Scotia & Grace out of IC Top 10

The Jamaican stock market saw quite a bit of volatility during the past week resulting from some sharp price movement of some stocks.
The pullback could well be that the market will soon be entering the period when institutional investors are likely to enter the market to reposition their portfolio ahead of the start of the new years and could result in a usual Santa Claus rally starting around the middle of the month.
In the end Lasco Financial came under selling pressure and close the week at $4.15 to reenter the TOP 10 list of the Junior Market and displaced Jamaican Teas TOP 10 last week. In the main market TOP 10 two changes took place with Sagicor Group having fallen to $41 and JMMB Group trading at $34 replacing Scotia Group that reported poor fourth quarter results and declining in price from the $60 region of the previous week to close at $54.05 while Grace Kennedy moved up in price and the earnings per share has been adjusted to $4.80 from $5.30 the combination of which pushed them from the TOP list.  
The main market closed the week with the overall PE remains at 15.6, the PE of the Junior market remains at 15.9. The PE ratio for Junior Market Top 10 stocks average 8.8 and the main market PE is now 9.9. The top Junior market stocks are selling at a discount of 13 percent to those of the main market stocks even as the overall average PE for both markets are almost equal. This is an indication that there may be more gains to be had from these Junior Market stocks than those in the main market.
The TOP 10 stocks now trade at an average discount of 45 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 39 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Why is Fontana IPO priced so low?

Owners and directors along with their advisors ought to know the value of their company. But this publication must ask the question if Fontana has really done so well and will continue to expand, why is it priced so low?
At a premium over net book value of 88 percent, the stock is one of the cheapest of Junior Market listings, with the vast majority selling at a premium of 3 to 4 net book and an average PE of around 13 excluding the extreme highs and lows. One would expect the stock to be priced closer to 10 times earnings before tax, that would put the price closer to $3 than $1.88 and that would place price to net asset value at a premium of 200 percent, still below the market average. The fact that the company is setting up a new branch and looking for more expansion, makes the case for a higher price more compelling as investors are most likely going to rake in much profit from this stock. The only problem the general public will not get many shares  to buy up front as it is set tobe heavily oversubscribed. Investors can expect this one to at least double shortly after listing.From where we sit we think the brokers did the owners out of several million dollars on this issue but then the owners may want Jamaicans to party with them on the 50th anniversary.

Fontana IPO set for heavy oversubscription

Fontana’s prospectus initial public offer, first mentioned by IC Insider.com is now out but with confusion as to the pricing. The price  seems to be $1.88 except for reserved shares at $1.69 each.  
Whether the price is 1.88 or $2 the stock is price very attractively priced for investors at a PE that is well below that of the Junior Market that is will be listed on and is expected to be heavily oversubscribed. The general public have been allocated 113,434,802 shares at a PE ratio of just 6.4 times 2018 earnings, well below the market average of more than 15, but things get even better as the interim results to September this year show a huge jump in profit from $11.5 million to $51 million before tax, with sale revenues up just 5.5 percent to $936 million while cost of sales declined from $650 million to $640 million, thus improving gross profit margin. While revenues grew just 5.5 percent in the quarter administrative cost climbed faster by nearly 10 percent to $223 million. At the same time inventories rose 19 percent to $680 million over the levels at September 2017 and is up 15 percent from June 2018 figure, a development that requires clarification. The PE ratio based on the interim figures suggest that the PE will fall to around 6 or less for the 2019 fiscal year, with good prospects for continued growth in the business.
The Company, in March 2013 acquired the former Azmart location in Barbican Square, Kingston and opened its Ocho Rios location in November 2013. There has been significant growth in sales from these locations. Kingston and Ocho Rios branches now represent 27 percent and 16 percent of the total sales, respectively, the Company stated. Revenues from the Ocho Rios branch increased from $113 million in 2014 to $536 million in 2018, while revenues at the Kingston branch grew from $508 million in the 2014 fiscal year to $871 million in 2017 with growth slowing to 5 percent in financial year 2018.
The new Waterloo Square location which will open in financial year 2019, is expected to add 28,000 square feet of retail space, an increase of over 40 percent and bolster sales. It is expected that the Waterloo Square store will provide greater buying power to negotiate more favourable terms and rebates with key pharmaceutical partners on the local market. The company is seeking further opportunities to expand its branch network in the growing communities such as Montego Bay and Portmore. The anticipated increase in sales will provide greater critical mass to support the sourcing of higher volumes of inventory directly from China with greater margins.
The Company invites Applications for 124,937,565 Subscription Shares, which are to be newly issued. The Company is also inviting Applications on behalf of the Selling Shareholder for 124,937,400 shares. A total of 136,440,163 are shares that are initially reserved for priority applications. The minimum amount to be raised by the Company from the sale of the Subscription Shares is $234,040,086.
The Company was established in 1968 at the Manchester Shopping Centre in Mandeville by Shinque “Bobby” Chang and Angela Chang. Today, the Company is run by Kevin O’Brien Chang (Chairman), Anne Chang (Chief Executive Officer) and Raymond Therrien (Chief Operating Officer) with the support of the Independent Directors. The Company operates pharmacies and retail stores in Jamaica with 5 locations across the island and 330 employees. Its core business is the sale of pharmaceutical products through licensed pharmacies, and a range of beauty and cosmetic items, housewares, home décor, toys, baby items, electronic, school and souvenir products.
The Company recorded revenues of $3.4 billion in financial year 2018, representing an increase of $272 million or 8.66% over the prior year and an increase of approximately 91% from $1.76 billion in 2014. Pretax profit for 2018 declined 6 percent from $322 million in 2017 to $303 million after rising from $237 million in 2016 that was up more than 100 percent over the 2015 profit of $115 million. The slow down in 2018 is attributed to the state of emergency in Montego Bay and road construction in the Barbican area.
The stock has been accorded IC Insider.com critical BUY RATED accolade.

New Elite branch now in black

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Elite Diagnostics accounted for 31.7M of Wednesday’s Junior Market trading.

Elite Diagnostic lost money at the Liguanea branch in the first quarter of the 2019 fiscal year but the CEO Warren Chung told shareholders at the company’s annual general meeting held at the Knutsford Court Hotel on Wednesday, that October and November were two very good months at the branch.
The audited financial report on the fiscal year to June 2018 show revenues of $297 million compared to $263 million in 2017 resulting in profit of $45 million after tax credit of $9 million and $44 million in 2017 after tax expense of $15 million.
Liguanea has moved from a loss into profit and will not be a drag on profit from the original operation from now, the CEO confirmed.  Data for the first quarter shows profit before tax dipped sharply from $14 million to $1.8 million the direct result of a loss at the Liguanea branch as well some cost involved in the early purchase of MRI machine to be used in the St. Ann Bay branch to be set up in mid-2019.
While revenues rose, a number of categories climbed sharply partially due to the expansion into a new location on Hope Road. Big increases were experienced in legal and professional fees that moved from just $38,000 to $3 million due primarily to the IPO in 2017, rental expense more than doubled to hit $15.8 million from $7.9 million and Utilities moved from $7.3 million to $17.5 million partially as a result of the new branch as well as some cost for storing the MRI machine to be installed in St Ann Bay location.

Elite CEO Warren Chung with a shareholder at the company’s 2018 AGM.

Revenues in the first quarter to September moved to $85.4 million from $69.8 for an increase of 24 percent, due to the second branch that generated $23.7 million in revenues and a loss of approximately $7 million. Chung in response to IC Insider.com’s question, indicated that revenues at the original location is slightly lower than in the prior year due to some business shifting to Liguanea. The fall in revenues is almost $8 million at Holburn Road and resulted in a fall of approximately $5 million in profit. All MRI scanning for prostate are now being done at Liguanea with the stronger and more precise imagery, Chung stated. In addition, he stated that the Holburn Road branch was previously running above capacity with the location running over time and the new location has alleviated the excess.
Cost to set up St Ann Bay is put at $20-22 million plus U$375,000 for the MRI machine. The company bought the MRI equipment early because it became available locally, but it comes at a cost as it is being stored and incurring cost as it has to be stored in certain conditions resulting in the consumption of electricity along with rent. The MRI Machine for St Ann is being stored with rental cost being incurred as well as electricity cost to maintain it at a cool temperature.
While the company has 3 other MRI competitors in Kingston, there will be no immediate competitor within 50 miles in St Ann. Operating cost at this location will less than at Liguanea with the former being staffed by 7 employees versus a planned staffing of 4 or 5 for St Ann.
For the Liguanea location to move into profit would require revenues around $36 million per quarter or 50 percent above that of the first quarter and that would likely move the profit in the second quarter well above the $1.8 million earned in the first quarter.
Elite last traded on the Junior Market of the Jamaica Stock Exchange at $2.85.

Scotia & Stanley Motta now in IC Top 10

Two changes took place in the main market TOP 10 and one in the Junior Market as market activity pushed out some stocks from the list this past week.
Palace Amusement and Barita Investments had big price gains during the week and exited the main market top list while Honey Bun reported full year profit of 18 cents per share and dropped out of the top tier stocks but it still showed strong signs of better days ahead as it starts the new fiscal year with increased volume sales.

New Entrants this week are, Stanley Motta and Scotia Group for the main market and Jamaican Teas for the Junior Market. Barita Investments jumped to a record $28 on Friday as investors continue to bid up the stock with talk on the road of positive developments surrounding the company. This publication expects good gains from the company’s investment portfolio and the performance of the stock market should also result in growth in the equity-based unit trust and therefo re boost fee income. In addition, word out is that they have acquired an investment portfolio that will add to revenues. At the current price, a stock split also seems assured for 2019.
During the week news broke that Scotia Group had entered into an agreement to sell their insurance arm to Sagicor Financial, the news helped to drive prices of Scotia Group, Sagicor Group and PanJam Investment up and created excitement in the market.
The main market closed the week with the overall PE remains at 15.7, the PE of the Junior market is at 15.9. The PE ratio for Junior Market Top 10 stocks average 8.8 and the main market PE is now 9.5.

The TOP 10 stocks now trade at an average discount of 45 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 39 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

4 new entrants in IC Top 10

Seprod shares now trades at $32 each.

There are three changes to the TOP 10 main market list and one Junior Market stock. Increased prices during the week, pushed out Access Financial, Salada Foods, Stanley Motta and Scotia Group.
Medical Disposables returns to the TOP 10 Junior Market list with the price at $6.20, down from $7.50 the previous week, as it pushed out Access that rose to $52 during last week. Berger Paints and Seprod moved up modestly in price but that was not sufficient to prevent them from returning to the TOP, with other stocks rising in price during the week. Palace Amusement also returned to the TOP 10 main market list.
For the nine months to September, Seprod generated $15.50 billion in revenues, an increase of $3.36 billion or 28 percent over the similar period in 2017. Net profit for the period was $970 million, an increase of $387 million or 66 percent over 2017. Earnings per share came out at $2.03 with the third quarter rising to 85 cents from 38 cents in 2017. For the full year earnings could hit $3 per share. That should put the stock back in the $40 range before too long.
Berger Paints profit for the nine months to September was below expectations, with $9 million profit in the third quarter versus $54 million in 2017 and $43 million for the nine months to September, down sharply from $143 million in 2017. The company now enters the busiest period of the year when the bulk of income and profits are made. Last year company was closed for sales for several days for stock taking in December, resulting in lost sales and profit. The company should not suffer the same fate this year as the new owners would be aware of the problem and work at preventing same. That should result in better sales and profit than in the 2017 final quarter. In the final quarter of 2016 pretax profit was $233 million compared to just $67 million for the similar period in 2017, when the disruptions occurred.
The main market closed the week with the overall PE remains at 15.3, the PE of the Junior market is at 15.5.
The PE ratio for Junior Market Top 10 stocks average 9 and the main market PE is now 9.3.
The TOP 10 stocks now trade at an average discount of 42 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 39 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Access & Iron Rock back into IC Top 10

Thee are no change to the TOP 10 main market list. The Junior Market has two changes with Iron Rock Insurance and Access Financial returning to the TOP 10, while Stationery and Office Supplies (SOS) and Dolphin Cove moved out.
IC Insider.com lowered the earnings per share for the two that moved out, based on the most recent release of interim results. In addition, SOS moved up in price following the release of nine months results.
Last week’s big new the entry, Scotia Group moved from $50 to close at $55.95 and now awaits the full year results which be out soon, for more direction. Based on IC Insider.com forecast Scotia is set to earn around $4.60 for the 2018 year to October with the PE at just 11 times earnings.
Earnings for General Accident have been adjusted down to 40 cents per share with the latest results now out, but it still holds on to the TOP 10.
The main market closed the week with the overall PE remains at 15.3, the PE of the Junior market is at 15.6 from the prior week.
The PE ratio for Junior Market Top 10 stocks average 9.4 and the main market PE is now 9.7.
The TOP 10 stocks now trade at an average discount of 40 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 37 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Scotia Group eases into IC Top 10

Scotia Group could see strong growth in 2019 profit.

The big news this week is the entry of Scotia Group to the main market TOP 10 with a fall in the price to $50 at the close of the week. Based on IC Insider.com forecast, Scotia is set to earn around $4.60 for the 2018 year to October with the PE at just 11 times earnings.
Scotia replaced Berger Paints that was merely squeezed out to sit just outside the TOP 10 at the number 11 spot. Top 10 list movements were modest for the past week, following the previous week of volatility. In the Junior Market, Honey Bun sneaked into the TOP 10 by easing out Jamaican Teas in the process.
Scotia Group, reported flat profits for the nine months from normal ongoing operations. Gains from sales of Credi Scotia and exceptional foreign exchange gains in the July quarter push profit up well above that of 2017. Importantly, the best indicator going forward for increased profitability, is growth in loans. During the July quarter loans grew a strong 3.7 percent between April which works out at an attractive 15 percent per year that should equate to 25-30 percent profit growth in 2019 if the trend continues.
The main market closed the week with the overall PE slipping to 15.3 from 15.6 from the previous week, the PE of the Junior market remained unchanged at 5.5 from the prior week.
The PE ratio for Junior Market Top 10 stocks average 9.3 and the main market PE is now 9.7.
The TOP 10 stocks now trade at an average discount of 40 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 37 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Just one change in IC Top 10

Changes in IC Insider.com Top 10 list were modest for the past week which followed a previous week of volatility.
tTech moved back in price to $6 from $5 and moved out of the Junior Market TOP stocks to be replaced by Caribbean Producers that fell to $6 from $6.80 at the end of the previous week. These were the only movement in and out of the TOP 10.
Investors should keep an eye open for former Top stock, NCB Financial that should be releasing full year results and announcing final dividend for 2018, on Thursday
The main market closed the week with the overall PE slipping to 15.6 from 15.4 from the previous week, the PE of the Junior market moved up to 15.4 from 15.4 at the close of the prior week.
The PE ratio for Junior Market Top 10 stocks average 9.2 and the main market PE is now 9.9.
The TOP 10 stocks now trade at an average discount of 41 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 37 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.
There will be no Market Watch report for this week.

Carib Cement hit by exchange loss

Caribbean Cement traded at $45.200 on Tuesday.

Sale revenues at Caribbean Cement rose 6.7 percent for the quarter, to $4.46 billion from $4.18 billion in 2017 and rose 7.9 percent for the year to date, to $13.2 billion from $12.25 billion in 2017.
A $464 million foreign exchange loss hit the results for the September quarter pulling the strong 44 percent increase in operating profit to $1.2 billion from $836 million, into lower net profit of $305 million than $748 million for the prior year’s period. For the nine months to September, profit fell 28 percent to $1.3 billion from $1.8 million in 2017.
Energy cost climbed by $233 million in the quarter and $342 million year to date but other operating cost declined, with the repurchase of the mill and kiln, previously leased from Trinidad Cement with only $213 million was incurred in the third quarter versus $1.1 million in 2017. For the nine months $1.57 million was incurred compared to $3.3 billion. On-the-other-hand finance cost excluding foreign exchange loss rose to $227 million up sharply from just $11 million in 2017 in the quarter and $299 million versus $4 million year to date. Depreciation and amortisation cost rose to $342 million from $132 million in 2017 and for the nine months to $808 million from $400 million in 2017. The net effect is that the company enjoyed a savings of $500 million per quarter or $2 billion per annum as a result of the buy of the lease, but virtually none of this, benefited shareholders.
Earnings per share came out at 39 cents for the quarter and $1.54 for the nine months and should end the fiscal year ending to around $3.50, as the company reverses the foreign exchange loss in the December quarter and picks up some gains, as well as increased revenues resulting from a price increase of just over 4 percent, effective on October 22.

Carib Cement could earn $5.30 in 2019.


But IC Insider.com is forecasting a jump in earnings for 2019 around $5.30 per shares, as the plant upgrades is completed and commissioned, allowing for the elimination of costly imports that negatively impacted cost in 2018 and will see them moving back into exports.
Gross cash flow brought in $849 million but growth in receivables, inventories, addition to fixed assets, loan repayment and increased payables resulted in negative total flows thus reducing the cash on hand to $468 million. For the nine months the operations brought in $2.6 billion but working capital needs and capital transactions saw cash funds reduced from $1.67 billion to $468 million.
The sharp changes in funds is due to the repurchase of equipment that was previously leased that drove fixed assets to $23 billion from $7.7 million in 2017 and borrowing to $12 billion.
Shareholders’ equity stood at $10.26 billion with borrowings at just $12 billion and net current assets ended the period was negative $1 billion.
The stock traded at $45.20 on the Jamaica Stock Exchange with a PE ratio of 13 times 2018 earnings and sits around the centre of the market valuation. the price could double in 2019. Net asset value is $12 with the stock selling at almost 4 times book value.
Going forward, the company results should be helped from the improvement in the Jamaican economy and growth that is likely to flow from the construction sector including buildings and roads and bridges as well as from increased exports. There is also focus on cost reduction with the high energy cost being the next centre of attention.