JMMB report: Massy Holdings faces headwinds despite solid core performance

JMMB Investments has published November’s valuation report for Massy Holdings Ltd (MHL), highlighting growth in some segments and challenges that could affect its trajectory.

While Massy continues to benefit from acquisitions and improved operational efficiency, the company’s share price has seen a 19 per cent decline from January-September 2024.

This has led to a decrease in the company’s market value, with the share price currently around $3.50, below the fair-value estimate range of $3.56-$4.72 per share.

The valuation analysis, covering the nine-month period ending June 30, reveals MHL’s revenue across its core business units – integrated retail, gas products, motors and machines, and financial services – has largely performed according to expectations.

Notably, Guyana emerged as a key contributor to the company’s profitability, with the market accounting for 12 per cent of MHL’s total revenue. However, this segment stood out even more for its significant contribution to profit before tax (PBT), generating 26 per cent of the company’s overall PBT.

Massy’s recent market valuation is one of its most pressing issues. Shareholders may look to CEO David Affonso to balance the company’s growth strategies with the macroeconomic pressures outlined in JMMB’s report, including the continued challenges in Colombia and Guyana. Affonso’s appointment in April came on the heels of former CEO Gervase Warner’s early retirement.

Affonso, speaking to Newsday shortly after his appointment, acknowledged Massy’s future growth strategy hinges on its ability to manage risk while capitalising on its acquisitions.

“We have seen encouraging synergies from our recent acquisitions, particularly in the integrated retail and gas products segments,” he said. “But we also know that growth cannot be achieved without addressing our internal challenges, including market volatility and foreign exchange shortages that impact our bottom line.”

External risks and controversies

JMMB’s report highlighted several external risk factors that could further affect MHL’s operations, including cyber risks, foreign exchange challenges and social unrest.

Massy is acutely aware of the potential for cyber threats, given the company’s previous exposure to a breach in 2022. The company said it has since fortified its cyber-security protocols.

Massy also faces a currency management challenge, which could stymie its operations.

“The group operates internationally and is exposed to foreign exchange risks from various currency exposures,” the report read. “The group manages its foreign exchange risk by ensuring that the net exposure in foreign assets and liabilities is acceptable by monitoring currency positions and holding foreign currency balances.

“However, the International Monetary Fund has issued a call to action regarding TT’s ongoing foreign exchange challenges, emphasising that resolving these shortages must be a top priority for this country, and given that most Massy businesses are operational in the TT market this shortage can hurt the company’s operations.”

Investor sentiment may also have been dampened by recent controversies surrounding Massy’s shareholder transparency. Allegations by former executive Angelique Parisot-Potter about discrepancies in dividend payments – such as select groups receiving US$ dividends – have raised concerns. While Massy addressed them, the report suggests that the controversy may have negatively affected the stock’s performance.

Optimism and future growth

Despite challenges, Massy said it remains optimistic about its prospects. The company’s recent emphasis on improving its cash conversion cycle, reducing it by 18 per cent, is expected to lead to better-working capital management and more efficient cash-flow generation in the near future.

The company’s push into international micro-markets, such as the acquisition of Rowe’s IGA supermarket in Jacksonville, Florida, is expected to provide growth in hard currencies, aligning with Massy’s long-term strategy.

“We’re looking at smaller, high-growth chains in stable markets as the future of our business model,” Affonso told Newsday. “This is where we see the next wave of growth, particularly with the way consumer habits are shifting globally.”

Massy is focused on expanding its integrated retail and gas products divisions, with plans for further acquisitions.

Colombian and Guyanese headwinds

However, as highlighted in the JMMB report, the company faces significant macroeconomic pressures in markets like Colombia, where high interest rates, currency fluctuations and lower consumer purchasing power have weighed on the performance of the motors and machines portfolio (MMP).

These factors, combined with financing challenges in Guyana, are expected to keep pressure on Massy’s bottom line, at least in the short term.

JMMB’s analysts have placed a “buy” recommendation on Massy’s stock with an “outperform” rating, citing the company’s continued growth in key business segments and improvements in operational efficiency.

However, the report cautions investors about the risks, advising that the company’s share price could continue to face downward pressure given its exposure to geopolitical instability, economic volatility and market sentiment fluctuations.

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