Barita APO to be priced at $80

Barita Investments‘ directors have approved the issue of 125 million ordinary shares at $80 each, with an option to upsize the amount issued by 62.5 million shares to raise $15 billion in an additional public issue (APO).
The New Ordinary Shares will be reserved for the benefit of certain specified investors in amounts determined at the discretion of the Company. The APO should open on September 3, or such other date as determined by the Group Chief Executive Officer and is to close on September 21, or such other date as determined by the Group Chief Executive Officers.
The original notice to the Jamaica Stock Exchange stipulated the issue of up to 160 million units that could have been upsized 80 million shares. Since the first notice to the Jamaica Stock Exchange, on August 5, the stock price moved up from the low $83.90 to $92.77, with the proposed price being a discount of nearly 14 percent.
The company reported nine months results to June, with profit after tax for the June quarter coming in at $1.6 billion, up a strong 62 percent from $990 million reported in 2020 June quarter and ended the quarter, with earnings per share of $1.48 versus $1.21 in 2020. Earnings for the nine months ended at $3.38 per share from after tax profit of $3.67 billion, up 82 percent from $2 billion in 2020.

Big savings from Kremi’s power plant

In collaboration with Power Factor Technologies, a power engineering services company, Caribbean Cream has embarked on a major project to install a 630 kilowatt capacity Combined Heat & Power plant fueled by LNG at the company’s premises.

Caribbean Cream post big gains in profit in Q1.

The cost of the project is estimated to be just under US$2 million. The company expects to complete installation and commissioning of the power plant before the end of 2021. “While the company will remain connected to JPS, as to ensure sufficient power supply in the event of higher energy demand, we anticipate greater efficiency and increased market reach,’ a release from the company stated.
The company incurred utility costs of $204 million in the last financial year and is set to grow with more production and expanded cold storage space. Historical data indicates that water is approximately 10 percent of the utility bill; based on this, the electricity cost is currently around $180 million.
“One electricity unit for running machines and the use of heat from electrical generation to be used to heat water and oil to do pasteurization is the maximization of energy efficiency of the plan” an engineer who ICInsider.com spoke to states, the cost savings will be significant, with the estimated savings he stated could be in the region of two thirds which ICInsider.com puts at over $120 million per annum.
The company reported a profit of $101 million for the financial year to February this year, with the first quarter to May coming out at $54 million twice the 2020 first quarter profit.

30% Cement plant expansion on the blocks

Caribbean Cement Company has decided to expand its plant during the second half of 2022 to increase its production capacity by thirty percent.
The company “currently produces and supplies over One Million Metric Tonnes (1,000,000 MT) of cement to the local market annually. The planned capacity upgrade is expected to increase CCCL’s production by Three Hundred Thousand Metric Tonnes,” the company disclosed in a release to the Jamaica Stock Exchange.
“This planned capacity upgrade also involves the implementation of state-of-the-art technologies which will introduce novel grinding additives to the manufacturing process to reduce the clinker content in the cement produced by [CCC]. In addition, this upgrade is intended to minimize Jamaica’s carbon footprint by optimizing the heat consumption involved in the cement production process”, the release from the company further stated.
“The total investment for this capacity upgrade is estimated at Thirty Million United States Dollars, the Company stated. The planned expansion comes against the background of a 33 percent rise in the sale of cement by the company in the June quarter following a 31 percent increase in the first quarter and complaints by some dealers about a shortage of cement in the local market at a time when demand is at an all-time high.
The company’s shares that are listed on the Jamaica Stock Exchange closed at $94.90.

Grace closes EC Insurance acquisition

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GraceKennedy completed its acquisition of Scotia Insurance Eastern Caribbean that will be rebranded under the name GraceKennedy Life Insurance Eastern Caribbean.

Grace Kennedy HQ

According to a release from GraceKennedy, the company will continue to offer credit protection on personal loans, residential mortgages, personal lines of credit, personal and small business credit cards in the seven Eastern Caribbean countries in which it operates which are, Anguilla, Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines.
CEO of GraceKennedy, Don Wehby, states, “the granting of the necessary approvals by regulators and completion of the transaction to acquire SIECL marks the culmination of months of hard work by our team and is a major strategic move for our Group. We have been actively expanding our offerings in general and life insurance, as we see this sector as having significant opportunities for growth. GK Life will strengthen GKFG’s position as one of the leading financial groups in the Caribbean as we continue to expand our presence in the region.” In March this year, GraceKennedy announced that it had come to an agreement with Scotia Insurance Caribbean to acquire 100% of the shares.”

Fontana coming to Portmore

Fontana announced plans to open its 7th location in Portmore, St. Catherine to be located at Braeton Parkway and Municipal Drive, adjacent to the new Pricemart and is expected to be opened late 2022 or early in 2023. The branch will be a fulfillment of expansion plans announced when the company went public in 2018.
Ray Therrien, Executive Director at Fontana in commenting on the new development stated, “We’re really excited to bring Fontana to Portmore and its surrounding communities.  It’s a great location that brings with it a large population covering a wide cross-section of people, and Fontana will provide an easy, safe and convenient shopping experience.” he said. “We have been assessing the opening of a store here, and we are honored to have the opportunity to serve them with our best-in-class pharmacy services.”
Following the company’s more modern iteration seen at the uber-popular Waterloo Square store, this new addition to the pharmacy chain will include a state-of-the-art pharmacy, a one-stop beauty hub, a baby and children’s selection, an extensive home décor collection, a business centre, courier services and over 200 parking spaces.
“We plan to deliver exceptional product breadth in a one stop location; it’s what our customers expect,” said Anne Chang, Managing Director of Fontana Pharmacy. “Our strategy is to continue to improve our stores with each new location, expediting innovation to make shopping faster and easier for our customers.  Portmore will benefit from being the latest great Fontana store.”
Furthermore, the new store will also have an entire department dedicated to Jamaican Artisan products, like its counterpart at Waterloo Square; Fontana’s way of embracing and supporting Brand Jamaica. Local authors and creators, who have benefitted from using the company as a distribution chain through shelf placement, will continue to benefit in this regard.
The new location is part of a larger development project and is anticipated to open in late 2022 or early 2023.  While not committing to a specific opening date, Executive Director Therrien commented that “the company is eager to get started on fulfilling the potential of a partnership with the people of Portmore.”
Fontana presently has 6 locations dispersed throughout the island including two in Kingston, Mandeville, Montego Bay, Ocho Rios, and Savanna-La-Mar.
Investment in the new location will be in excess of $100,000,000 and employ roughly upwards of 80 Jamaicans.

Barita’ financials speak eloquently

Financial statements don’t lie; they provide a window into the stewardship of companies for good or bad. There are good management and not so good ones and the financial reports tend to separate the good from the bad. In this regard, investors need to be assured that both interim and audited results are informative and can be trusted.

Barita eyeing expansion

Unfortunately, the stock exchange relies on the ICAJ to set standards for companies to report, but these fall short of what investors need to make a proper assessment in investing. The matter of reporting on the performance of companies to show gross profits separately from pretax profit is an area that is inconsistently applied. Some companies show direct cost and gross profit so investors can see the level of contribution made before selling marketing and administrative cost.
This publication finds Barita’s financials quite up to acceptable levels with disclosures, so why are investors questioning management’s stewardship?
Directors of Barita Investments met on July 14 and are recommending raising additional capital by the Company to be voted on at an extraordinary meeting set for August 3.
The announcement coming after the third such capital raise, with the last being September last year that raised $13.54 billion. The announcement has set off a mini storm within the financial community, with questions raised about the company and what is happening there.

Jason Chambers

Some investors marvel at the approach the directors are taking to fund capital needs. Worse they are asking the question, where has the money raised in public offers gone?
Cornerstone acquired 75 percent of the company in 2019 and set an aggressive dividend policy of 80 percent of net distributable profits. Since they acquired control of the company, profit retained exceeded the total profit reported for the last few years under the former management. But those funds are inadequate to fund the company’s expansion needs, fueled by growth in some critical areas of the Jamaican economy and soon regionally.
In commenting on Barita’s investment activity over the period from its September 2020 Additional Public Offering (“APO”) to March 2021, Jason Chambers, Chief Investment Officer of Cornerstone, said that the Company has “focused on allocating capital across high conviction, value-oriented opportunities.” He cited the marked expansion in credit and investment assets, acquisition of a twenty percent stake in Derrimon Trading Company costing north of J$2 billion as examples of the results of Barita’s year to date investment activity. We have materially expanded capital to our Investment Banking business line. In line with previous guidance, we have also originated and/or acquired significant investment assets, which will eventually form the basis of the launch of new and innovative investment products and structures. We have commenced investing in our footprint expansion and technological overhaul, which we expect will require staged investments over the next several quarters”, Chambers stated.
He cited the doubling of Barita’s 6-month profits to March 2020 as being a by-product of the Company’s ability to deploy the capital it raised in the APO efficiently and profitably. We, therefore, see certain aspects of our business as appropriately funded by long term capital to reduce the risks presented by asset-liability mismatches. This has served us very well, particularly most recently during the height of the market fall-out related to the COVID-19 pandemic last year when Barita maintained healthy liquidity, said Chambers.
Barita Investments was a sleepy little conservatively run investment bank whose directors focused on maintaining the status quo rather than taking advantage of the vast opportunities in the market.

Shareholders at Barita Investments AGM.

The company has gone about raising equity capital, not debt capital, so they don’t have to worry about repayment. They can also vary the aggressive dividend policy, even though that could affect the share valuation.
The argument by investors is reminiscent of two cases. One is the pile of negative comments Access IPO received when going public, back in 2010, by persons who were not adequately informed to be commenting on the issue.  In late 2016, a leading brokerage house concluded their assessment of Barita Investments as follows, “we expect just a marginal increase in year on year net profit. Given this expectation, we estimate BIL shares to be valued at approximately $2.35 by applying the market average P/E to the estimated EPS. Therefore at a current market price of $3.10, we are recommending a SELL on BIL.” At that time, ICInsdier.com placed a BUY RATING on the stock and it occupied the number 2 spot on the main market BUY RATED list.
The rationale by ICInsoder.com, while reported profit was down to $207 million from $242 million in 2015, total comprehensive income, the better measure of profitability was $691 million or $1.55 per share, compared to $201 million, a huge increase. In 2017, traditional profit slipped to $172 million after an impairment on investments charge of $81 million, total comprehensive income ended at $492 or $1.10 per share. For 2018, reported profit jumped to $374 million and total comprehensive income moved to $736 million or $1.65 per share. The lesson, if investors look only at traditional profits, they could miss big gains.
Profit after tax rose from $509 million to $1.04 billion in the March quarter and from $1 billion in the half year ended March 2020 to $2.06 billion in 2021, helped by the improved equity base.
Revenues nearly doubled for the quarter to $2.05 billion from $1.13 billion in 2020 and from $2.26 billion last year to $4.05 billion in 2021.
Total assets are now $79 billion, up from $49 billion at the end of the year ago and $71 billion at the end of September last year. Shareholders’ equity climbed from $14.4 billion in March 2020 to $28.7 billion in 2021. When the majority shares were acquired, total assets were just $17 billion and shareholders’ equity a mere $3 billion. Pledged assets jumped from $21.5 billion in March 2020 to $47 billion in the latest quarter, while loan receivables increased from $1.1 billion to $7.3 billion.

First Citizens Bank closed at 52 weeks’ high on Wednesday.

The 2020 raise of $13.5 billion was invested in increased loans to third parties amounting to $6 billion, net investment instruments of 13 billion and a 20 percent stake in Derrimon Trading amounting to $2 billion and a reduction in amounts due for payables of $5 billion. When the company meets with its shareholders, what is planned for the new raise will undoubtedly be put on the table. In the early months of 2019, this publication pointed to sources suggesting that the first rights issue should bring in fresh capital that is primarily targeted to fund an acquisition that has Caribbean wide locations and will make a big impact on profitability when fully integrated into the existing structure if the deal goes through. ICInsider.com gathers that the deal which is yet to materialize may not be off the table but may be taking longer than originally thought possible. Any fresh raise could well bring such prospects to the fore in addition to funding normal operations.
When all is said and done, First Citizens Bank in Trinidad, a bank group with total assets of J$1,090 billion, bought shares in last year’s APO and added to it subsequently, a strong seal of approval for the strategy Barita is pursuing. With the financial muscle of First Citizens and the small size of Barita there are areas for cooperation, including partnering to acquire assets or businesses. First Citizens is in talks to acquire Scotia Bank assets in Guyana as the bank pushes its regional expansion plans. Will Barita play a major role in this?

QWI nominated for best value creation strategy

QWI Investments, a Jamaica based investment company specializing in stock market investments in jamaica, the USA and Trinidad has been shortlisted and nominated as the Best Value Creation Investment Strategy – Caribbean 2021, by Capital Finance International after just over two years of operating.
The confirmed nomination and shortlisting was driven by voting from our readers, subscribers and staff working for global organisations, Jane Cartwright, CFI Awards Liaison Officer, informed QWI recently.
QWI Investments went to the Jamaica capital market in late 2019 and raised  $900 million after the issue was oversubscribed by three times the $600 million dollars, the initial target of the IPO that attracted more than 4,800 new shareholders to the company’s list of owners.
According to CFI, their publication is supported by groups and readers such as the World Bank Group, various UN and EU bodies, as well as other prominent entities. CFI.co provides insight into some of the more complex areas of international finance and development issues both in print and online, with emphasis on identifying examples and drivers of economic convergence, by combining their journalistic experience with reports from influential organisations.
The CFI.co award selection panel utilises a wide range of criteria to help facilitate informed decisions regarding the awards, lending the critical eye of a collective 170 years of business journalism, corporate leadership and academia, to the exhaustive information gathered by the award body’s own research team including: Demonstrated Shareholder Value Creation, Growth in Enterprise Value, Customer Value-Added Products and Services, Innovations Championed by Management Team, Strategic Alliances, Partnerships and Supply Chain Management, Organic Sales Growth and/or M&A Activity, Corporate Governance and Quality and Strength of Nominations.

For 2020, National Commercial Bank Jamaica won the “Best Digital Banking Services Caribbean award given by CFI.co.

Pick up in demand for Wigton’s shares

Demand for shares of Wigton Windfarm was weak leading into the week ending June 11, with the company’s stock closing at 63 cents and trading as low as 60 cents, with only one bid of size to buy 4,847,000 shares at 60 cents each and a mere six other bids to buy 872,000 shares, with prices ranging from 50 cents to 59 cents. Since then, demand has seen a marked increase.

Wigton closed at anew high of $1

Wigton traded nearly 90% of shares on Thursday.

At that close of trading in early June, offers to sell the stocks started at 63 cents with 204,000 units and climbed to over six million at 65 cents. Since then, the stock enjoyed strong support with the trading of 55.5 million units at an average of 4.6 million per day, with the highest, taking place on June 25, with 12.6 million shares and on the 28th, trading resulted in 9.2 million units changing hands.
On Tuesday, this week, total bids for the stock are up to 21.3 million units well above the close of June 11 and offers stand at 56 million units for 59 cents up to $1.55. A total of 52 million shares are on offer below $1 at the close on Tuesday, with more than 4 million units at 60 cents, while the bids remain weak below 55 cents.
The company reported earnings of $793 million or seven cents per share for the fiscal year ending March 2021. Those results would suggest a higher valuation than its currently getting but with nearly $400 million of revenues to be cut this year with the downward adjustment to the traffic on the number two turbine, earnings for the 2022 fiscal year is set to plummet below 5 cents per share and most likely below 4.5 cents, with no short term prospect of reversing that position.

Medical Disposables acquisition expansion

Medical Disposables and Supplies entered into an asset acquisition agreement with Cornwall Medical and Dental Supplies, a Montego Bay based company that distributes island-wide medical equipment, medical disposable products as well as a wide range of dental supplies.

The Company also operates three pharmacies, two in Montego Bay and one in Savanna-la-Mar, under the brand name Corn-med Pharmacy. “The vehicle which will be used to carry the operation is a newly formed subsidiary, Cornwall Enterprises Limited, in which MDS will own 60 percent stake,” stated Medical Disposables and Supplies in a release to the Jamaica Stock Exchange.
Medical Disposables and Supplies is listed on the Junior Market of the Jamaica Stock Exchange and is a distributor of medical and Pharmaceutical supplies island-wide.

Dangers in the Jamaican stock market

Andrew Holness, Prime Minister of Jamaica, seems to want to go down in history as the PM who has divested the most government assets through the Jamaican Stock Exchange. While there are clear benefits for the country and investors, major dangers lurk around the corner for many investors.

Wigton closed at anew high of $1

Rate cut for Wigton’s number 2 turbine to cut profit by nearly $400m.

The local capital market has many challenges for investors and in some cases, it is downright ugly and terrifying. One such is Wigton Windfarm that went to the market with information in the prospectus indicating that all the energy output would be sold to JPS at predetermined prices for twenty five years for each turbine. This publication has reviewed the prospectus and cannot find any information to indicate that the rate on turbine no 2 was to be reduced effective April 2021. That information is critical and could have meant the issue price for the stock might have been inflated. Worse, investors who bought a pile of the stock post IPO around $1 region could be facing serious losses for years to come. Investors are now likely to see their investment stagnate for a long time due to the downward adjustment to the rate for the number two turbine. This is not the way to build a capital market.
The company’s 2021 audited accounts state “Wigton Phase II which was commissioned in December 2010 and supplies 18MW power to the grid. The plant was awarded the avoided rate for the energy it supplies and as per the terms and conditions of the Power Purchase Agreement (PPA), the final rate adjustment for this plant was applied at the end of March 2021. The rate adjustment will translate to approximately fifty percent reduction in the revenue from Wigton Phase II in United States Dollars. This is projected to equate to an overall fourteen percent decrease in revenue in Jamaican Dollars.”
ICInsider.com’s calculation shows the effect of the rate adjustments will reduce revenues by approximately $380 million per annum before tax and will result in net profit coming in around $470 million of 4.3 cents per share for the 2021/22 fiscal year that would put the value of the stock around at the latest price of 63 cents at a PE of 15. That would be fine if there were likely to be growth in sales.
The prospectus list a series of risks and it goes on to state that If one or more of them described in the Prospectus or other risk not mentioned were to arise, Investors could suffer a material loss of their investment.
Electricity is sold by the Company to JPS under three (3) separate Power Purchase Agreements for twenty years each. Wigton one expires in April 2024 but can be extended up to 6 years. Wigton two expires in December 2030, with an extension of up to 5 years and Wigton three expires in May 2036 with any additional period to be agreed.
According to the prospectus, “the payment for energy supplied to JPS by each wind farm is determined by a formula fixed by the relevant PPA. Each formula, while different from the others, essentially determines the price payable by reference to the energy price for the relevant month and the Net Energy Output delivered to JPS. The Company regards the pricing formula in each PPA as highly confidential and disclosure might breach the confidentiality clause in each PPA but would be highly detrimental to the competitive interest of the Company in bidding for future generating capacity”.