Scotia Group recently reported record profits for the year to October, surging 67 percent to $17.23 billion with earnings of $5.54 per share, from revenues that jumped 29 percent to $59.64 billion but based on the reaction of investors the results seem to hardly matter with the stock valued a mere 6.5 times historical earnings compared with a market average of 13, nevertheless, the price hit a yearly high of $36.69 this past Friday as selling has eased considerably, with a few open offers to sell.
The group declared a dividend payable in January of 40 cents for a second consecutive quarter putting it at $1.60 annualised, for a 4.6 percent yield based on the current price. Traditionally the group was committed to paying 40 to 50 percent of profits, this seems to have temporarily changed with the fallout from the Covid-19 pandemic but could return in the near future.
The October quarter saw profit popping a robust 49 percent to $4.4 billion from $2.98 billion in 2022 with revenues rising 24 percent to $15.79 billion from 12.8 billion.
The good news does not end there. ICinsider.com is forecasting earnings of $7.50 for the 2024 fiscal year, with the PE ratio at just 4.8 times earnings making it a stunning buy at the current price of $36, the stock closed at on Friday. The group has many of the qualities for an excellent investment, good management, quality products and services that are in demand, a growing business and increasing profitability and best of all the stock price is well below the market average, with the potential for a major rise in the near term.
While the 2023 performance looks dramatic compared with the pre-Covid period it is more one of recovery as opposed to rapid growth as the increase over 2019 is just 31 percent, representing a 6 percent increase per annum as loans grew 31 percent as well since the end of 2019.
Highlights of the good performance came from interest income, with the quarter jumping 22 percent to $11.6 billion from $9.5 billion in 2022 and by 31 percent for the full year to $40.8 billion with loans disbursed growing a robust 15 percent to $269 billion from $234.7 billion in 2022, after loan loss provisions. Non-accrual loans stood at $4.5 billion compared to $4 billion at the end of October 2022 and represent 1.6 percent of gross loans compared to October 2022 at 1.7 percent.
Also contributing to the growth in interest income was an increase in funds held in cash resources and investments of $343 billion up from $316 billion in 2022.
Insurance revenues fell 5 percent from $1 billion to $961 million in the quarter and surged 49 percent from $1.87 billion to $2.79 billion for the year.
Audrey Tugwell Henry Scotia group’s CEO
Deposits grew 12.7 percent from $399 billion to $449 billion, but the cost of funds grew 138 percent from $580 million in 2022 to $1.38 billion and 207 percent from $152 million in the final quarter to $466 million as interest rates rose sharply following Bank of Jamaica’s increase in the overnight rate in during late 2021 into 2022 and the maintenance of tight liquidity in the system by the country’s central bank.
Amounts set aside for expected credit losses fell 16 percent to $741 million in the quarter from the 2022 quarter’s $880 million and from $3.06 billion for the year in 2022 to $2.4 billion in 2023.
Other Income delivered $3.23 billion in the final quarter of the year versus $2.26 billion in 2022 and for the 2023 year ending October an increase of 22 percent to $16 billion from $13 billion in 2022, with foreign exchange trading and fees and commission dominating.
Operating expenses rose 6 percent in the final quarter to $6.8 billion from $6.39 billion in 2022 and for the twelve months to $27.6 billion up 11.7 percent from $24.7 billion.
The group’s Shareholders’ equity ended the fiscal year at $126.5 billion, increasing by $20 billion, compared to the previous fiscal year, due primarily to re-measurement of defined benefit pension plan assets, 
lower fair value losses on the investment portfolio, recognition of the insurance finance reserve on the adoption of IFRS 17 and profit generated for the year, partially offset by dividends paid. Total assets grew by $70 billion to $665 billion at October 2023.
ICInsider.com rates the stock a strong buy, with the potential to deliver attractive dividend yields going forward and a huge increase in the stock price in the months ahead. The future appears bright with continued growth in the local economy that sets the stage for more lending. 2024 could well deliver some negatives as the Bank of Jamaica holds interest rates at excessively high levels and ushers in a recession. Additionally, interest rates could start to decline and negatively affect net interest income. Regardless the stock is priced so low currently that most bad news to come if any is more than taken into consideration by the current pricing.
Investors traded 3,334,500 shares for $6,456,830 compared with 7,705,493 units at $11,922,249 on Monday.
Investor’s Choice bid-offer indicator shows five stocks ended with bids higher than their last selling prices and three with lower offers.
EduFocal increased 16 cents and ended at $1.87 with traders dealing in 761,518 units, Elite Diagnostic dipped 18 cents to $1.66 after an exchange of 1,476 stocks, Fontana climbed 29 cents and ended at $10.49 with investors transferring 1,984 stock units. GWest Corporation skidded 17 cents in closing at 83 cents after 15,094 shares passed through the market, Honey Bun fell 10 cents to end at $6.30 with stakeholders exchanging 7,308 stock units, Indies Pharma advanced 17 cents to close at $2.99 in trading 37,465 units. Lasco Distributors popped 37 cents to $3.98 with 17,682 stock units crossing the market, Lasco Financial lost 10 cents in closing at $1.80 as investors exchanged 850 shares, Mailpac Group declined 9 cents to end at $2.10 with investors trading 4,515 stocks. Paramount Trading shed 22 cents and ended at $1.52 with shareholders swapping 1,000 units and Tropical Battery climbed 17 cents to close at $1.95 in an exchange of 497,599 stock units.
Some emerging signs of potential moves higher are emerging for some stocks, with a sharp decline in the volume of some select stocks being offered for sale, setting the stage for sharp upward push in prices of some stocks in the coming weeks. Scotia Group is one such, as it approaches the release of full year results and an announcement on dividend, but buying interest is currently low keyed. The stock trades at an extremely low PE of 5.7 times projected 2023 earnings. AMG Packaging trades at 6.5 times 2024 earnings with only 58,816 shares on offer at the close on Friday and so is Jamaica Teas, with offers now generally above $2.53, with buyers mostly at $2.30, Access Financial is yet another, but buying is weak, Caribbean Cement also has limited stocks on offer.
Honey Bun and Elite Diagnostic dropped out of Junior Market ICTOP10 and are replaced by Tropical Battery and Stationery and Office Supplies. Sygnus Credit Investments drop out of the Main Market TOP10 with Pulse Investments coming in to replace it.
Of great significance is that the averages of both markets are now converging around a PE of 20 for close to a third of the market, as the year is coming to a close and with more information available on the full year’s earnings.
Some positives are visible in the market, with a sharp decline in the volume of some stocks being sold. Scotia Group is one such stock, as it approaches the release of full year results and an announcement on dividends, but buying interest is currently low keyed. The stock trades at an extremely low PE of 5.7 times projected 2023 earnings. AMG Packaging trades at 6.5 times 2024 earnings with a very limited supply of stocks on offer.
Indications of where stock prices could be by May 2024 can be seen from stocks with the highest values in the Main and Junior Markets.
Of import is that the averages of both markets are now converging around a PE of 20 for close to a third of the market, as the year is coming to a close and with more information available on the full year’s earnings.
For the half year, profit jumped 76 percent to $234 million as loan granted borrowers rose almost $600 million to $5.36 billion from $4.76 billion in September 2022 and the same amount since March this year. The company had more than $760 million available to lend plus cash flows from profit that should pushed lending up around 25 percent year over year and helped to swell profits for the year substantially above the six months levels.
Of great import is that the averages of both markets are now converging around a PE of 20 for close to a third of the market, as the year is coming to a close and with more information available on full year’s earnings.
There were no new additions to the Main Market IC TOP 10, however, the Junior Market, had 3 new additions with Express Catering coming in as well as Caribbean Flavours and Lasco Distributors, replacing Dolphin Cove enjoyed b appreciation during the week, Everything Fresh that also dropped out following downward adjustment to earnings, after the company released third quarter results with weak profit performance although revenues in the quarter rose nicely over the similar period in 2022 and Caribbean Assurance with management advising of a surprising 40 percent cut in “the International Comprehensive Health Insurance Programme’s renewal commission rate, with a corresponding 40 percent increase in its new business rate, with the expressed intention of incentivising the production and consistent growth of new business.” Unfortunately, Management gave no timeline when revenues will return to traditional levels.
The PE of the Junior Market TOP10 sits at 6.9, just over half of the market, with an average of 13.1. There are 14 stocks, or 29 percent of the market, with PEs from 15 to 46, averaging 21 that are well above the market’s average of 13. The top half of the market has an average PE of 18, possibly the lowest fair value for Junior Market stocks currently, with the market projected to rise by 260 percent on or around May 2024.
Price movements in the market resulted in two new ICTOP10 listings for the Junior Market and one for the Main Market. In the Junior Market, Dolphin Cove rose 6 percent to $16.50 and AMG Packaging rose 4 percent to $2.44 after trading at a 52 weeks’ low of $1.95 during the week. Paramount Trading dropped 12 percent to $1.48, followed by Everything Fresh shedding 11 percent to $1.56, Iron Rock Insurance fell 9 percent to $2 and Caribbean Assurance Brokers declined 8 percent to end at $2.85.
Importantly selling in the stock has been drastically reduced with just 19 offers up to $15.90 amounting to less than 200,000 shares and 19 bids above $4, with the highest bid amounting to more than the total stocks being offered. Earnings per share for Lasco Financial were reduced to 15 cents for the year and holds the 31st spot on the list.
The PE of the Junior Market TOP10 sits at 5.7, just over half of the market, with an average of 11.9. There are 11 stocks, or 23 percent of the market, with PEs from 15 to 48, averaging 21 that are well above the market’s average. The top half of the market has an average PE of 17, possibly the lowest fair value for Junior Market stocks currently, with the market projected to rise by 260 percent on or around May 2024.
Operations produced cash inflows of $356 million, up from $259 million in 2022 and at the end of the period with a surplus of $189 million that brought the total to $320.8 million up from just $99 million at the end of September. The 2023 growth in Cash inflows is after spending $72 million on acquiring property, plant and equipment, $50 million in dividend payments and $40 million used in repaying loans. Some of the amount on hand is earmarked to fund the acquisition of properties to be used for storage to allow for continued expansion of the business.
Sales revenues rose 11 percent for the quarter, to $3.19 billion from $2.9 billion in 2022 and grew 10 percent for the year to date, to $6 billion from $5.5 billion in 2022.
