JSE could face law suit over Knutsford

IC Insider understands that Proven Wealth received a letter from the Jamaica Stock Exchange (JSE) indicating that Knutsford Express failed to be approved for listing under the junior market rule 501 governing listings.

Christopher Williams, CEO of Proven Wealth, stated that the brokerage firm received the letter from the JSE to which their lawyers have responded. According to Williams, “the lawyers pointed out in their response that the company qualified under section 502 of the listing” amongst other issues.  This is in keeping with IC Insider’s report of Tuesday December 31, the day the listing was turned down. The stock exchange is being given the opportunity to respond before more drastic action, if needed, is taken, Williams stated.

The development is black eye on the Jamaica Stock Exchange, the sponsoring broker and an embarrassment to all concerned with the capital market. The stock exchange and the Financial Services Commission would have reviewed the prospectus and ought to have been aware of any deficiencies that could have derailed the listing before giving the approval. Nevertheless the JSE gave their approval subject to the listing committee meeting. The process is backhanded, which is a view that Williams is in agreement with. The approval of the powerful listing committee should have been done ahead of the IPO and not after, with the JSE executive to ensure that administratively all the post-IPO conditions were met.

KnutsfordBus150pxThe Rules | The preamble to the rules states: For the purposes of initial admission, an eligible company shall issue its participating voting shares by way of an initial public offering in accordance with the requirements set out in Rule 502.

Section 502 states: An eligible company shall, for the purposes of its initial admission, issue participating voting shares by way of an initial public offering subject to a prospectus seeking a minimum subscription of new shares (or allotment of existing shares) of not less than J$50 million and not more than J$500 million only.

Rule 501 Minimum Requirements differs from 502 with the former saying: No request for the initial admission of any eligible company will be considered by the JSE unless the eligible company has demonstrated to the satisfaction of the JSE that, following its initial public offer:

  1. It has not less than 25 participating voting shareholders who hold, in aggregate, not less than 20% of the fully paid, subscribed participating voting share capital; and
  2. The fully paid, subscribed participating voting share capital is not less than J$50 million and not more than J$500 million, and such capital is fully paid.

Discretion of the JSE | (a) Initial admission of any eligible company to the Junior Market shall be in the absolute discretion of the JSE. (b) For the purposes of (a) above, the JSE may waive or supplement the provisions of certain of these Junior Market Rules as it sees fit.

In summary, the JSE had the power to use the discretionary clause with conditions for the company to increase the issued capital.

Related posts | JSE rejects Knutsford Express | Knutsford Express share allotment | Knutsford IPO gets in before door closes

Image courtesy of StuartMiles/FreeDigitalPhotos.net

JSE rejects Knutsford Express

Investors in the latest IPO to hit the market Knutsford Express may have to wait awhile to see their shares listed on the junior market as the Jamaica Stock Exchange (JSE) this morning rejected the application to list only a few days after the sponsoring broker Proven Investments advised the stock exchange that the IPO was officially closed at 4:00 pm Friday, December 27, 2013 and that the offer has been fully subscribed. The company was trying to beat the December deadline in order to enjoy the ten years tax holiday.

The stock exchange deliberated for a long time on Monday but came to no decision as the company did not meet the minimum requirement of issued share capital of $50 million. The stock was included in the list of companies for trading at the end of Monday with the symbol KEX, but when trading started today, it was no longer in the list of tradable companies.

This is the first time in the stock exchange history that a company has gone to the public and raised the required sum as set out in the prospectus that the stock exchange has refused to approve the application. The development is black eye on the Jamaica Stock Exchange and the sponsoring broker. The stock exchange and the Financial Services Commission would have reviewed the prospectus and ought to have been aware of any deficiencies that could have derailed the listing before giving the approval.

KnutsFordExpressIt appears that the stock exchange could have sanction the go ahead for listing as Section 502 of the rules governing listing of junior market companies states:

An eligible company shall, for the purposes of its initial admission, issue participating voting shares by way of an initial public offering subject to a prospectus seeking a minimum subscription of new shares (or allotment of existing shares) of not less than J$50 million and not more than J$500 million only.

It appears that the company complies with this provision. The problem is that the issued value of the shares on its books after such issue would only amount to $25 million even as the equity of the company would be more than $100m.

Related Posts | Knutsford IPO gets in before door closes

Photo courtesy of Knutsford Express social media 

Knutsford IPO gets in before door closes

Investors will have just one day to subscribe to shares in Knutsford Express, the latest IPO to hit the market, that is scheduled to open on December 27 as the company gets in just before the door closes on the 10 year tax break for junior market companies. The issue is scheduled to close on the same day.

The Company invites Applications on behalf of itself and the founding shareholders for 20,000,000 Ordinary Shares in the Invitation of which 4,867,338 shares are newly issued shares for subscription that will raise net of $20 million for the company and 15,132,662 shares are existing shares of the current shareholders. At the end of the IPO, the total number of shares issued will be 100 million, an increase from the 95,132,662 now in issue.

The Company intends to use the proceeds for working capital support, acquisition of one new coach and upgrade of existing coaches and payment of the expenses of the Invitation, estimated not exceed $4 million. Applications from the general public must be for a minimum of 100 Ordinary Shares and be made in multiples of 100. A processing fee of $110 per Application is payable to the Registrar of the Company (JCSD) and is payable by each applicant. Proven Wealth are the brokers for the issue.

KnutsFordExpressFree Advertising | This company should be known by most as it earns free publicity just by its vehicles plying the routes proudly displaying its name and logo for all to see. Many have seen it between Kingston and Monetgo Bay and recently from Kingston to Negril. Knutsford Express seems set to be the next company to list on the stock exchange as it seeks to raise only a small sum for itself and some for its owners. The company, which has reported a profit from 2009, has filled a big gap left by Air Jamaica Express ending service between to two major cities. Customers seem to be impressed with the quality service and timeliness and the growth speaks volumes.

Revenue has increased by 27 percent in 2010 to $99.4 million from $78 million and in 2011 the growth inched to 28 percent to $127.5 million and jumped by 33 percent in 2012 to $170.4 million. In 2013 it moved to $203.2 million and increase of 19 percent, the slowest year so far.  Profit rose from $7.9 million in 2009 to reach $51 million in 2013 with growth of varying percentages for each of the years.  The last being 2013, with an increase of $30 million or 135 percent.

Revenues | Revenue of $ 71 million, a $17 million or 31% percent increase was generated for the first quarter of the 2014 financial year compared to the similar period in 2013 and flowed primarily from an increase in business from existing routes. Management projects further growth in revenue from the South Coast expansion in the third and fourth quarters. However, the expansion has led to an approximate $18 million increase in administrative and general expenses.

The Company recorded other income of $4.7 million derived from settlement of an insurance claim and as at August. Profit before tax stood at $21 million, a twenty-five percent (25%) improvement compared to the first quarter of 2013. Without the insurance inflows earnings would have been flat with 2012 of $16.7 million. The first quarter numbers suggest profit from ongoing operations of approximately 70 cents per share, that may be a tad high with seasonal factors affecting revenues and cost.

Asset base grew by fifty-two percent predominately due to growth of the fleet or “investment properties” which increased by twenty-one million to $75 million. In addition, accounts receivables grew to $18 million stemming from a deposit made on a coach. Approximately $8.8 million is due from Total Waters Limited, a related party, and settlement of this amount is expected in the third quarter of 2013/14. “There was also an inflow of $40 million from a facility used to expand our fleet for which a restriction was placed on a term deposit.” the company stated. Shareholders’ equity expanded to approximately$105 million. Loans payable of $49 million and cash funds of $15 million were on the books at the end of August. Current liabilities stood at $13 million and is mostly tax payable, while current assets stood at $61.5 million.

KnutsfordBus150pxWho are they | Knutsford Express Services is a transportation company dedicated to offering customers an intercity luxury coach experience in Jamaica. The service began on June 1, 2006 with twenty-eight (28) departures weekly between Montego Bay and Kingston and now have one hundred and five (105) departures weekly and expanded this reach to Falmouth, Negril, Savanna-La-Mar, and Mandeville. The Company is required to hold Express Carriage Licenses for each bus in its fleet. Carriage licences are issued by the Transport Authority and are renewable on March 1st each year.

Principals & Directors | Oliver Townsend is the Managing Director and Chairman of the Company. Mr. Townsend has served in the Tourism & Service Sector for over 24 years in various management capacities including those that involved marketing locally & overseas. His career began in Caribic Vacations, a family-owned Destination Management Company, where he served as Director of Transport and C.E.O.

Gordon Townsend is a Director and Company Secretary of the Company. Prior to joining the company he has served for over 40 years in the Tourism Industry where he has held numerous positions. His career in tourism began as a hotelier where he served as Managing Director of Montego Bay Club Resort for 11 years. In 1982, he shifted his focus to his own newly formed company, Caribic Vacations, a Destination Management Company which provided hosting, transportation and other holiday services to the Tourism Industry where he remains as Chairman.

Anthony Copeland is a Director of the Company with special focus and responsibility on Operations, Maintenance and Standards. Copeland began his career in the Private Sector at Manhattan House in the area of Marketing before leaving to serve his country, which led to 18 years in the Jamaican Defense Force in the Engineering Regiment. With this expertise gained in Transport and Logistics his career led him in 1996 to become the Technical Advisor in Metropolitan Management Transport Holdings.

Peter Pearson is a graduate of Cornwall College and a graduate of the University of West Indies from which he holds a BSc. Peter is a Fellow of the Institute of Chartered Accountants and a Fellow of the Chartered Association of Certified Accountants. He retired as a partner of PricewaterhouseCoopers in 2013.

Mr. Wayne Wray is the Mentor to the Board for the purposes of the Junior Market Rules and has several years’ experience within the financial sector.

Stock Value | The stock is priced around 7 times 2014 earnings before taxation, which is not highly attractive but appealing with the rate of growth they have been enjoying, although that could slow down as the market matures.

Price to book is 5 to 1, which is somewhat on the expensive side compared with other junior market companies but the growth makes up for it. It appears that investors should hold some of these but don’t expect a ton loan of gains in the short term.

D&G $1billion pay day

Desnoes and Geddes (“D&G”) advised the Jamaican Stock Exchange that they have sold their 5% shareholding in Brasserie Nationale d‟Haiti (“BNH”) and their 10% shareholding in Windward & Leeward, St Lucia (“W&L”) to Heineken (“HKN”) on 19th December, 2013 for a total value of J$982,486,000 (US$9.26 million).

“This is the right time to dispose of these minority shareholdings as we have ambitious plans for Red Stripe with several major initiatives being undertaken. These include the installation of our co-generation plant, plant optimization and Project Grow, which is the conversion to locally sourced raw materials. We are focusing on growing the Red Stripe business locally and internationally,” commented Cedric Blair, Managing Director of Red Stripe.

D&GRedStrip_Banner600x250“The breweries in Haiti and St. Lucia will continue to brew Guinness under license for Diageo, in addition to the other licensed breweries in Guyana, Trinidad, the Bahamas, St. Vincent, Belize, Grenada, St. Kitts, Barbados, Panama, Dominica and Antigua.” added Blair.

The sale is not a surprise as the company had reflected the values as investment available for sale in the last audited financial statements at a value of $960 million. The value was determined by professional business valuators based on an a recent bid made for the shares by a third party, suggesting the company’s intension to sell.

Related posts | Profit inches up at D&G | D&G poor 4th quarter

KLE: Are they fleeing a sinking ship?

Yet another director of KLE Group has jumped ship. The latest resignation is that of N. Patrick McDonald, who has resigned as a Director with effect from December 15, 2013 and as Member of the Audit Committee with effect from December 15, 2013. This comes on the heels of the resignation of Joseph M. Matalon as a Director and Chairman also with effect from December 15, 2013.

KLE Group Limited, which went on the market at an overpriced company, has seen a worsening financial outcome before and after listing. The situation is so bad that they have melted away the funds received in the IPO, having lost $48 million to September this year, leaving $16 million in cash funds compared to $81 million at the end of December last year. Borrowed funds increased by nearly $15 million, which helped to keep the cash on hand at the September level while payables have climbed by $29 million. There were no signs that things were looking better based on the September quarters numbers. To be fair, there was spending of $84 million on acquisition of fixed assets and an asset classified as the Bessa Investment.

The first director to pack up is Garfield Coke who tendered his resignation from the Board and from the Audit Committee as of November 20, 2012.

Related posts | KLE continued losses push Matalon |  Bolt won but he could still lose | KLE Group — to buy or not?

JSE ticker tape

Medical Disposables IPO closed | Medical Disposables IPO closed this morning just after 9:00am and shortly after the official opening, IC Insider have been informed. The company placed 63.157 million shares on offer at $1.83 to raise $115 million.

Guardian leaves us | Guardian Holdings will no longer be available to trade on the Jamaica Stock Exchange as the company has applied for the shares to be delisted effective end of December. The stock is still available for trading on the Trinidad & Tobago Stock Exchange where the company is mainly listed. The delisting means less listing fees for the JSE come 2014.

Sagicor Group list by year end | Sagicor Life is expected to be delisted from the JSE by year end. IC Insider gathers that the JSE gave approval for Sagicor Group the direct parent company for Sagicor Life and Sagicor Investments to be listed and Sagicor Life to be delisted. Existing shareholders of Sagicor Life will receive shares equal to their existing holdings in the new company.

Related posts | Medical Disposables, OK not great

TCL likely to lose shareholder’s battle

Trinidad Cement Limited (TCL) has been in a battle with some local shareholders who want representation on the company’s board of directors. This group of minority shareholders requested that the annual general meeting (AGM), which should have been held on Friday, July 12, 2013, to be put off pending a court hearing as to whether a resolution to nominate them should be put on the agenda for consideration.

The request by the minority shareholders to seek to nominate directors and have their names included as such on the notice calling the annual general meeting is reasonable, but that would have to be done ahead of the notice period, which is usually 21 days ahead of the meeting. Information from the Guardian suggest that the company was formally informed of the request well ahead of the deadline date and the shareholders seem well within their right to prevent the AGM from going ahead. In all probability, the minority shareholders will win their initial battle with the company but it’s left to be seen if they will succeed at the AGM which now seems likely to be held in 2014 instead.

cementpour150x150TCL latest advisory | TCL has just advised that, further to its Notice to Shareholders and Employees dated October 22, 2013 in relation to TCL v. Wilnet Holdings Limited & Ors., the injunction, which restricted TCL from holding its 2012 Annual Meeting, was upheld by the Court of Appeal on November 20, 2013. The Case Management Conference for the substantive matter was held on December 2, 2013 and has been put to January 20, 2014 for directions.

Prior to this latest release, Trinidad Cement stated in a June release to the T&T Stock Exchange that “On 14th June, 2013 TCL received a Shareholders’ Proposal from a group of eleven shareholders holding 5.68% of TCL, and includes Wilnet Holdings Limited, Stephen Espinet, MASA Investments Limited, Brimont Limited, Kamal Ali, Alescon Readymix Limited, Bourne Investment Inc., Tatil Life Assurance Limited, Nicholas Development Limited, Helen Bhagwansingh and Issa Nicholas Holdings.”

The matter went to court and was put off for hearing to Friday, 4th October, 2013 in spite of various representations made to the court for a speedier hearing of the matter by both sides.

TCL stated that “Based on facts that have come to light in this matter including the statements and admissions made by Wilfred Espinet in his affidavit filed in Court, and having regard to the circumstances surrounding the involvement of Republic Bank, Ian De Souza and Wilfred Espinet in the orchestration of the Shareholders’ Proposal, TCL has lodged the following:

  1. A complaint to the Central Bank, requesting that De Souza be disqualified from the status of being a fit and proper person to be concerned with the management of a financial institution, under the Financial Institutions Act, 2008; and
  2. A complaint to the SEC against Republic Bank, Ian De Souza and Wilfred Espinet pursuant to Section 92 (b) of the Securities Act, 2012;
  3. A request that the SEC undertake an investigation pursuant to Section 150 of the Securities Act into whether or not Messrs. De Souza and Espinet have contravened the insider trading provisions contained in Sections 100 to 101 of the Securities Act.”

There is no indication that any action have been taken against the persons mentioned above. The TCL board has been opposed to adding directors to the existing ones.

Cement_bags2_280x150What happened | From information gleaned from the Guardian Newspaper, “According to their fix date claim form, which was obtained by the T&T Guardian, the group is challenging a decision by TCL directors to refuse to attach the group’s proposal and statement to the management proxy circular which accompanied the notice of the annual meeting. The proposal and statement related to the group’s proposed nomination of five directors to TCL’s board that were submitted on June 14. In the lawsuit, the group is seeking a declaration, which would render the board’s June 24 decision unlawful, null, void and of no effect. Before filing the lawsuit, it wrote to the board members on June 20, asking them to reconsider their decision. The group informed the board it was the perogative of the shareholders to decide and vote on the composition of the board. “Our nominees would have to be elected at the annual meeting by the shareholders and they are not automatic of the directors, who may wish to put themselves up for re-election and therefore the suggestion with respect to proportionality of board representation and contest for directorships seems misplaced,” the group said.

Included in the lawsuit, is a 12-page affidavit, sworn by Espinet, in which he detailed the dealings between the two parties which led to the legal action being filed. Espinet said he became concerned over TCL’s financial position after the company failed to declare a dividend between 2008 and 2012. “As a result of my concerns and the fact that I held investment in TCL as a shareholder, I had conversations with a number of people about the state of affairs at TCL,” Espinet said. He said the group joined together this year in an attempt to nominate five experienced persons to the board to replace five current board members whose terms were due to expire at the meeting. Espinet said after the meeting was first announced on May 18, the group submitted its proposal to TCL’s corporate secretary on June 14. He claimed that ten days later, TCL’s chairman Andy Bhajan communicated with the group and informed them of the board’s decision to refuse its proposal”.

Trinidad Cement Limited (TCL) is a IC Insider Buy Rated stock

Related posts | PE Ratios: Trinidad still has good buys | TCL up 209% in two months

Cargo Handlers announces acquisition

Cargo Handlers Limited advised that a resolution was passed by the Board of Directors at a meeting held on November 28, 2013 to invest in the Bulk Liquid Carrier Petroleum Limited. The company transports petroleum products across the island. CHL advised that this investment is expected to add $150 million in revenue.

Cargo Handlers just reported earnings of $85 million for the year ended September this year and ended up with cash of $131 million.

Related posts | Sexiness no, performance yes | Profits up at Cargo Handlers

C2W says it’s not dead

A statement from C2W | “In light of the recent release of our financial statements for the nine months ending September, it is necessary to inform our shareholders what the plans for C2W are. The IPO funds raised in 2012 were mostly spent on operating expenses, with a significant percentage on the creation of the company’s valuable assets. To date we own a significant percentage of over 900 copyrights (our assets) that were co-written with some of the World’s most successful songwriters/producers. C2W executed agreements to sub-publish BMG Chrysalis and Warner Chappell within the region. We will collect their royalties derived from the active songs in their catalogues, while retaining a percentage of these revenues.

“As we are first of it’s kind in the region, we are working closely with the region’s performing rights societies (broadcast, live and other associated rights) to import our robust catalogues and decipher what our rightful earnings are. From an administration and reconciliation point of view, this is new and challenging ground for all involved, an action plan is in place and new systems will prove to be successful at collecting our royalties within the region.

“We expect revenue for the company from both the sub-publishing agreements and from our exploitation of our own catalogue to begin by the second quarter of 2014. While C2W has very low cash reserves, the Company does not require as much operating cash as it did in the past, as it now awaits expected earnings on its intangible portfolio of assets and sub-publishing agreements.

“As a way forward, and until revenues are recognized, we are in communication with various interested, and strategic, outside investors. Once we feel we have the right strategic partner, we will then go through the legal procedures in bringing a proposal to our current shareholders for consideration, via an Extraordinary General Meeting.”

Medical Disposables, OK not great

Companies are beating a hasty push to get listed ahead of the change in tax regime for junior market companies. The latest to do so is Medical Disposables & Supply Limited that hits the road with the opening of its IPO on December 13.

The Company invites Applications for up to 63,157,895 Shares in the Invitation. All Shares, including the Reserved Shares, are priced at $1.83 per Share. The Invitation will open at 9:00 a.m. on the Opening Date, Friday 13 December 2013 and will close at 4:00 p.m. on the Closing Date, Friday 20 December 2013. There are 18,096,060 Reserved Shares in the Invitation that are initially reserved for Priority Application from Staff and Key Partners 5,464,481 and Mayberry Clients 12,631,579.

Minimum fundraising | The minimum amount which, in the opinion of the Directors, must be received by the Company is $96.5 million. The offer looks interesting as there should be some initial price gains after listing even though not much is known of the company by the wider public.

Medical DisposablesCross150x150Profits | The unaudited results for the first 7 months of the Company’s current financial year to October 2013, show an 18 percent increase in revenues over the same period in the prior year, increasing to $508 million. The Profit before tax outturn was $42 million, a 127 percent increase over the same period in 2012. This puts pretax earnings around 35 cents per share with 200 million shares outstanding and a PE of 5.3 times current year’s earnings. Adjusting for tax for the period before going public, the PE ratio is around 7 times but by the following year with all the profit being tax free the PE would drop to around 5 assuming earnings are basically flat that could result in a price appreciation in 2014 around 40-50 percent.

The new shares are likely to create some dilution in per share earnings initially, as the rate of return on equity is likely to be around 37 percent for the year ending March 2014. Paying off loans, which is one of the objectives for the funds being raised, will yield a lower return on the fresh capital.

Profit before tax declined by $11.8 million in financial year 2010. The Directors consider that the Company began to realise the benefits of an expansion that was executed, as well as its new pharmaceutical distribution relationships, in financial years 2011 and 2012 when Profit before tax increased by $23.5 million moving from $7.4 million to $31 million and $19 million to $50 million in 2012.

Revenues | Revenues moved from $289 million in 2010 to $506 million in 2011, a 75 percent increase and to $724 million in financial year 2012 and increase over 2011 of 43 percent. The rate of growth in sales has slowed and profit growth is also likely to slow down. The company needs strong and sustainable growth levels to justify investors picking these shares ahead of others that are better valued currently. From all indications based on the comparative valuation of other listed stocks, investors are likely to have to wait on the market rally to deliver above average growth in the stock price in the medium term.

Finances | High receivables of $186 million, just under 3 months of sales and inventories are spots of bother resulting in high borrowings of $153 million as of March, versus shareholders’ equity of $152 million.

Medical Disposables280x150FREEThe company | The Company is a distributor of pharmaceutical products and disposable medical supplies. When it began trading, the it specialised in medical and hospital supplies and disposable items, such as surgical masks, gloves, tubes, gauze, and adhesive and other bandages. Over the years it expanded into the distribution of pharmaceuticals and health and personal care items and other consumer goods. The Company is a co-distributor of the GlaxoSmithKline Jamaica, Dr. Reddy’s, and Bunny’s pharmaceutical and healthcare product lines. It also distributes general consumer items inclusive of complementary beauty, personal care and household products. In that regard, the Company is a sub distributor for Cari-Med Limited, Kirk Distributors Limited, Consumer Brands Limited, and Smith Russell and Company Limited, among others.

The Company is centrally located in a commercial complex in the mid-town industrial area of Kingston. It currently services over 1,100 customers across the island, including pharmacies, hospitals, medical practitioners, health centres, radiology units, nursing homes, medical laboratories, clinics, health food stores, bakeries, hotels, commercial institutions, schools, spas, sports teams and walk-in customers.

Directors | The Company was founded by the Boothe family 15 years ago in Kingston. Myrtis Boothe, Managing Director, provides the Company with its strategic direction and has than 20 years of sales and distribution experience in the pharmaceutical industry.

The directorship includes, Winston Boothe (Chairman), Myrtis Boothe (Chief Executive Officer), Kurt Boothe (General Manager), Nikeisha Boothe (Marketing), Dr. The Hon. Vincent M. Lawrence O.J., Dr. Dahlia McDaniel and Sandra Glasgow.

Use of proceeds | The proceeds of the offer is slated for expansion of the company’s existing product ranges, expansion into new product ranges and underserved niche markets, retirement of bank debt and directors’ loans and balances and pay for the expenses of the IPO, estimated not to exceed $9 million.

Short term gains are possible, but longer term growth and increased profits will come from the quality of management’s execution of the strategies and the maintenance of good relations with suppliers and customers. The suppliers, whom they represent, is critical as a loss of any major ones could negatively affect profitability in the short to medium term.

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