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PULSE Investments "tenuous at best and unsustainable at worst" Michelle Hirst, Research Manager, Stocks & Securities Ltd. (SSL)

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Over the past year, the price of Pulse Investments (PULS) shares has more than doubled, increasing by over 148%. Currently, at $5.70 per share, PULS’ market capitalization is J$1.5Bn – more than Radio Jamaica or Salada.

Our work finds that the market is severely overvaluing PULS. Accounting treatments on PULS’ financial statements, especially with regards to in-kind sponsorship, vary significantly from economic reality. Revenues, operating income and assets are all accounted for at levels significantly higher than their true economic value.

In addition, related party transactions such as real estate transfers and excessive management fees are value destructive to public shareholders in our view and are indicative of weak corporate governance more generally.

The sustainability of a business whose primary operation is obtaining sponsorship funds and capturing some of these funds for itself and its shareholders is tenuous at best and unsustainable at worst.

We recommend with conviction that clients SELL shares at current levels and believe that the Company’s fair value is between $0.45 to $0.60 per share.

Economic Value Only 1/10th of Accounting Value
According to PULS’ financial statements, the Company generated J$1.4Bn of revenue and $442MM of EBITDA in 2008. While the derivation of these figures may (and we emphasize may) be technically permissible from an accounting perspective, they bear no relationship whatsoever to PULS actual cash flow generation or the true economic value of PULS business. We believe that cash revenues are closer to J$161MM and cash EBITDA is closer J$41MM, both only about 1/10 of their “accounting” values (see Exhibit 1).

PULS generates revenue in four ways: receiving agency fees for fashion models it represents, receiving rental income for properties it sublets and receiving ticket sales and sponsorship consideration for events it promotes. Agency revenues, sublet income and ticket sales are all legitimate sources of revenue, reflected accurately by PULS in both accounting and economic terms. That said, they account for just $J37MM million or less than 3.0% of PULS revenues. The vast majority of PULS “revenues”, or over $J1.4Bn, come from sponsorship.

We do no believe that most of PULS sponsorship receipts are “revenue” in the economic sense of the word. Sponsorship consideration paid to PULS is meant to cover the cost of events, not to hit PULS bottom-line or ultimately be distributed to PULS shareholders. That is, every dollar of sponsorship received should be matched by a dollar of expense. In that sense, one can either count sponsorship as revenue with an equal offsetting cost or not count it at all; the end result in both cases should be the same: no impact on operating income or cash flow.

In the case of cash sponsorship, it is possible for PULS to capture a portion of payments either through explicit contracts with sponsors or more likely through indirect means (cutting event expenses below budget, etc). While this is good for PULS in the short-term, it is terrible for sponsors, PULS’ defacto customers. After all, if PULS can afford to keep excess sponsorship funds and still execute its events, sponsors will eventually argue (quite, reasonably) that they should contribute less. After all, sponsors are paying to promote their products by enabling the execution of events the PULS promotes, not to compensate PULS shareholders. In our view, this arrangement is unsustainable on an ongoing basis. That said, for the purposes of this analysis we conservatively assume that PULS is capable of retaining 15% of the J$146MM in cash it receives from sponsors.

The vast majority or 91% of PULS sponsorship “revenue” is not in the form of cash, but is paid in-kind. Like cash sponsorship, in-kind sponsorship should be matched by an expense or use of that in-kind contribution and therefore should not be income generating. Even worse however, in-kind sponsorship is much more difficult to convert to cash for the benefit of PULS and its shareholders. While in theory excess in-kind sponsorships of products like liquor could be sold for cash, this tactic is untenable in PULS’ case since its largest in-kind sponsorship contributions are multiyear entitlements to advertising and not product donations. As a result, from a cash flow or fundamental economic perspective, we believe with strong conviction that in-kind sponsorship contributions should not be considered revenue. PULS true cash or economic revenue is therefore merely: the sum of agency revenues, sublet income, ticket sales and cash sponsorship or J$161MM, roughly 1/10th of its accounting revenue.

PULS disclosure on the cost side is non-existent. However, for the purpose of this analysis we conservatively assume that PULS incurs only two operating cash expenses: the 85% of cash sponsorship that is used to fund events or J$105MM and the $17MM PULS it uses to pay management. This implies an EBITDA of J$40MM or once again only 1/10th of the EBITDA PULS reports on its financial statements.

After making these adjustments, it appears that the market is valuing PULS at 38x EV/EBITDA. A highly aggressive implied growth rate for any company, but especially one whose business model is essentially to get sponsorship, use as little of it as possible on its actual events and somehow capture as much of it as possible for itself and its shareholders. Applying a more reasonable 5x EV / EBTIDA multiple to our economic EBITDA implies an equity value for PULS of J$163MM or $0.60 per share. Once again this valuation is roughly 1/10th of its current market capitalization (see Exhibit 2).

A thorough examination of PULS balance sheet confirms our work (see Exhibit 3). The vast majority of PULS assets are in-kind sponsorship entitlements to advertising in future years which PULS capitalizes. Accounting for in-kind sponsorship as assets, particular advertising entitlements, is problematic for the same reasons discussed above with regards to revenues. In addition, because PULS must estimate the cost of future of advertising to arrive at an asset value, it’s even more problematic and subject to significant “judgments” from PULS management. We therefore assign no economic value to the advertising entitlements and unexpired sponsorship “assets” marked at J$953MM on PULS’ balance sheet.

Similarly, we assign no value to PULS’ patents which are currently being carried at over J$90MM or its leasehold real estate of J$353 which it after all does not own. PULS’ remaining book asset value consists of the cash on its balance sheet and its accounts receivables which collectively amount to US$158MM.

After subtracting PULS’ liabilities, excluding those due to related parties, we arrive at a book equity value of PULS of J$113MM or $0.42 per share – in line with our multiples-based valuation above and once again only a fraction of its current

market capitalization.
Corporate Governance and Value Destruction
In March, PULS executed a rights offering and obtained proceeds of J$127MM. It used these funds to retire debt and preference shares and pad its balance sheet. In addition, it acquired J$59MM of investment properties from related parties. Related parties also received J$17MM in fee based compensation. In aggregate, these transactions result in a net out flow of value to related parties funded by public shareholders. We believe both these transactions are value destructive and result in a misalignment of related party distributions from those received by public shareholders. In addition to our concerns on PULS business model and valuation, these corporate governance concerns further inform our bearish investment thesis.

Conclusion
We believe that PULS is significantly overvalued by the public market. PULS share price has increased dramatically in the last twelve months and now implies an equity value of J$1.5Bn which is difficult to reconcile on a relative value basis with other investment opportunities. PULS accounting treatment of its primary source of revenue and assets, in-kind sponsorship, severely overstates the economic value of these activities. Once these activities are accurately reflected, we find PULS to be worth only a fraction of its current trading value. In addition, we believe that PULS’ corporate governance structure and the sustainability of its sponsorship driven business should be worrisome to investors (especially given that PULS has already once been de-listed from the JSE).

We recommend with conviction that clients SELL shares at current levels and believe that the Company’s fair value is between $0.45 to $0.60 per share.

To see full article with table etc please contact businessuitemagazine@gmail.com for subscription details or call 1-876-754-2293/2295

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Sygnus Real Estate Finance Strategically Increases Stake In One Belmont From 70% To 86%

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Results of Operations

SRF continued the transition between its first and second investment life cycles with a number of key initiatives, namely:

  • Strategically increased its stake in the 9-storey One Belmont commercial tower asset from 70% to 86%;
  • Increased its investment in income generating third-party real estate investment notes (REINs) by 25.3% to J$2.30 billion; exited J$1.72 billion of investments;
  • Paid its first dividend of J$0.2012 per ordinary share in December 2024.

Primarily as a result of the increased stake in One Belmont, SRF generated a net profit for Q2 2025 versus a loss in the similar period last year, and a lower loss for 6 Months FY 2025 versus the similar period last year.

Book value per share increased 5.0% to J$24.05 compared to J$22.91 last year, given a J$372.06 million or 13.5% increase in retained earnings to J$3.13 billion as at the end of the period.

SRF continued to advance the ongoing execution of interior build-out works for some tenants of the One Belmont property, and the monetization of its partial exit from the One Belmont investment; and advancing the value creation process for the Mammee Bay hospitality asset in St. Ann and the Lakespen industrial asset in St. Catherine.

The Group remains dedicated to executing its strategy of unlocking value in real estate assets to enhance shareholder value.

For Q2 2025, total investment income or core revenues was J$152.25 million compared to negative J$24.35 million for the three months ended February 29, 2024 (“Q2 2024”). While total investment income or core revenues was J$26.59 million for 6 Month FY 2025 compared to negative J$55.31 million for the six months ended February 29, 2024 (“6 Month FY 2024”). This was primarily due to increased lease and other income, a gain on disposal of financial instruments of J$33.73 million, a gain on acquisition of shares in Joint Venture of J$162.20 million, and share of gain on joint ventures of J$39.26 million. The gain on acquisition of shares in Joint Venture resulted from SRF’s strategic decision to increase its exposure to the One Belmont commercial tower. On a net basis, SRF’s overall income from this asset was J$209.95 million for 6 Month FY 2025.

The weighted average fair value yield on REINs was 8.7% compared with 4.3% last year, with the weighted average yield on REINs measured at amortised cost being 14.4% vs 13.5% last year. The increases noted were due to the redeployment of capital into higher yielding real estate investment notes. The weighted average fair value yield on REINs is expected to improve significantly during the current financial year as SRF continues to substantially increase its exposure into third-party income-generating assets.

The weighted average cost of debt was 9.0% compared with 7.6% last year. This result was due to a higher interest rate environment as well as SRF securing longer duration debt. One of the tranches of SRF’s 2024 capital raise has a variable interest rate structure, which becomes effective after the first year which SRF expects to benefit from as market interest rates move downwards.

The share of gain on joint ventures amounted to J$15.63 million for the quarter ending February 28, 2025, compared to a nominal loss of J$0.51 million last year, while the share of gain on joint ventures was J$39.26 million for 6 Month FY 2025 compared to a loss of J$0.81 million last year. This was mainly driven by SRF’s increased ownership stake of 86% of the Audere Holdings Limited joint venture and SRF’s 71.0% ownership in the newly formed joint venture company referred to as 5658 LMR Limited, whose underlying assets are two (2) resort villa properties located in Ocho Rios, Saint Ann.

SRF’s total investment income consisted of various activities aimed at unlocking value from its real estate investment portfolio, namely: interest income, lease income and commitment fees related to REINs; gain or loss on property investments or on exited real estate assets; and share of gain or loss on its joint venture investments.

Due to the nature of its business model, SRF may experience fluctuations or “lumpiness” in total investment income and net profits during interim reporting periods, which usually stabilizes by the end of each financial year, as evidenced by the FYE Aug 2024 results relative to the interim quarterly performance. The Group uses independent appraisers to value its investment assets annually. All investment properties are USD investment assets which are converted to JMD for financial reporting purposes. SRF’s key strategic assets are held via wholly owned subsidiaries or joint ventures.

For the three months ended February 28, 2025, net investment income or core earnings was J$66.75 million versus negative J$113.22 million last year. While for the six months ended February 28, 2025, net investment income or core earnings was negative J$160.21 million versus negative J$228.10 million last year. The increase recorded during the quarter was mainly attributable to SRF’s gain on its acquisition of additional shares in Audere Holdings Limited, increasing its stake in the joint venture from 70% to 86%. For FYE August 2024, SRF generated J$508.50 million in net investment income.

Net profit for Q2 2025 amounted to J$38.24 million relative to a loss of J$187.15 million last year, while net loss for 6 Month FY 2025 amounted to J$197.45 million vs a loss of J$320.13 million in the corresponding period last year. The improvement for both periods was mainly due to gains on investments executed during the quarter. SRF generated an average annual return on equity (ROE) of 19.1% over the past five years of its first investment life cycle through the end August 2024.

Basic earnings per share (EPS) was J$0.12 for Q2 2025 relative to negative J$0.57 last year, while diluted EPS was identical to basic compared to negative J$0.53 last year.

Basic earnings per share (EPS) was negative J$0.60 for 6 Month FY 2025 relative to negative J$0.98 last year, while diluted EPS was identical to basic compared to negative J$0.91 last year.

Similarly, basic core earnings or net investment income per share (NIIPS) was J$0.20 for Q2 2025, compared with negative J$0.35 last year. For 6 Month FY 2025, basic core earnings or net investment income per share (NIIPS) was negative J$0.49, compared with negative J$0.70 last year.

Dr. Ike Johnson Director Sygnus Real Estate Finance Limited 

For More Information on Sygnus Real Estate Finance Limited (SRF) Unaudited Financial Statements Quarter Ended February 28, 2025(Q2-2025) CLICK HERE

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Express Catering’s Outlook Is For An Excellent Summer Season

The winter season is now ending but the outlook is for an excellent summer season and we are ready to serve our many patrons.

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Ian Dear CEO and Director Of Express Catering Limited (ECL) Has Released The Following Third Quarter Interim Report On The Operations Of The Company For Fiscal 2025. The Report Is For The Quarter And Nine Months Ending February 28, 2025.

Total passengers accessing the post security departure lounge of the Sangster International Airport during the Third Quarter was 652,656. This generated revenue of US$7.43 million for a spend rate per passenger of US11.38.

For the similar Quarter in the prior year, 705,116 passengers accessed the departure lounge. Total revenue of US$7.04 million was earned at a spend rate per passenger of US$10.05.

Despite the decline in passenger totals, total revenue and spend rate improved. The improvement in spend rate is particularly important as the increase was significant and is a result of the strategic measures that the company has been implementing over time.

Net profit earned for the Quarter was US$1.77 million for an EPS of 0.108 US Cents per share. This is compared to a net profit of US$1.06 million for an EPS of 0.065 US Cents for the similar period in the prior year.

For the nine months to date, the passenger total was 1.80 million. This generated revenue of US$18.89 million for a spend per passenger rate of US$10.49. The metrics for the similar nine months in the prior year were passenger total of 1.96 million passengers, revenue of US$18.67 million and spend rate of US$9.53.

Net profit for the nine months was US$3.22 million for an EPS of 0.197 US Cents. Net profit earned for the similar period in the prior year was US$2.09 million, for an EPS of 0.127 US Cents. Dividend declared and paid for the fiscal year to date was just over US$1.00 million.

Of all the cost categories, Cost of Sales (COS) continues to be our best area of savings for the Quarter and year-to-date positions.  This category registered just under seven percentage points improvement for the Quarter and just under five percentage points improvement for the nine months. The improvement was a combination of price increases, better portion controls, as well as improved supply chain agreements. The team intends to build on the trend for the rest of the year.

Savings were also recorded in Salaries and Wages, in line with the previously stated intention to better utilize this resource. There was also a shift in cost allocation from property rental expenses to lease amortization, in line with the increase in Lease Obligation under IFRS 16 rules. The team continues to review all cost categories for additional savings.

The winter season is now ending but the outlook is for an excellent summer season and we are ready to serve our many patrons.

For More Information CLICK HERE

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Knutsford Express Charts Strategic Course Amid Profit Decline and Operational Investments​

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Knutsford Express Services Limited (KEX) has released its unaudited financial statements for the third quarter ended February 28, 2025, revealing a nuanced financial landscape. While the company experienced a modest revenue uptick, net profits have seen a significant decline, prompting strategic shifts in operations and investments.​

Financial Performance Overview

For the third quarter, KEX reported revenues of J$593 million, marking a 4.8% increase from J$566 million in the same period last year. Over the nine-month period, revenues rose by 7.3%, reaching J$1.643 billion compared to J$1.531 billion previously.

Despite these gains, net profit for the quarter plummeted by 54.9% to J$49 million, down from J$111 million in 2024. The nine-month net profit also declined by 36.8%, settling at J$170 million from J$269 million in the comparative period.​

The company attributes the profit downturn to lingering effects of subdued passenger arrival numbers in Jamaica. Additionally, increased administrative expenses, particularly in staff costs, have impacted profitability. In the first quarter of 2025, administrative expenses rose to J$520 million, affecting net profits despite a revenue increase to J$592 million.

Strategic Investments and Operational Enhancements

In response to these challenges, KEX is investing heavily in fleet expansion and digital transformation. The company plans to inject J$500 million over the next three years to upgrade its bus fleet and implement advanced digital systems . This includes the introduction of airport-style departure gateways and digital ticket-checking kiosks, aimed at enhancing operational efficiency and customer experience.​

The Drax Hall depot in St. Ann has become a focal point for these innovations, serving as a prototype for the new passenger processing model. CEO Oliver Townsend emphasized the importance of these investments, stating, “We’re redoubling our investments and efforts on the core business and on initiatives that will improve our customer’s satisfaction”

Service Portfolio Adjustments

KEX is also refining its service offerings to align with market demands. The company announced the discontinuation of its international shipping and e-commerce service effective October 7, 2024, due to a 10% decline in revenue from overseas courier services . This strategic move allows KEX to focus on its core transportation and local courier services, which continue to be significant revenue streams.

Outlook

Despite current profitability challenges, KEX maintains a strong asset base, which grew by over 10.7% in the third quarter, reaching J$2.113 billion from J$1.926 billion the previous year. The company’s commitment to enhancing operational efficiency and customer satisfaction positions it for potential recovery and growth as market conditions improve.​

Conclusion

Knutsford Express is navigating a complex financial environment with strategic investments in infrastructure and technology. By focusing on core services and operational excellence, the company aims to bolster its market position and return to robust profitability in the coming periods.

For More Information CLICK HERE

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One on One Educational Services remains focused on strengthening One Academy

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Michael Bernard Chairman One on One Educational Services Limited has released the following unaudited financial statements for the 2nd quarter ended February 29, 2025.

Statement of Comprehensive Income Summary: 

Over the six months ending February 2025, company revenue was J$169.9 million, up from J$111.4 million for the six months ended February 2024. This represents a 52.5% increase over the comparative period, primarily due to the expansion of One Academy, which provides personalized educational solutions for schools, teachers and students. Additionally, the company retained its core annual recurring business from existing contracts, further strengthening revenue growth.

For the second quarter of 2025, revenue reached J$78.0 million, reflecting a 37.6% increase over the same period in the prior year. This growth was attributed to the expansion of One Academy and its ability to deliver personalized solutions through advanced technology, enhancing the accessibility and effectiveness of digital education.

Direct costs for the second quarter amounted to J$22.5 million, an increase of J$4.5 million compared to the previous year. This resulted in a gross profit of J$55.5 million, up 43.5% yearover-year. The increase in direct costs was primarily driven by expenditures related to One Academy’s live streaming of classes across the island  from the company’s central studio. Over the six-month period, direct costs also saw a 45.3% uptick due to one off investments in hosting infrastructure services and the installation of equipment and accessories to facilitate One Academy’s implementation of live classes. While these expenses have contributed to short-term cost increases, they are a strategic investment aimed at driving long-term value creation.

Administrative and selling expenses decreased by J$24.2 million, or 21.5%, over the six-month period, while the second quarter recorded a 19% decline over the comparable 2024 quarter. This reflects the benefits of cost-cutting initiatives aimed at improving operational efficiencies and financial discipline.

A taxation charge of J$226 thousand was recognized for the second quarter, primarily due to deferred taxation, bringing the six-month tax charge to J$894 thousand. The quarter closed with a net profit of J$7.2 million, a significant improvement compared to the net loss of J$19.9 million recorded in the same quarter last year. For the six-month period, net profit reached J$18.4 million, a strong turnaround from the J$41.4 million net loss over the comparative period.

Statement of Financial Position Summary:

Total assets grew to J$662.6 million at the end of the six-month period, reflecting an 8.2% increase from J$612.3 million in the prior year. This growth was primarily driven by investments in non-current assets, particularly the development of intangible assets. Total equity also strengthened, rising to J$423.4 million from J$362.6 million, supported by the company’s improved financial performance. This shift has allowed the company to move from an accumulated deficit of J$51 million to an accumulated surplus of J$9.5 million compared to the previous year. While, total liabilities reduced marginally by 3% year over year.

Statement of Cash Flow Summary:

The cash flow summary for the second quarter of 2025 highlights a substantial improvement in financial performance compared to the same period in 2024. Operating activities generated J$121.5 million in cash flow, while investing activities had reduced outflows. Additionally, financing activities reflected the company’s efforts to pay down loan obligations. These factors contributed to a net cash increase of J$66.7 million, leading to a stronger closing cash balance of J$110.0 million. This improvement underscores the company’s enhanced cash flow management and liquidity position.

During the quarter, the company remained focused on strengthening its One Academy suite of product offerings. This included the continued live streaming of lessons into high schools in Jamaica. Furthermore, the company leveraged its personalized solutions by developing a testing mechanism that allows schools to assess student performance effectively. This solution empowers schools with comprehensive student assessments, enabling the creation of targeted intervention strategies to improve learning outcomes.

In addition, investments continued in enhancing software architecture, particularly the further development of the integrated Education Management Information System (EMIS) and Learning Management System (LMS). These strategic initiatives reinforce the company’s commitment to advancing education delivery through technology, fostering impactful and accessible learning solutions.

These results reflect the company’s commitment to financial sustainability and operational efficiency while positioning itself for continued expansion and long-term success

For More Information CLICK HERE

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JSE launches Green Bond Plus Platform

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