Shake up in IC Insider Top 10

Volatility was the order for the Jamaican stock market for the past week as the market indices bounced around as declining stocks were plentiful as the Junior Market ended with three changes and the main market two.
The Junior Market lost Access Financial that closed the week at $49 from $45.50 to start the week. Iron Rock Insurance that climbed to $4.82 from $4.50 and Lasco Manufacturing that inched up to $3.60 from $3 exited as well. Coming into the Junior Market TOP 10 are Elite Diagnostic, Dolphin Cove and Lasco Distributors.
Caribbean Cement reported third quarter results with lower profit for the nine months than for 2017 but foreign exchange losses was the main factor. The exchange rate has now reversed and that should turnaround the negative impact by the end of the year, nevertheless IC insider.com downgraded full year earnings to $3.53 per share, resulting in the stock dropping out of the main market TOP 10 along with JMMB Group that rose back to $34 from $32. The moves allowed Barita Investments that fell to $18 and Salada Foods that slipped to $21.50 to re-enter the top list.
The main market closed the week with the overall PE slipping to 15.4 from 16 from the previous week, the PE of the Junior market moved up to 15.4 from 16.4 at the close of the prior week.
The PE ratio for Junior Market Top 10 stocks average 9.1 and the main market PE is now 9.6.
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 this week.

Major shake up in Junior Market Top 10

The Junior market tumbled 5 percent during the past week and shook up the TOP 10 stock list resulting in Caribbean Cream that fell out of the list last week coming back in along with tTech, Jamaica Teas and Lasco Manufacturing with a fall in price to $3, also returned to the TOP list.
Medical Disposables moved up in price from $6.50 to $7.20 at the end of the week to exit the TOP 10. Honey Bun inched up in price and was eased out and so was Dolphn Cove that moved into the list last week and Lasco Distributors this past week. In the main market Barita Investments hit a new high during the week and moved on to be replaced by JMMB Group that closed the week at $32 after opening at $35.01.
Iron Rock moved back into the TOP 10, last week reported a small profit of $1 million in the third quarter, up from a loss of $14 million in the 29017 third quarter and a loss of $7.6 million for the nine months versus a loss of $60 million in 2017. Caribbean Cream fell at the end of the week to $5 is now showing potential gains of 160 percent and follows Paramount with 173 percent, that reported lower first quarter profits of $7 million compared to $34 million in 2017, from increased revenues but with a foreign exchange loss eating up $18 million of the 2018 income. In the main market Caribbean Cement with potential gains of 120 percent leads the main market stocks in attractiveness, followed by Wisynco with likely gains of 114 percent.
The main market closed the week with the overall PE slipping to 16 from 16.3 from the previous week, the PE of the Junior market moved up to 16.4 from 15.8 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 9.8.
The TOP 10 stocks now trade at an average discount of 44 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.

Grace, Proven, Access & Iron Rock in TOP 10

Grace Kennedy HQ

Decline in the prices of three stocks during the week and gains by others resulted in changes to the IC Insider.com TOP 10 list this week.
Grace Kennedy pulled back to $59.50 and Proven Investments down to 21 US cents and Access Financial falling, with the offer at $45.50, Dolphin Cove and Iron Rock declining to $4.50 moved into the top stock list, taking the place of Sagicor Group that moved up to $42.55 and Salada Foods that moved up to $24.95 in the main market, while Caribbean Cream that fell to $6.16 to enter last weeks’ list moved up in price to $7.68 and with a slight downgrade to earnings to 65 cents per share, fell out of the top list and Caribbean Producers climbed to $7 and is also out.
The main hit new historical highs on Friday resulted in the overall PE for the main market rising to 16.3 up from 15.8 from the previous week, the PE of the Junior market remained unchanged at 15.8.
The PE ratio for Junior Market Top 10 stocks average 9.5 and the main market PE is now 9.9, marginally higher than the prior week’s level, as the market continues to see an upward revaluation of the multiple.
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 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.

Kremi surges to top IC TOP 10

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Caribbean Cream outlet in Kingston.

Investors pushed Caribbean Cream down to $6.16 on Friday to surge to the top of the list this week, while Stanley Motta was pushed down to $4.50 to reenter this Top 10 stock list.
JMMB Group jumped sharply to close at a new record high of $37 on Friday and was pushed out of the top tier main market list while Iron Rock shot to a record $5 and dropped out of the Junior Market listing. The market could be making a big mistake with Stanley Motta that is clearly undervalued. IC Insider.com upgraded Caribbean Cream earnings to 85 cents from 70 cents with a sharp fall in the price of milk solids since May by nearly 24 percent that should cut the direct input cost of producing ice cream.
Gains in the two markets are driving the PE ratio of the market higher with the overall PE for the Junior and main market, both rising to 15.8 as of Friday, up from just over 15 last week, as the valuation multiple grows with historically low interest rates and high liquidity abounding in the financial market.
The PE ratio for Junior Market Top 10 stocks average 9.2 and the main market PE is now 9.4, just marginally lower than the prior week’s level, even as the market continues to see an upward revaluation of the multiple.
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 40 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.

Falling interest rate was huge buy signal

Apartment complex in Kingston – Real estate values to benefit from low interest rates.

Declining interest rate is a huge buy signal for both stocks and real estate investments, if the fall is expected to last. Interest rates have fallen to the lowest levels on record, in Jamaica and while the low rate of 1.7 percent in treasury bills won’t last forever, it is expected that it will not go up too far from current levels any time soon.
In May this year, Bank of Jamaica cut the overnight policy rate, by 25 basis points to 2.5 percent that along with a further decline in short term Treasury bill rates on Wednesday.
IC Insider.com stated then, that the moves provided more ammunition for a big surge for Jamaican stocks. The piece went on to state that with a 15 percent fall in BOJ’s policy rate in 2018 so far, stocks are lagging behind, with an increase of just 6.6 percent for the Junior Market and 4 percent for the main market.
The fall in Treasury bill rates was far greater than the rise of the All Jamaica Composite Index, an indication of a lot more upside for stocks based on the downward movement of interest rates.
Investors seem to be focusing more on profits in valuing stocks than on interest rates so far. That will change. The fall in the overnight rate, translates to a 9 percent rise in stock market prices, but rates seem likely to decline some more before settling off, providing more ammunition for more gains in stock prices.
We stated that with the fall in interest rates, the PE of money is at the high end 40 times income and using corporate bond 12 times, but the PE ratio should be more tied to Treasury Bill rates and that PE is now in 30 range but stocks are mostly in the low teens and below. IC Insider.com further stated that most investors did not appear to be paying much attention to the tsunami that was on the way that will see prices move sharply higher.
Some were skeptical about the assertion that the fall in interest rates could drive stock prices. The record is clear as there are two main developments that drive stock prices – interest rates and profits. With just over five months passing, investors have not only warm to the fall in rates but many are not willing to part with their stocks. Late comers to the party will pay much higher prices than in May and June. Up to Friday the Junior Market is up 24 percent and the Main market is up 31.7 percent and rising. Technical reading of the market suggest that the Main market has another 25 percent run to make before probably cooling for a charge to 720,000 points on the All Jamaica Composite Index in 2019.
The fall in interest rates makes it cheaper to buy real estate with lower interest rates for each dollar borrowed. Additionally, investors will switch funds from fixed interest investments into stocks and real estate thus driving up their values.

Review of 2018 stock market forecast

Palace hits a new high of $1,500 to be top performer in 2018 so far.

“ Assessment of the market, suggests that 2018 could be a grand year, with overall price gains likely to be in excess of 40 percent”, a quote from IC Insider.com in February, this year.
“Based on projected earnings for 2018, the average PE ratio suggests that main market stocks should grow by 26 percent. Falling interest rates could add another 20 percent to gains during the year, bringing overall gains in excess of 40 percent.”
“Technical readings of the market have the main market heading initially to around 390,000 points or 23 percent ahead of the December close, for the all Jamaica Index, before resistance sets in and then moving much higher, later on’ the IC Insider.com forecast for 2018 stated.
With almost three more months to go, before the year ends, the main market is broken through the 390,000 points mark to be up 31.7 percent for the year to date, there seems no stopping it for now.
The report in February stated that the main market was caught in a wedge formation, trading just below the upper end of channel that can be traced to late 2015. The wedge could hold the market in consolidation mode for a short time, a month or two, before breaking out, most likely to the upside.
IC Insider.com projects that many of the main market heavy weights will find it tough to repeat the strong gains they enjoyed in 2017, if that is the case, their impact on the market index is likely to be less than for 2017. Another factor that could make a repeat of 2017 tough, is the movement of interest rates. Last year, Treasury bill rates fell 29 percent from 6.56 percent to 4.83 percent, that level of decline, is unlikely to happen in 2018, even as some of the decline in the latter part of 2017 is yet to be fully reflected in the prices of stocks to date and should positively affect prices in 2018. IC Insider.com is forecasting rates on 182 days Treasury bill  hitting 3 percent by the end of the 2018 first quarter. Treasury bill rates in 2018 at 1.7 percent, have fallen more sharply than in 2017.
The original piece stated that “there are a number of other factors at play that are set to impact the market. Increasing employment is taking place with the highest number of persons employed in the country’s history. Attendant with that is the sharp fall in unemployment from more than 16.3 percent in 2013, to just over 10 percent in 2017. The annual net employment is growing around 30,000 persons per year and that could rise as the economy gains steam. This will mean more spending and increased tax collection for government. Alpart resumption of Alumina production is a big positive for the overall economy, for increased government revenues and more demand for local goods and services, some of which are provided by listed companies. The tourism sector is enjoying strong growth, apart from increasing foreign exchange intake for the country, will have direct impact on Jamaica Producers and Sagicor X Fund. Jamaica seems to be going through a construction boom with several new buildings under construction, Caribbean Cement and Berger Paints should benefit considerably from such developments.”
“More listings on the stock market will result in increased fee income for JSE and brokerage houses, from increased trading volumes.”
The TOP 10 stocks include a few surprises while there are others that sit just outside the top stocks that investors may still want to keep a keen eye on. Investors should be looking beyond 2018 as medium term gains beyond 2018 could be strong for stocks that will benefit from current developments, long term.
The TOP 10 selection is selling well below the average PE of the Main market of the Jamaica Stock Exchange at just over 6.3 versus nearly 12 at the end of 2017.

Barita last traded on the JSE as high as $20 on Friday.

Barita Investments moved more into fee based income and that is working well for them, with sharp growth, while net interest income stagnates. The prospects for continued strong growth in fee income continues with more investors seeking better returns than in the fixed interest market. The company should see a change in ownership soon and that could see a more aggressive approach to management that could optimize returns from exiting business and newer lines. Unrealized gains on investment ought to be factored into its earnings in valuing the stocks and that would boost its value considerably, the market is not paying attention.
Berger Paints is set to be a big winner with increasing sales coming from a buoyant construction sector resulting in increased profit and what IC Insider.com expects to be a healthy dose of dividend payments. It could become the next Carreras from a dividend yield standpoint but with growing profits. The company will benefit from lowering of overhead cost which was evident in 2017.
Jamaica Broilers continues to grow organically and from new business being acquired. Growth will continue as the Haitian market deliver greater returns form a growing market while the poultry demand in Jamaica continues to grow.
Caribbean Cement will benefit from lower operating cost, increased sales and a planned cut in financing of the lease which is said will cut hundreds of millions of dollars out of it cost that could come close to $2 per share per annum.
Palace Amusement Company, currently enjoying sell out cinemas with block buster hit, is one of those unusual choices. It enjoys minimal trading but it could surprise on the upside if all goes well. Growth in the economy and increased employment will help to boost patronage going forward and will aid in profit growth as well.
JMMB Group put out outstanding Q3 results with a 39 percent increase in profit and strong gains in revenues, auguring well for 2019 outcome.
The growth potential remains strong and investors in the stock will reap rich rewards down the road. Just one stock that requires patience. By the way fees and commission income jumped an impressive 71 percent to $512 million in the quarter and 53 percent in the nine months, over the similar period in 2016 and should continue to do so going forward.
Radio Jamaica continues to disappoint with below expected revenues and profit. It could return to favour but needs to generate more income from advertising. This is one to accumulate for a payoff down the road.
The other three stocks, Sterling Investments, Grace Kennedy and Sagicor Group are undervalued and could deliver some decent returns to patient investors.
Below the TOP 10 are strong candidates to deliver decent returns this year and beyond, the list includes NCB Financial that is on a strong growth trajectory and recently listed Wisynco Group that should generate earnings around $1.10 for the 2019 fiscal year that starts in July.

JMMB & Honey Bun now in IC TOP 10

Honey Bun and Medical Disposables are in this week’s Top 10 Junior Market stocks replacing Main Event and CAC2000. In the main market, Sygnus Credit and JMMB Group are back in the top tier stocks and out goes Stanley Motta and Sterling Investments.
Sterling Investments, a very long time TOP 10 listing hit a record $22.50 this past week, as investors continued to applaud the recently announced 3 for 1 stock split. In the Junior Market, CAC2000 closed at $15 and ended trading with no stock on offer. The stock seems poised for stock split, to create more liquidity and is set to trade higher this week with buying orders in for 139,000 shares at $15. The price of Stanley Motta climbed to $5.27 during the week from $4.81 in the previous week and exited the main market list.
Barita Investments and Berger Paints, long time TOP 10 listees, moved up in price during the week but still remain in the listing at position 7 and 9 respectively and could be out by the end of this week, if current demand continues.
Gains in the two markets are driving the PE ratio of the market higher with the overall PE for the Junior Market rising to 15 and the main market to 15.3 as the valuation multiple grows with historically low interest rates and high liquidity abounding in the financial market.
The PE ratio for Junior Market Top 10 stocks, average 9.3, similar to last week’s level, as the market continues to revalue the multiple higher, the main market PE is now 9.5, up from 9.1 last week, for the top stocks.
The TOP 10 stocks now trade at an average discount of 38 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, at 20 times earnings. The main market stocks trade at a discount of 38 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.

Split & rights issues for Sterling

Sterling Investments coming with split and rights issue.

Sterling Investments is considering a 5 for 1 stock split and a rights issue of ordinary shares to existing shareholders.
The company will hold an Extraordinary General Meeting at the Knutsford Court Hotel, on October 8, to consider the an increase in the authorized share capital by the addition of 1,850,000,000 ordinary shares and to approve the issue up to 2,000,000,000 ordinary shares currently un-issued, by way of a Rights Issue, on terms to be decided by the directors, including the number and price of the shares.
November 14 is the expected date for the commencement of the rights issue, Yanique Leiba-Ebanks advised IC Insider.com.
“Proceeds of the rights will be used to fund private equity and investment in some local stocks. We have been participating in IPO share issues that have done well for the fund,” Leiba-Ebanks said. So it will be more of that, going forward along with the focus on leveraged fixed income investments.

Yanique Leiba-Ebanks – AVP Pensions & Portfolio Investments
Sterling Asset Management

The issues were necessary as the company has just under 300 shareholders with limited interest in trading the stock by the general public. The company was encouraged recently to split the stock and issue more shares to broaden the shareholdings to provide a platform for more liquidity for the stock that trades infrequently.
Sterling’s fortunes will be boosted with net profit that grew by 20.5 percent in the 2018 half year, to $52 million and $27 million in the June quarter, from $25 million, in the similar period in 2017. Sterling has 59.15 million shares issued and enjoyed earnings of 87 cents for each share for the half year.
Others to expect splits from are, Barita Investments and they could well have a rights issue to fund acquisitions and other expansion and new products such a margin facilities. CAC2000 with the stock price rising into the mid-teens, Stationery & Office Supplies with the stock price expected to be priced in the teens sooner or later is expected to split by 2019. At the annual general meeting held earlier this year, shareholders were informed that the board had be looking at it but no decision was make. Access Financial directors and NCB Financial indicates that they don’t see any benefit to their company in doing a split but it only a matter of time that they will be forced to, the same applies to Palace Amusement. Some investors are of the view that with Derrimon Trading splitting  when the stock got in the teens that Caribbean Flavours is likely to follow. Investors should not ignore the possibility of Berger Paints and ISP Finance joining the queue in the near future.

Sales jump sharply at Main Event

Main Event backed with IC BUY RATED status

Growth in revenues while not an exact proxy for increased profits, is often a very good indicator of greater gains ahead. That may be exactly what is happening at the Junior market listed Main Event.
The results for the nine months to July show strong sales growth but flat profits. Revenues for the July quarter surged nearly 26 percent to $364 million, but profit fell 7 percent to $24.5 million from $26.3 million in 2017. For the nine months to July, profit was up just 4 percent to $105.5 million that flowed from a 13 percent rise in revenues to $1.07 billion, compared to net income of $101 million in 2017.
The company incurred increased cost as it seeks to expand its service offerings. The results to date suggest that the full year earnings will not vary much from the 2017 full year results of 37 cents. But 2019 could be a blow out year for them, if revenue growth seen so far for this year, continues into 2019.
Profit margin in the first half of the year, was held to the same level as in 2017, at 48 percent and declined in the July quarter to 45 percent from 49 percent in the 2017, the impact, operating profit rose just 15 percent in the quarter to $164 million from $143 million but fell to 14 percent for the year to date, to $512 million from $447 million in 2017.
Administrative expenses rose 20 percent to $111 million in the quarter and increased 15 percent in the nine months period to $311 million. Marketing and sales expenses increased by 44 percent to $15 million for the nine months. Depreciation rose 49 percent to $24 million in the quarter and increased 29 percent in the nine months to $69 million, an indication of increased capital spend to accommodate expansion and increased income. Finance cost was flat in the quarter, at $5.2 million and rose just 5 percent to $13.6 million for the nine months.
Earnings per share came out at 9 cents for the quarter and 37 cents for the nine months and should end the fiscal year around 40 cents. For 2019 earnings should be in the order of a string increase to 75 cents.
“Performance has been negatively impacted by write downs on trade receivables to align to reporting standard, IFRS 9, continued start up expenditure for new service offerings and cost with higher head counts and incentive compensation,” the Chairman Ian Blair and Chief Executive Officer reported to shareholders in their commentary accompanying the quarterly.
Gross cash flow brought in $175 million but growth in receivables, inventories, addition to fixed assets of $160 million, offset by net loan inflows and increased payables resulted in net cash flow ended at a negative $63 million and leaving $29 million in cash at the end of July. Shareholders’ equity stood at $551 million with borrowings at just $185 million, including amounts due to related parties. Net current assets ended the period at $141 million, inclusive of trade and other receivables of $304 million, cash and bank balances of $29 million. Current liabilities amounted to $209 million inclusive of short term borrowings.
The stock traded at $5.50 on the Junior Market of the Jamaica Stock Exchange with a relatively low PE ratio of 7.3 times 2018 earnings and is elevated to BUY RATED status.

Main Event & Stanley Motta in IC TOP 10

Main Event returns to IC TOP 10.

Main Event fell to $5.50 on Friday and climbed back into the Junior market IC TOP 10 stock listing, while Recently listed Stanley Motta climbed on board the main market list.
Moving on out of the top 10 are JMMB Group with a rise in the bid price to $32.70 and Caribbean Cream that closed the week at $7.90, from $6.50 last week. Both are worth watching for more gains in the coming week. Barita Investments and Berger Paints long time TOP 10 listees, moved up in price during the week but still remain in the list but could be out by the end of the coming week if current demand continues.
During the past week, the main market of the Jamaica Stock Exchange, racked up more record closes but pulled back on sharply on Thursday and Junior market hit new highs during the week but dropped sharply on Friday due mainly to Lasco Distributors falling to $3.35 and Express Catering dropping to $6.40 before rebounding at the close.
Gains in the two markets are driving the PE ratio of the market higher with the overall PE for the Junior Market rising to 14 and the main market to 14.5 as the valuation multiple grows with historically low interest rates and high liquidity abounding.
The PE ratio for Junior Market Top 10 stocks average 9.3 up from 8.9 last week, as the market continues to revalue the multiple higher and the main market PE is now 9.1, up from 8.8 last week, for the top stocks.
The TOP 10 stocks now trade at an average discount of 35 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 38 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.