Analysis and News

Equity Highlight: Demerara Tobacco Company Limited

BY GEOCAP's Contributor: Matthew Gaul

Demerara Tobacco Company Limited (DEMTOCO) was established in 1934. The Company went public in 1960 with shares available for local investors. In 1997, production was transferred to the West Indian Tobacco Company Limited in Trinidad. Demerara Tobacco Company Limited is responsible for providing marketing support to the British American Tobacco Group brands sold in Guyana. These brands include Pall Mall, Bristol and Dunhill.

The Company is one of the most profitable on the Guyanese Stock Exchange and is well respected across the business community in Guyana. During the period 2016-2021, the company has recorded profits after tax above 1.4 billion GYD annually (DEMTOCO Annual Report 2020). Despite the disruption to life experienced during 2020 and the concomitant challenges combined with Guyana’s protracted electoral process, DEMTOCO was able to record its highest profit margin in 2020 for the past five years, recording after tax profits of 1.7 billion GYD. The strength of the brands, coupled with innovative strategies that allowed the company to quickly pivot and adapt to the changing realities, were credited as the reasons for its exceptional performances. According to the 2020 Annual Report (DEMTOCO Annual Report 2020), the Company saw growth in revenue of 1.3 percent, with a favourable movement in operating profit of 7.9 percent mainly driven by decreased operating costs versus the prior year.

Earnings per share was recorded at $76.09 per share, an increase of 8.7 percent. The company is heralded for its ability to consistently deliver shareholder value. The Dividends paid per share in 2020 was recorded at $70 due to the uncertainty that was prevalent due to the COVID-19 pandemic. The company adopted a prudent management style and plans to ensure its shareholders receive additional value in the final dividend payment for 2021. Additionally, the company’s stock price remained consistent at $975 throughout the year 2020.

According to GASCI’s 2021 Financials (GASCI Financials), DTC stock has appreciated by over fifty percent (50%) moving from an opening price on January 1, 2021 of $1000 to $1500 as at September 20, 2021. DTC has provided the best returns for shareholders on the Guyana Stock Exchange in recent times.

Cigarettes are among the most commonly traded products on the black market due to high profit margins, relative ease of production and movement and low detection rates and penalties. The consequences of this trade range from national security, economic loss from tax evasions, trademark infringements, undermining of brand investments, and detrimental quality issues associated with poor manufacturing conditions. Notwithstanding the aforementioned, DEMTOCO has been committed through active engagements with regulators, government and the private sector to ensure compliance with all local laws and regulations regarding the distribution, marketing and sales of its products and has pledged its support to eliminate the illicit tobacco trade (DEMTOCO Annual Report 2020). This bodes well for continued growth in profits and returns for shareholders.

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