IC Insider.com said last week, the main market sits just below the critical 290,000 point mark and seems headed to break through that level, based on the shortage of supply for Scotia Group shares.
During the past week the All Jamaica Composite Index (AJI) surged to 296,779.53 during trading on Thursday.
The AJI high of the past week is just shy of the 298,000 points the report stated the cut in BOJ’s bench mark rate would translate to. Having broken through the critical 290,000 points resistance level it looks like the main market is free to move to the next resistance level around 370,000 points. The junior market on the other hand raced ahead of the main market earlier this year and is struggling currently as a number of the stocks were pushed to values well ahead of the rest of the market and have been undergoing downward adjustment. The other factor is that many investors are not looking ahead as to what earnings could be. The recent trading of Stationery and Office Supplies is a case in point. Demand fell away ahead of the release of half year results, only to climb after the company released strong growth in profit, suggesting it could be just slightly ahead of IC Insider.com’s original forecast of 40 cents per share. This is not the only case of investors currently miss pricing stocks, but time usually takes care of it.
Buying came in for Barita Investments that returned to the top list last week pushing it out of the list once more, as some buying came in for the stock even with increased selling and Sagicor Group returned to the listing having been pushed out in the prior week.
The average PE ratio for the Junior Market Top stocks is at 7.3 and the PE for the main market TOP 10, ends the week at 6.9. The average PE for the overall main market trades at 13.2 and 13.2 for Junior Market, based on 2017 estimated earnings.
At the close of the week, IC Insider.com’s TOP 10 stocks now trade at an average discount of 45 percent to the average of the market for Junior Market Top stocks and it remains at 48 percent for the main market.
NCB’s eye-popping $1,200 in 5 years
“Unless something changes, NCB Financial Group is the best buy on the Jamaica Stock Exchange and will be for the next 5 years. My exit price? $1,200!” That is a recent quote from a seasoned financial analyst.
That is astounding, for a stock that traded on the Jamaica Stock Exchange just below $90 this past week and around $95 on the Trinidad market and was selling at $19 at the start of 2015. To reach $1,200 in 5 years, would require growth in profits averaging close to 30 percent per annum and the PE ratio rising to match that growth rate. If that were to happen it would mean that $100,000 invested now in the stock, would be worth $1,348,314 in 5 years.
How possible is that? First with interest rates receding to lower levels than they have been recently and seems poised to fall some more, PE ratios for stocks will increase. Not only will they increase but demand will increase for good quality stocks that are enjoying robust growth.
NCB delivered net profit of $14.7 billion for the nine months to June, this year, an increase of 48 percent over the prior year’s nine months profit of $9.9 billion. In the June quarter, profit grew 33 percent over 2016. Loans, the major fuel for growth in profits, increased a very strong 18 percent, year over year, in an economy that is probably growing around 2 percent in real terms.
If growth were to pick up, and that seems likely, with several major projects on the drawing board to commence sooner than later, with some already started, then lending could picked up even more, boosting profit in the process.
In this regard, investors should not ignore Sagicor Group that reported profit jumping 31 percent to $5.65 billion, for the six months to June this year over 2016, with a 5 percent rise in revenues to $30.36 billion and was negatively affected by realized losses on securities that were sold. In the June quarter revenues slipped to $15.1 billion from $15.29 billion in 2016, as net investment income dropped from $5.55 billion to $4.24 billion, but net profit increased from $2.4 billion to $3.06 billion. While growth in insurance premium is important to fuel continued gains in profit, it is the ability to manage the investment funds effectively that will generate the growth that will make the stock price move.
Sagicor not only has the life assurance arm, but a commercial bank as well, health insurance and manages pension and other funds and a property development and management division.
Interestingly, these two companies are heavy dividend payers, investors stand to gain from sharply higher dividend income if the profit continue to grow close to current levels.
Watch impact of interest rate cut
Lower interest rates make real assets more valuable than before, as such the biggest change to stocks this coming week may well be guided by the recent cut in interest rates, with Treasury bill rates falling and the Bank of Jamaica cutting its overnight rate by 25 basis points.
At the close of last week, Caribbean Cream closed at $6.20 and helped to return it to the TOP 10 list, replacing Lasco Financial with its price rising to $4 from $3.40.
There were no other change to the two listings at the close of the week, even as the main market of the Jamaica Stock Exchange closed to week at record new high. For the coming week the cut in interest rates by Bank of Jamaica as well as a fall in the most recent Treasury rates could well positively impact prices.
The average PE ratio for the Junior Market Top stocks is at 7.5 and the PE for the main market TOP 10, ends the week at 7.3. The average PE for the overall main market trades at 13.6 and 13.3 for Junior Market, based on 2017 estimated earnings.
At the close of the week, IC Insider.com’s TOP 10 stocks now trade at an average discount of 44 percent to the average of the market for Junior Market Top stocks and it remains at 46 percent for the main market.
JMMB pretax profit up 16%
JMMB Group posted a 16 percent increase in pretax profit, for the June 2017 quarter over 2016, but increased taxation left shareholders with a much smaller 4 percent increase to $617 million, as taxes climbed from $264 million to $381 million.
Net revenues jumped 19.4 percent to $4.1 billion from $3.44 billion in 2016, operating expenses rose even faster at 20.5 percent to $3.1 billion. Net interest income improved noticeably, moving from $1.55 to $1.9 billion as interest income grew to $1.96 billion, from $3.62 billion and cost fell modestly to $2.04 billion. Gains from securities trading rose to $1.54 billion from $1.1 billion but with revaluation of the Jamaican dollar, the group earned $238 million in the quarter, down from $443 million as the group also benefited from one off gains in 2016.
The Jamaican operations contributed 23 percent to growth in operating revenues, putting it at 75 percent of overall group revenues while Trinidad with its economic challenges, remained flat with just a one percent increase and Dominican Republic generated an increase of 18 percent.
Growth in managing pension funds, unit trust and money market funds, with assets under management moving from $89.5 billion in June 2016 to $114.75 billion helped in moving fee income up from $298 million to $364 million over the same period.
The group gained commercial banking license approval in Jamaica, in the September quarter, started to convert some branches to accommodate the new thrust and were also preparing for the roll out of their pension fund management in the Dominican Republic.
Total assets grew from $252 billion to $268 billion between March this year and June, shareholders’ equity moved from $25.9 billion to $26.8 billion including $2 billion in investment revaluation reserves at June this year, lending was almost static at $48 billion versus $47 at March. Investment in resale agreements stood at $173.8 billion versus March’s $172.5 billion. Customers’ deposits rose to $50.87 billion from $49 billion in March, while securities sold under repurchase agreements stood at $169.5 billion, up from $156.6 billion as of March, representing a fairly significant increase of $14 billion in just one quarter.
On Monday, JMMB Group closed at $21.50 on the Jamaica Stock Exchange and TT$1.20 (J$22.80) in Trinidad on Monday. IC Insider.com projects earnings of $3 for 2017 up from $2.03 as of March this year, putting the PE at 7 times the March 2018 earnings. The stock continues to be IC Insider.com BUY RATED.
Lasco Financial setting for profit explosion
Revenues at Lasco Financial Services jumped 22.4 percent for first quarter over the similar 2016 period to reach $319 million for an increase of $58.5 million, but importantly trading income climbed 31 percent to $303 million.
According to Managing Director, Jacinth Hall-Tracey “this result represents year over year growth of and is being driven by our strategy of expansion which began in the previous financial year”.
Profit before taxation, moved from $69.7 million in 2016 to $81 million, a 16.5 percent increase with profit after tax increasing 15.8 percent to $66.9 million, compared with the corresponding financial period and resulting in earnings per share of 5.4 cents.
Total Expenses grew 24.6 percent over the 2016 quarter to $238 million with Selling and Promotion cost rising by 31 percent. The increase was “largely driven by increases in Selling and Promotion as we continue to push the LASCO Money consumer facing brand name. This brand has resonated well with our customers and has enabled us to fully explain all our services. Previously, most customers were only aware of our Cambio and MoneyGram services. This brand awareness has been paying off in the increased transactions in all our locations as our customers embrace our more friendly community brand,” Hall-Tracey advised shareholders in a release accompanying the financials.
In the previous financial year, Lasco began the implementation of a strategy to expand the Loans Division by adding a Business Loans Unit. This expansion gave rise to several new loan offices as well as an increase in administrative and sales staff. Increased focus on lending, resulted in 70 percent growth in the loan portfolio that should move the portfolio in the region of $340 million. At the end of March loans amounted to $282 million up 43 percent over the $197 million due at the end of March 2016, no figures for loan is disclosed in the quarterly.
The balance sheet shows assets of $1.54 billion, cash funds of $574 million and stockholder’s equity of $1.22 billion.
IC insider.com is forecasting earnings per share of 30 cents for 2018 and should go on to about double in 2019. Lasco Financial last traded on the Junior Market of the Jamaica Stock Exchange at $3.55.