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BARGAINS ON HARBOUR STREET Companies going cheap

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16 years ago

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“Those people who step up to the plate with confidence will come out of this crisis very well,”

Michael Lee Chin, Chairman NCB Group.

 

Hit hard by declining earnings, rapid depreciation of the Jamaican dollar, higher than projected interest rates and resulting tightened liquidity, 2008 proved to be the worst in the past six years for the many of the stocks listed on the Jamaica Stock Exchange. Overtaken by developments in the international and local markets, the three JSE indices failed to hold the position held in the early part of the year. Many of the Exchange’s blue chips traded at their lowest levels in 52 weeks as investors sold out and moved away from stocks to money market investments.

The report filed on the Jamaica Stock Exchange website for the end of December indicated that the year’s trading session reflected the following movement of the JSE Indices: –

* The JSE Market Index declined by 27,816.03 points (34.70%) to close at 80,152.03.

* The JSE Select Index declined by 944.23 points (47.57%) to close at 1,984.74.

* The JSE All Jamaican Composite declined by 32,787.93 points (44.31%) to close at 73,994.93.

Overall Market activity resulted from trading in 55 stocks of which 16 advanced, 35 declined and

4 traded firm. Market volume amounted to 2,295,666,264 units valued at over $24,066,168,185.51.

And the trend continues, with more companies trading even lower than the December 2009 closing figures. According to Steven Jackson writing recently in the Caribbean Business Report “The last time the market declined this much was in May 1996 at 12,936 points down 29 per cent year on year. But it is still better than in 1993 when the market lost 65 per cent of its value. It dipped from 32,421 points in January to 11,221 points by January 1994, losing over 90 per cent of its market capitalisation from J$1.45 billion to J$129.8 million according to Bank of Jamaica data.”

According to a leading brokerage firm in a published outlook on the economy for 2009, many of the quoted equity prices appear attractively priced relative to historical values. They also suggest that equity prices may well fall further before a rebound is seen, suggesting that even better bargains are on the horizon.

An interesting point raised by one analyst contact for this article was that “You don’t have to sell a lot of stock to impact price one way or the other.” Suggesting that small stock trades can and have impacted a company’s stock price, which is a concern for many and also implying an opportunity for manipulation. So the big question to be addressed by the Jamaica Stock Exchange is, should small trades be allowed to impact market prices. Businessuite understands that this concern has been raised by some companies. Donette Johnson, Senior Equities Trader at Jamaica Money Market Brokers, in responding to this point indicated that, “As a matter of fact, the JSE has attempted to address the perception of ‘manipulation’ on the market by introducing the average price being used as the closing price for the day. So no longer can brokers use 100 units at 11:59 to close stock prices at higher levels when indeed the market is trading at lower prices (this would give a misconception to investors and cause widespread disharmony among the investing public and even in some instances deter persons from even considering entering the market due to this perception and continued practice by brokers).”

But 2008 was a year when many of the companies listed on the Exchange saw the listed value of their stocks make drastic declines. Volumes traded was also on the high side, where in December for example Cable and Wireless Jamaica Ltd. was the volume leader with 503,461,572.00 units (21.93%) followed by Supreme Ventures Limited with 403,006,606 units (17.56%) and Jamaica Broilers Ltd. with 226,205,373 units (9.85%).

BOJ Impacts Market

According to financial analyst Fayval Williams, one of the contributing factors to the movement away from the stock market was the reversal in the local interest rate trend. Bank of Jamaica began raising interest rates in January, 2008.  Interest rates were adjusted upwards by 1% across all tenors of BOJ instruments and have been rising since then making money market instruments more attractive versus stocks. Donette Johnson Senior Equities Trader Jamaica Money Market Brokers Limited, however saw it differently. “I beg to differ on this point, as interest rates started trending up as soon as the credit crunch hit in September ’08 and financial houses were converting left, right and center in order to meet margin calls being made by overseas brokers. As a result of this pressure to convert to US$ this put added pressure on the J$. So the BOJ responded to stabilise that currency market by increasing local interest rates.”

Another factor argued by Fayval Williams was the weakening economy going forward as investors realized that the US recessions would spill over into Jamaica via remittance, tourism and bauxite sectors. This spelt a more uncertain economic environment and weaker profits for companies, not a good backdrop for stocks.

Other investors have also argued supporting Williams’s view that the high interest rate, initiated by the BOJ impacted the stock market last year as a result investors not able to realise the comparable 25% return on stock investments shifted by selling stocks and putting the money in high BOJ induced interest rates. It was even argued by some that the actions by investors looking forward were pre-emptive as they opted to move funds now rather than wait in an uncertain environment.

With the prevailing tight liquidity conditions on the international markets, the Government of Jamaica has increasingly turned to the local market to meet funding requirements.  This creates added impetus for further increases in interest rates locally and movement away from stocks. (Note: interest rates started to trend downwards sometime in March).

Marlene Street-Forrest General Manager of the Jamaica Stock Exchange was recently quoted as saying “Hardly any analyst would be able to say to you specifically when you are going to see a recovery. We are hoping it will rebound by next year but I have not applied any scientific basis.” (Did you ask Mrs. Street-Forrest for a guesstimate on the performance of the indices this calendar year end 2009?).

Street-Forrest blamed the ongoing decline in market performance on the global meltdown, high interest rates and its crippling spill over effect on company earnings in 2008.

“We have seen share prices at one of the lowest in recent times. This can be accounted for by the general bear market that we have seen that has continued over the last two years and has been coupled by the global financial crisis. Also, some of the companies financial returns posted lower than projected,” she said adding that now is the time to buy stocks.

The economic environment will affect the speed of recovery she stated, adding that the 2009/10 budgetary measures are being analysed to determine its effect on business.

The role of interest rates

“Interest rate reduction will play a factor in the demand for stocks. Next we are looking at the situation in the global arena and the recovery in overseas equity markets. Markets are based on confidence and the extent that investors feel there is more risk in the equities market then they will tend to shy away from it,” she argued.

As one high profile trader indicated “Stocks go up when companies are reporting rising profits but companies were reporting negative company profits going forward as people were buying and consuming less so this was also a contributing factor in my shifting funds away from stocks last year.”

Consumer Confidence Falls

The recently published Jamaica Chamber of Commerce (JCC) consumer confidence report said consumers judged the current state of the economy more negatively than the third quarter of 2008, these downbeat assessments did not cause pessimism about future economic prospects, It was reported that one third of all consumers at the close of 2008 felt that the economy had worsened, up from one in four at the start of the year. At the same time the proportion of consumers that anticipated better conditions remained largely unchanged, the report added.

However, Professor Richard Curtin, head of survey research unit at the University of Michigan, sees the optimism as somewhat surprising given the global economic slowdown and Jamaica’s dependence on tourism and remittances. “Consumers do not expect the kind of slowdown in the economy that I think is going to happen,”

Companies respond

As early as mid 2008 it was quietly reported that companies had already started to respond to the reduction in their income and profitability by laying off staff, seeking increased efficiencies in operation and purchases coupled with the overall use of assets. Going forward into 2009 and early 2010 financial institutions will see a further slowing down of their earnings as loan portfolios are not expected to grow at previous pace due to all the aforementioned factors. Manufacturing companies it is argued should benefit from moderation in prices, but will be adversely affected as consumers cut back on consumption due to lower disposable incomes.

Pessimistic Outlook Hides Value

“Wealth is created by owning businesses”.

Michael Lee Chin, NCB Group Chairman in a recently published article in the Caribbean Business Report recalls that about 10 years ago many Jamaican assets were snapped up by our Caribbean ‘brethren’ but with stock prices down all over the world he believes Jamaican companies now have an opportunity to buy back those companies and continue to make them profitable.

“If you are a foreign investor who bought a Jamaican asset 10 years ago, even though the asset as measured in Jamaican dollars has done well, by foreign currencies and hard assets that’s a different matter.

If you look at stock prices of the likes of Caribbean Cement, NCB, Grace, Guardian, they are now low. The question though is: who has money to acquire these assets? Who is liquid? Well, our pension funds are liquid. Our pension funds have gotten into the habit of investing in repos and government paper. Now that is not investing.

The pension managers are not optimising the wealth creation portion of their portfolios. Over the long haul, equities have always proven to be the best asset class, so now is a great time to be buying them because they are historically cheap.”

Where are they?

But where exactly are the bargain buys? Michelle Hirst, Research Manager at Stocks & Securities Ltd (SSL) thinks the following stocks are at bargain BUYS, plus just as important, strong business models, strong barriers to entry, strong management and above average long-term growth rates with a proven track record:

o   Pan-Jamaican Investment Trust

o   GraceKennedy

o   Salada Foods Jamaica Ltd

o   Jamaica Producers

o   Jamaica Broilers Group

o   Scotia Group Jamaica

o   Desnoes & Geddes

However, she continues “ we do think that local equity prices still have an inherent short-term (one year or less) downside risk of 20-30% from current price levels, dependent on how worse the credit crisis gets, recession, etc, where the DOW heads to, which we anticipate to be 6,600 points or less.

Therefore, although SSL does not advise clients to try and time the market, we recommend to cautiously BUY the above levels/positions and if we see for example Pan-Jam trade down to 18-20, we would recommend more aggressive purchasing here.

Also note another negative that always affects our market in the short-term is high interest rates as investors’ put funds to work in fixed income v. local equities. For the long-term YES the above equities show strong value at current prices meaning an investor to hold for 3 years or longer from “t”.”

According to one leading brokerage firm, unless there are clear signs of recovery in corporate profits, stability in the foreign exchange markets and lower interest rates, causing stock prices to move back up, investors will not go back to the equities market. They also suggest that if the local dollar continues to depreciate at its current pace, the possibility still exist that interest rates could go higher.

So with corporate profits expected to weaken in 2009 as further softening in consumer spending take place the projection is for flat market conditions in 2009.

For many this downward movement in stock prices was a direct response to the local and global economic crisis, the upward shift in interest rates and the continued fallout from the failed alternative investment schemes. But for the calculated few with cash, this is an opportunity to make a move on some bargain buys on Harbour Street. The expectation is that the present financial crisis will be over before the end of 2010 if not before, so buying these companies now and holding the stock until they move rapidly back up will give cash hoarding investor’s significant return on their investments. The big question now is other than institutional investors, who has that kind of cash? BM

Additional Source; Compiled from various published and internet sources

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Businessuite Markets

Monarch Pharmacy To Fortify And Strengthen Fontana As The Number 1 Retailer In Jamaica.

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6 days ago

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February 16, 2025

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Anne Chang Chief Executive Officer and Director of Fontana Limited has released the following unaudited financial statements for the second quarter ended December 31, 2024, which were prepared in accordance with IFRS Accounting Standards.

Income Statement

The company’s quarterly revenue hit a record $2.7 billion, representing an increase of 15.3% over the $2.4 billion for the corresponding quarter last year.

Revenues increased across all locations, with the Portmore store improving substantially over its prior year.

There were increases in all key metrics – sales by category, scripts, average scripts and number of transactions.

Cost of sales increased by 17.9%, resulting in a gross profit of $1.06 billion, an increase of 11.5% over Q2 last year.

Gross margins for Q2 declined slightly from 40.5% to 39.2% but year-to-date margins remain strong, exceeding year-end margins by over 2%.

Operating expenses increased by 16.2%, ending the quarter at $687.9 million compared to $592.2 million last year.

However, due to the Portmore store contributing only six (6) weeks of expenses in the prior year, the comparison is still not an apples-to-apples comparison. The increased expenses were mainly driven by staffing costs, industrial security guard expenses, retirement provisions for senior staff (2025), and reclassification of our pharmacist salaries to remain competitive with the GOJ.

Despite this, our cost-control efforts in general insurance and utilities have yielded positive results, and we continue to monitor and implement efficiency measures.

Operating profit rose 3.9%, closing at $375.3 million versus $361.3 million last year.

Finance costs declined 21.9%, moving from $54.9 million in Q2 last year to $42.8 million this quarter, mainly attributable to foreign exchange gains on the lease liability (IFRS16).

Other income increased by 25.6% ending the quarter at $43.5 million compared to $34.7 million for the corresponding period last year.

EBITDA grew 11.4% to $448.4 million up from $402.5 million last year, a provision for corporate income taxes of $49.4 million was made for this quarter taking the year-to-date tax provision to $61.3 million. There was no comparable provision in Q2 last year as Fontana only completed the 5 full years on the Junior market and qualified for a 50% reduction in the full tax rate effective January 2024. This resulted in a net profit for the quarter of $326.6 million or 4.3% less than that reported for the corresponding quarter last year. Earnings per share moved from $0.27 last year to $0.26 for Q2 this year.

Balance Sheet Total assets at the end of the quarter stood at $5.7 billion, slightly below the $5.8 billion recorded in the same period last year.

Cash and cash equivalents remain strong at $1.6 billion, down 4.4% from the previous year, reflecting the July 2024 dividend payment of $312.3 million.

Shareholders’ equity grew 9.9% to $3.0 billion, up from $2.7 billion in the prior corresponding quarter.

Outlook

The end of the quarter saw the start of exciting new projects such as the implementation of our new integrated POS system for our pharmacy department along with the kick off of a phased roll out of our new HR software. The team is working assiduously on the due diligence process for our recently announced acquisition of the Monarch chain of pharmacies. We are excited to have Monarch join the Fontana family, expanding our footprint in Jamaica and providing more convenient locations for our growing customer base. With strong cash flows and a healthy balance sheet, we remain well-positioned to capitalize on future growth opportunities that will strengthen the company and our position as the number 1 retailer in Jamaica.

 

For More Information Fontana Limited (FTNA) – Unaudited Financial Statements For Second Quarter Ended December 31, 2024  CLICK HERE

Businessuite 2024 #1 Jamaica Junior Market Company by US$ Profit after Tax Fontana Limited

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Spur Tree Spices Jamaica Records 47% Year-Over-Year Profit Growth

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6 days ago

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February 16, 2025

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Profit before tax in the fourth quarter increased to $30M, up from $16.9M for the same period in 2023 despite an extremely challenging year.

The company’s performance demonstrated remarkable resilience and strength in the face of severe adversities. Even more impressively, profit attributable to owners for the period, climbed from $11.5M to $33.1M, a remarkable 187.1% increase. This 47% year-over-year profit growth was achieved despite prolonged environmental challenges that disrupted the agro-processing sector.

The devastation caused by Hurricane Beryl significantly impacted key agricultural crops and infrastructure, with lasting effects still felt across the industry.

Recovery was further hampered by persistent and excessive rainfall throughout the second half of the year, leading to shortages in critical raw materials and increased input costs. One of the hardest-hit crops was ackee, a core product in our portfolio. Repeated weather-related setbacks resulted in reduced yields, strained supply chains, and higher costs, creating additional pressure on operations.

Beyond weather-related challenges, the company also faced escalating costs across the board—including raw materials, packaging, transportation, and energy. These industry-wide cost pressures tested our ability to sustain growth and profitability. However, through strategic planning, proactive decision-making, and supply chain adjustments, we navigated these disruptions effectively.

We identified innovative solutions to manage costs, optimize production, and drive revenue growth, ensuring that we continued to deliver high-quality products to our customers. The exceptional profit growth achieved in the period, not only highlight the strength of our business but also reinforces our commitment to delivering value to our shareholders, even in the harsh and difficult circumstances.

For More Information Spur Tree Spices Jamaica Limited (Spur Tree Spices) Unaudited Consolidated Financial Statements for the Fourth Quarter Ended December 31, 2024. CLICK HERE

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Knutsford Express Courier Service Remains A Strong Contributor

Our courier service remains a strong contributor, providing dependable package delivery seven days a week. We are actively focused on expanding into convenient courier locations and improving service processes to better serve our customers.

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2 weeks ago

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February 8, 2025

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The second quarter reflected stable demand for our core services. Revenue for the period increased by 5.7% to $500 million, compared to $473 million in the corresponding quarter last year. This growth was driven by increased passenger volumes across all routes. For the six-month period, revenue rose 8.8% to $1,050 million, up from $965 million in the comparative period. Continued investments in our coach fleet have enabled us to meet growing customer demand and position the company for sustained growth.

Our courier service remains a strong contributor, providing dependable package delivery seven days a week. We are actively focused on expanding into convenient courier locations and improving service processes to better serve our customers.

Our total assets grew 12.5% to $2,062 million as of November 30, 2024, up from $1,833 million a year earlier, reflecting ongoing investments in expanding our coach fleet and other operational resources.

Looking ahead, we anticipate a rebound in travel demand as headwinds from the recent U.S. election cycle and associated travel advisories subside.

Our strategic investments in capacity expansion, customer convenience, and operational efficiency are expected to drive sustainable growth and enhance customer experience in the second half of the financial year.

Oliver Townsend Chief Executive Officer Knutsford Express Limited

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Jamaican Teas Group Reporting 12% Jump In Net Profit For Q1 December 2024

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2 weeks ago

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February 8, 2025

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The Jamaican Teas Group enjoyed rising sales during the first quarter of the 2024/25 fiscal year and this trend is expected to carry over into the balance of the year.

Manufacturing Division | The highlight for the quarter was the gain in our export sales which rose 38 percent over the prior year. The 6 percent decrease in our local manufacturing sales primarily reflects the high level of sales that took place to Wisynco in the year ago quarter as they built their inventories at the commencement of their new distribution agreement with us which began on Nov 1 2023.

Real Estate Division | Two studio sales were booked this quarter this year versus four in the year ago quarter following the launch of sales at our Belvedere Road project in October 2023. Booked and / or completed sales at the complex have reached the half way stage with 15 studios sold or under contract at time of writing. Retail Division | For this quarter, retail revenues amounted to $219 million, an increase of 10 per cent. This reflects a continuation of the accelerated revenue growth we have seen in our store in recent months.

Investment Division | During this quarter, the prices of stocks on the Jamaica Stock Exchange Main Market increased although prices on the junior market declined. USA Stock Exchanges improved in the quarter. The unrealised gains in our overseas investments were however much lower than a year ago due to declines in the values of our holdings in several home building and construction companies as well as a significant decline in the value of the shares of one of the computer companies we hold. Some of these declines have reversed themselves in January 2025.QWI Investments Limited (QWI) reporting a small net loss of $10 million for the quarter, a significant reversal from their year ago profit of $18 million. While the market outlook is unclear, QWI may not experience profit growth if the profit results of our main investee companies do not continue their improvements over a year ago.

Revenues | JTL’s total revenues for the quarter increased by 9 per cent overall from $840 million a year ago to $913 million this quarter. The reduction in Investment Income mainly reflects the lower unrealised investment gains of QWI referred to above along with higher realized losses recognized from a higher than usual level of share sales undertaken by QWI this quarter. Higher dividend and interest income compared with the year ago period offset some of these unfavourable developments. QWI halved its share portfolio in Trinidad in the quarter due to the disappointing profit outlook of one of its investees. In addition, the company also exited several other investments due to unexpected adverse changes in the business of several of our holdings.

Expenses| The increases in Cost of Sales for the quarter were outpaced by the growth in revenues. As a result our gross profit margin rose from 18.5 per cent a year ago to 20.3 percent this quarter. This improvement arose in part from the consolidation of our two former factory premises into our current factory at Temple Hall which was completed on 31 August 2024. This helped to eliminate expenses duplicated over two premises versus one now. The lower level of low margin real estate sales this quarter also assisted in the margin improvement.

Other expenses were little changed in the quarter except for interest expense which was $4m lower due to lower debt levels and lower interest rates.

Net Profit | Net profit attributable to Jamaican Teas for the quarter was $53 million, a 12 percent improvement from the $47 million profit in the same quarter of the previous year. Total attributable comprehensive income per share was 2.4 cents.

Financial Position| The increase in fixed assets since September 2024 is due mainly to improvements made to the Temple Hall premises. Receivables rose by 15 per, similar to the trend in revenues in the quarter. QWI’s investment portfolio was reduced in size during the quarter due to the share sales referred to earlier. The reductions in inventories reflect real estate sales since Sept 2024 as well as the continuation of right sizing practices in the manufacturing plant purchasing department.

Outlook| The Jamaican economy is heavily dependent on tourism for foreign exchange and employment and its impacts on the wider economy with its linkages to locally produced goods and services. To this end, the continued rebound in visitor arrivals in recent months is encouraging. The recent decreases in interest rates locally will also improve the prospects for our Group.

John Mahfood – Chief Executive Officer/Director Jamaican Teas Group

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Wisynco Q1 Results Impacted By Reduction In Remittances And Softening Visitor Arrivals

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2 weeks ago

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February 8, 2025

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Revenues for the quarter of $14.2 billion represent an increase of 7.2% above the $13.3 billion achieved in the corresponding quarter of the previous year however this fell slightly below our expectations.

The slowdown observed in the first quarter, driven by a reduction in remittances and softening of visitor arrivals, continued throughout the second quarter and was in fact compounded upon by the cool temperatures and significantly more rain than expected, making Q2 one of the rainiest quarters in some time both of which typically impacts fast moving consumer goods consumption adversely.

Gross Profit of $4.7b was 6% greater than the $4.4b of the prior year’s quarter whilst Gross Margin at 32.9% were 40 basis points below the 33.3% for the same quarter last year. The lower Gross Margin when compared to the prior year is attributed primarily to the lower absorption of fixed costs related to lower production volumes. Selling, Distribution & Administrative expenses (SD&A) for the quarter totaled $3.5 billion or 13.5% more than the $3.1 billion for the corresponding quarter of the prior year.

Our SD&A expense to sales ratio was 24.8% for the quarter, or 140 bps greater, when compared to 23.4% in the prior year. The greater SD&A expenses to sales ratios are essentially the result of our expanded Marketing and Sales departments, these increase costs align with our expectations of rolling out the capital expansion. Profit before Taxation for the quarter was $1.2 billion or 18.6% lower than the $1.5 billion of the comparative quarter for the prior year.

For the quarter, after provision for taxes, Wisynco recorded Net Profits Attributable to Stockholders of $991 million ($1.2 billion for the comparable quarter of the prior year), or 26c per stock unit for the quarter compared to 32c per share for fiscal 2024.

On a year to date basis through half the financial year, the business has earned $2.5b in Net Profit after Taxes, a 10.2% reduction year over year. Due to greater non-cash related expenses vs last year, primarily depreciation stemming from the various plant expansions, our EBITDA of $3.9 YTD is down only 4.2% year on year. From a balance sheet perspective, the business ended the quarter with $8.0 billion of cash and investment securities when compared to $11.5 billion in the previous year, the reduction is primarily due to investing an additional $2 billion in plant and equipment. Our working capital ratio remains strong at 2.39.

As we enter the second half of our financial year, we, like other business, are closely monitoring global challenges, including potential tariff regimes and economic disruptions stemming from recent policy changes. Wisynco remains committed to strategic planning to mitigate risks to our operations. Our recent investments in plant and equipment capacity, along with new production initiatives, will enhance our ability to diversify and navigate these challenges effectively.

Andrew Mahfood Chief Executive Officer Wisynco Group Limited – Unaudited financial results for the second quarter ended December 31, 2024, which have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting.

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