Juniors inch forward on Friday

Jamaican Teas traded at a new high of $6.50 after rising $1.

The junior market enjoyed a big day of trading on Friday, ending with 22,999,535 units changing hands valued at $127,583,667, compared to 4,583,153 units, changing hands, with a rise of 895 percent from the amount of $26,375,749 traded on Thursday.
Trading was dominated by Lasco Distributors with 7,130,521 units trading with a loss of 5 cents to end at $7.35, Lasco Financial with 3,895,608 shares at $3.69, after rising 6 cents and Lasco Manufacturing with 10,576,878 units changing hands with a rise of 18 cents closed at $5.18.
The junior market index climbed 15.93 points to a record close of 2,777.87 with 21 security trading versus 17 that traded on Thursday. Trading ended with prices of 9 stocks gaining and 7 declining, on heavy volumes.
An average of 1,095,216 units with an average value of $6,075,413 traded, compared to 269,597 units with an average value of $1,551,515 on the preceding trading day. The average for the month to date is 197,604 units with an average value of $1,049,152 versus 128,556 units with an average value of $662,517 on Thursday. The average for December is 131,147 units, at an average of $672,488.
The market closed with 7 stocks with bids higher than their last sale and none with a lower offer, than their last sale.
At the close of trading, AMG Packaging rose 12 cents to close at $24.52 with 700 units changing hands, Blue Power closed with 1,850 units changing hands at $37, Cargo Handlers lost 90 cents in trading 9,968 shares at $20, Caribbean Cream rose 30 cents and closed trading at $7.30 with 78,104 units trading. Caribbean Producers, traded 60,454 shares and rose 10 cents to $4.10, Consolidated Bakeries ended at $2.60 with 110,268 shares changing hands, after rising by 20 cents, Dolphin Cove lost 50 cents trading 650 shares at $14, General Accident Insurance traded 18,567 shares to end at $2.95 after falling 13 cents. Honey Bun closed with 497,760 shares changing hands, at $6.21, Jamaican Teas jumped $1 to end at a new high $6.50 with 2,000 shares being exchanged, after the company reported that the board of directors will be considering a stock split at its upcoming meeting in February. Jetcon Corporation traded 48,465 shares to end at $10 after trading at a new intraday high of $10.50, Key Insurance traded 33,300 units to close at $3 after losing 10 cents, Medical Disposables lost 25 cents to close at $4.45 with 27,900 shares changing hands, tTech traded 2,000 shares to close at $6.50. Eppley 9.5% preference share, ended with 307,319 units changing hands to close at $6 after falling 6 cents and Eppley 8.25% preference share, ended with 185,036 units changing hands to close at $6.

Berger’s stellar performance

Berger price jumped on Friday after posting strong 2016 results.

Berger Paints released results to December, showing profit of $251 million and $1.17 per share for the nine months period, versus $110 million for 2015. Revenues climbed 17.8 percent in the December quarter, to $1.9 billion or 14.4 percent from $1.67 billion in 2015.
For the quarter, earnings were $185 million versus $80 million in the 2015 quarter, with revenues climbing 17.8 percent in the December quarter to $895 million.
Berger ended with cash of $158 million in December, having generated $370 million from operations before build up in working capital. The gross cash inflows, places it in a good position to continue to pay out a rich dividend, which they should do later in the year. According to the cash flow statement, receivables jumped by $378 million over the March 2016 position. That would put it at $700 million, as of December 2016. The majority of this amount should be cleared by the end of March.
Unfortunately, the Berger report does not conform to international standards for reporting interim results. The effect is there is no information on direct and indirect cost and gross profit and the balance sheet carries little information as to the composition of the current assets and liabilities. Accordingly, investors, cannot make proper assessment of its performance.
A final dividend of 20 cents per share totalling $42.864 million was paid July 2016. The stock responded well to the numbers, with investors pushing it to a new record high of $6.75 in early morning trading on Friday, on the Jamaica Stock Exchange. IC Insider.com forecast earnings of $1.10 for the full year to March 2017 and $1.60 for the 2018 fiscal year.

Main Event priced to bounce

The Main Event Entertainment Group Initial Public offer of shares seem set to deliver a strong increase in share price once the stock list on the junior market probably in February. There are a number of positives to greet the issue.
The stock market is in a bull run currently. The stock is priced at just $2 which many small investors will be attracted to. The historical PE is just 7, compared to an average of 15 for junior market stocks, based on 2016 earnings. IC Insider.com is projecting earnings in the order of $100 million for 2017, assuming a 15 percent revenue gain, for earnings per share of 33 cents. Based on this, the stock should more than double in 2017.
The company grew revenues by 11 percent in 2016 over 2015 to an estimated $1.13 billion and by 55 percent over 2014 while that for 2013 was flat at $517 million. The company indicates that they had to recently turn away business due to capacity constraints which the fresh capital will fix.
Gross profit has been strong at 36 to 38 percent level in 2016, but it may be somewhat lower, as some items in administrative and general expenses may be directly related to events, rather than overheads.
Main Event,should benefit from the strong growth in the tourism sector and pickup in economic activity locally, that should see a greater number of Jamaicans patronising entertainment events, allowing for more events to be staged.
Importantly, the profile of the company will grow with the listing, as they benefit from daily exposure based on trading activity. The expanded directorship and regular examination of operations by the board and the infusion of capital will result in even better performance going forward and that should boost revenues and hold cost in check. This is a factor that should not be lost on investors.
Only 60 million shares are being sold, with few being available to the general public. The issue opens at 9 am, Tuesday 24 January and is likely to close at the same time. On the negative side, the company suffered a large fall in digital signage income with $75 million inflows in the 11 months to September 2016 from $139 million in the similar period in 2015. Receivables tend to be on the high side of nearly 2 months of sales, tying up nearly $100 million in excess of normal levels, while payables are running at 2.3 months at $181 million.
IC Insider.com is according an investment in the stock to be BUY RATED.

IS PE of 40 rational for junior stocks?

Honey Bun shot up by more than 500% in 2016 shortly after stock split.

Rabid speculation, seems to have hit the Jamaican stock market, with investors appearing to be just following the leader rather than making rational investment decisions. Well that is how it appears with the high valuation placed on some stocks in the local market.
Yes, interest rates are at their lowest levels in decades, the Jamaican dollar hit rock bottom and bounced and business confidence as measured by the stock market, is at an all-time high. Even then there is little rationale for Cargo Handlers to be selling at a PE of 38 based on estimated 2017 earnings and worse, 51 times 2016 earnings.
IC Insider.com checked with an officer of the company, to get an understanding as to what was going on with the stock. Are profits running well ahead of 2016, there was no evidence of that, according to the company, operations are running close to that of 2016, was the response. Are there expansion plans on the table? The answer was there are no such plans in the works. Well, it could be the fact that the economy of Montego Bay where the company operates, is said to be growing at 7 percent per annum, be a factor. Some persons think it may be the dividend yield, but that makes no sense whatsoever as the yield would be a mere 2 percent, at the present stock price if all profit of 41 cents per share for 2016 were paid out. The only answer, the stock appears cheap to many, in dollar terms with the 10 to 1 stock split that took place in late 2016 and supply continues to be relatively low.
The stock is selling well in excess of the average market and the next highest valued in the junior market, Honey Bun that is at a PE of 21 based on 2016 earnings but a more moderate 14 times projected 2017 earnings.
It not surprising that Cargo Handlers heads the list of most overvalued stocks on both the main and junior market.
The comapnys reported profit climbing 25 percent for their September quarter last year and 31 percent for the full year before taxation and could result in earnings of 55 cents per share for 2017. That would still leave it with an eye popping PE of 38 times current year’s earnings. At this level of PE investors are assuming that profits will be rising around 38 percent per annum for a while and that does not seem rational, if that were the case, then Access Financial should be selling around $137 per share, with earnings seemingly likely to grow around 30-40 percent per annum for a while.

Jetcon Flavours in TOP 5

There were few changes in the TOP 5 listing this past week, but Jetcon fell out of the list having climbed to $7 at the close of the week, to help flavour in Caribbean Flavours into the top list.
Price movements saw Access Financial edging towards the exit with the bid now at $26.50 and buying pushing the price up during the week as a connected party bought stock at $25.50. The stock last traded at $25.20 and closed without any stock being offer for sale.
The stocks of the main market listing, remained without change but Cement saw its price moved up to close out the week at $36 as well as did JMMB Group with heavily trading during the week.

Paramount exits TOP 5 overvalued stocks

Paramount

Paramount Trading is out of the TOP 5 junior stocks to avoid, even as it just reported reduced profits for both the first and second quarters of 2017 fiscal year. Second quarter earnings slipped from $47 million to $37 million and for the year to date, it fell from $89 million to $52 million.
Iron Rock Insurance entered the junior list as operating results fall behind forecast.
There seems to be little rationale for Cargo Handlers to be selling at a PE of 35 based on estimated 2017 earnings and worse 51 times 2016 earnings. The stock is selling well in excess of the average market and the next highest valued in the junior market, Honey Bun that is at a PE of 21, based on 2016 earnings but a more moderate 14 times projected 2017 earnings.
It not surprising that Cargo Handlers heads the list of most overvalued stocks on both the main and junior market, followed by Kingston Wharves and 138 Student Living.
Iron Rock projected losses in the prospectus for 2016 of $30 million and a small profit of $3 million which includes foreign exchange gains of $7 million in 2018. Year to date losses to September last year, are running well ahead of the prospectus’ forecast with losses of $38 million with the September quarter’s losses ended at $14 million. More worrying is that projections of gross premium income of $169.36 million in 2016 rising to $414.97 in 2017 are well off what seems to be occurring in 2016 with results for the nine months showing gross premium of just $59 million well below forecast by $110 million. With all of this happening investors pushed the stock up to $4 for a premium above the listed price.

Added cost hits Kremi’s profit

Caribbean Cream (KREMI) sales are still growing but it reported a fall in earnings of five cents for its third-quarter ending November 2016, down from 10 cents a year earlier.
The ice cream company packed on more expenses during the quarter as it secured a distributor and launched a new coffee-rum product while incurring added cost from repair of equipment.
Over nine-months, the company earnings are still up at 36 cents from 33 cents a year earlier in spite of the reduction in the third quarter.
Quarterly revenues rose 5 percent to $271 million from $258 million but the cost of sales increased, cutting gross profit down 13 per cent to $89 million. The increase in direct cost stemmed primarily from increased repairs and maintenance, some of which were unscheduled.
Revenues for the nine months rose 8.3 percent from $818 million to $886 million while profit moved to $137 million from $124 million for the 2015 period. The company is yet to increase prices for its product after an increase two years ago, but are constantly assessing the possibility of doing so, subject to feedback from the market. But Kremi seems to have lots of room to adjust prices with the Nestles’ Buckingham selling a 946 milli-litre container at $802, while Kremi sells at just $421 in the supermarket. With continue attractive growth in volumes they may be reluctant in moving prices as they gain market share.

Caribbean Cream is one of NCBCM’s recommendations

“Selling and distribution costs in the quarter increased by 38 per cent or $3.8 million as a result of increased marketing expenditure which included the launch of our new coffee rum cream in pints and quarts. We are also outsourcing the delivery of our products. We are anticipating greater efficiencies in the distribution of our products,” said management.
Sales are still going ahead of last year Christopher Clarke told IC Insider.com in response to questions posed to him. We had a series of breakdown of equipment and our two year scheduled maintenance occurred in the quarter Clarke advised.
Sales over the important Christmas period and gross profit continue to be satisfactory, but raw material cost inched up a bit Clarke indicated.
In light of the lower than expected third quarter numbers, IC insider.com revised its estimate for earnings to 55 cents for the current year ending in February and 90 cents for 2018.

Is C&W buy out back in vogue?

Cable & Wireless HQ – The company’s stock traded at a high of $1.87 in November 2014.

Interest in buying shares of Cable & Wireless at the end of 2016 was lukewarm at best, with sellers out numbering buyers 2 to 1, after 7.6 million units were sold as low as 72 cents on the last day of 2016. On January 11, more than 51 million shares traded between 87 cents and 92 cents, including a 40 million cross by Mayberry Investments.
On Friday last, the stock traded 603,857 units between 92 cents and $1.08. The order book for the stock changed markedly, from a bearish posture to a more aggressive one. Unlike the end of January when sell orders dominated buyers, the situation at the close on Friday was reversed, with buyers almost twice the number of sellers. Importantly, Mayberry’s 30 million units sell order at $1.50 for own account, is removed.
The market activity, suggests that something major is in the offing. In 2015, a group of large minority shareholders approached Cable & Wireless PLC to buy their shares. The Liberty Global takeover of the London listed company intervened. Local investors were expecting that the local company’s minority shareholders would have been made an offer for their shares. After not seeing an offer, interest in the stock fell and took the price with it, down to 65 cents. IC Insiders’ source indicates that a potential offer is likely to be in the making.
Cable and Wireless struggled for years as Digicel, its main rival, clobbered it in the Cell phone market, but the company has been making big strides in reversing the trend. In addition C&W that focused attention on data service, is seeing that strategy paying rich dividends. The company reported just a small loss of $200 million in the September quarter and seemed to be on the way to making positive profit for 2017 onwards, with revenues growing 15 percent in the quarter and 13 percent for the six months. On the other hand Digicel is struggling as the market has moved towards data than voice and C&W grabs a larger share of the mobile market locally, leading Digicel to be looking at a sharp cut in staff numbers in the not too distant future.
With revenues likely to continue to grow for a while, around $3 billion per year, C&W seems on target to make huge profits down the road, with the prospects of big gains in the stock price ahead. Not many investors seem to see this picture, instead they focus on the short term developments, raising foolish questions about dividend payments and debt, when the two can’t be avoided. Under the companies Act dividends can’t be paid based on the large accumulated losses that have to be cleared first, while debt has been used to support the operations while it went through restructuring. The company is now cash flow positive and that should lead to debt reduction going forward subject to any large acquisition. Some minority shareholders who sought legal advice indicates that there were transactions that were effected that were not in the interest of the company.

Kingston Properties buys Cayman

One of Kingston Properties units at Red Hills Rd, Kingston

Kingston Properties (KPREIT) completed the acquisition of a fully tenanted, mixed use building located in the West Bay Beach South area in the capital of the Cayman Islands.
“The building comprises offices, retail outlets and residences along the famous Seven Mile Beach corridor, an area that has seen significant infrastructure improvements, as well as new luxury resort and condo developments over the last three years,” KPREIT disclosed.
“This acquisition represents KPREIT’s first foray into the Cayman Islands, which is a country with a per capita GDP of USD58,856 and one of the leading financial centres of the world, offering a tax free environment with no property, income, corporation or capital gains taxes. GDP growth for the first half of 2016 is put at 3% on an annualized basis with unemployment of 3.9%.
KPREIT in their release to the Jamaica Stock Exchange indicated that “The fundamentals in Cayman are expected to continue to improve based on the growth in the Special Economic Zone near the South Sound, planned expansion of the International Airport, construction of a new cruise ship pier in Georgetown, expansion of the highway in the general West Bay Road area, along with continued resort and condo developments along the Seven Mile Beach corridor”.
“This acquisition is part of our strategy to continue to broaden our geographic reach as well as diversify the mix of property types in our portfolio. In addition, this continues KPREIT’s philosophy of multi-tenant rental properties as a means to mitigate vacancy risk, as well as hard currency rentals as a hedge against devaluation,” the KPREIT release stated.

C&W CEO Gary Sinclair and also chairman of Kingston Properties

For the nine months ended September 2016, KPREIT posted profit after-tax and comprehensive income of $131 million and $180 million, respectively. In the previous year, losses of $51 million and a loss in comprehensive income of $28 million, were incurred respectively, for the same period. The
For the third quarter 2016, group profit amounted to $14.0 million compared with a loss of $4.5 million for the similar period in 2015. Total comprehensive income for the quarter increased from $5.8 million in 2015 to $25.4 million in 2016. Higher rentals, net finance income and foreign currency translation gains in 2016 were primary drivers of the improved performance.
The group’s Investment Properties valued increased 56 percent to $1.93 billion at September last year, but mostly from acquisitions.
Kingston Properties which trades on the Jamaica Stock Exchange closed on Tuesday at $9 with 11,779 shares trading.

Cemex hikes offer for TCl shares

Trinidad Cement shares in play.

CEMEX today announced that its indirect subsidiary, Sierra Trading (Sierra) is amending the offer that was presented on December 5, 2016 to shareholders of Trinidad Cement (TCL), to acquire up to 132,616,942 ordinary shares in TCL.
If acquired together with Sierra’s existing share ownership in TCL of approximately 39.5 percent, would, result in Sierra holding up to 74.9 percent of the equity share capital in TCL.
Sierra will increase the offer to TT$5.07 in cash for each TCL’s share from $4.50 previously, a price that Ernst & Young said was inadequate and rejected by the directors. It is unclear if the revised offer will be found to be palatable to the directors and shareholders. The prospects for the company appear to be such that a much higher price may well be warranted.
Among other conditions, the Offer, as amended by the Amended Offer, will be conditional on Sierra acquiring at least an amount of TCL shares that would allow CEMEX, for financial reporting purposes, to consolidate TCL. Unless extended, the Offer period, as amended by the Amended Offer, is expected to close on January 24, 2017 at 3.00 p.m. Trinidad and Tobago time. Sierra does not currently expect to extend the Offer period after January 24, 2017. All other terms and conditions of the Offer not modified by the Amended Offer remain unchanged.
If the Offer, as amended by the Amended Offer, is successful, TCL will continue operating as usual. Additionally, TCL will be maintained as a publicly listed company on the Trinidad and Tobago Stock Exchange with the benefit of a strong local shareholding together with the enhanced benefit of proven management and operational expertise from CEMEX.
TCL’s main operations are in Trinidad and Tobago, Jamaica and Barbados. TCL is the majority shareholder of Caribbean Cement Company Limited (“CCCL”), a main cement producer in Jamaica.
As of September 30, 2016, TCL and its subsidiaries had EBITDA of approximately US$77 million for the last twelve months, net debt of approximately US$113 million, representing a net financial leverage of approximately 1.5x the Cemex release stated.
CEMEX is a global building materials company that provides high-quality products and reliable services to customers and communities in more than 50 countries. CEMEX has a rich history of improving the well-being of those it serves through innovative building solutions, efficiency advancements, and efforts to promote a sustainable future.