in all its markets with investments in new hatchery in order to meet the demand and increase in new chicken meat. The firm intend to focus on new markets and increase production. Markets get information on the group from the firm’s website and their activities, information on the Jamaica Stock Exchange and even straight from the firm's annual reports. The company currently has four (4) analyst namely Barita, JMMB, Mayberry and VM Wealth.

Stockholder's Analysis

Jamaica Broilers Group has a total of $1,199,277,000 shares. Insiders are known has anyone who has more than 5% ownership. They normally represents the value of other firm and reduces agency cost.

Institutional stockholders are other organizations that own some percentage of shares in publicly own companies. They approximately own 50.25% of shares in the company, with net profit attributable to stockholders $1,744,195

Risk and Return

Returns are the increases or losses from a security in a particular period and are refer to as a percentage. While, risk is the probability of losing some, or everything, of your personal stock. Low levels of uncertainty (low risk) are allied with low potential returns. High levels of uncertainty (high risk) are related to high potential returns.

Beta is a measure of the instability, or systematic risk, of a security or a case in judgment to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns. Beta helps investor to make decisions whether they want to go for a higher and more risky stock which is above 1 or a less violate which is below 1 or just equal to 1.

        Over the years the Jamaica Broilers Group has maintained a moderate risk. According to appendix in 2014 the debt ratio was 37%, 2015 made a decrease to 35%, and also in 2016 made another decrease of 34%. The slope of the regression is 0.00321 which is the JGB beta. It was calculated by running a regression analysis between the return on the firm’s stock and the return on the market index. This means that for every increase in the market index, the price of the stock increases also.

The risk that Jamaica Broilers Group (JBG) are facing is market risk which arise from changes in foreign currency exchange rates and interest rates. The company is also exposed to currency risk due to fluctuations in the foreign exchanges rates and significant level of foreign borrowings. The credit risk which is due to individual characteristics of each customer. There is no changes in the JBG exposure to market risk.

Cost of Equity (CAPM) = Krf+ (Km-Krf)b

Ks= 0.0632+(0.0428-0.0632)0.0031

Ks=0.0631= 6.3%