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.
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.
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.
“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.
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.
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.
Jamaica Stock Exchange is one of Jamaica important financial institutions. It is responsible for billion of dollars of investments. Investors rely on it to be transparent and to provide accurate and timely information on which investment decisions can be made. Why does the feed the public with erroneous information, and leave it out in the public without moving speedily to correct same?
Cargo Handlers posted their full year results to September, with profit of $154 million after tax, up from $136 million in 2015 and $30 million for the fourth quarter versus $29 million in 2015.
All of the above is fine but the company is reporting earnings per share as 40 cents for the quarter and $3.30 for the 12 months, based on what they have erroneously claimed are based on the weighted average number of shares held during the period. That of course is nonsense. The company split its stock into 10 units for each one held, subsequent to the year-end, hence there were no additional shares issued up to September. Even if the stock split occurred during the financial year, the split would not give rise to computing the average number of shares in issue. With a stock split or stock bonus the earnings per share is to be computed on the full amount of shares issued at the time of the financial report. Only when fresh capital is introduced from outside the company, would the weighted average number of shares be computed.
The earning per share is in fact 80 cents, for the 2016 last quarter and $4.16 for the 12 months. Unfortunately, the Stock Exchange posted the results with the error from Monday and they are still on the website with no change to date and no note to inform investors of the error. If the Jamaica Stock Exchange wants to be taken seriously it needs to do better than this.
Cargo Handlers last quarter’s net position flowed from a 17 percent rise in revenues to $78 million and 29 percent increase for the full year to $324 million. Other operating expenses rose 19 percent for the quarter to $39.8 million and for the full year 28 percent to $132 million.
The numbers may not show it fully, but growth may have slowed considerably, as such growth in profit in the medium term could be quite moderate as can be gleaned from the movement in the quarterly results. At a price of $12 per share, with 375 million units issued the stock price is a tad rich currently with one of the highest junior market PE ratios at 30 times the 2016 earnings. Expectations of investors in the stock have to be that the December quarter’s earnings will rise close to 50 percent, to justify the current price. That level of profit increase looks steep.
Jamaica Stock Exchange stock price will adjust at the commencement of trading this morning to take into effect the 5 for 1 stock split that was approved at an Extraordinary General Meeting held on October 25.
Record date for the stock split is November 8 but the ex-stock split date takes effect on November 4. At the close of trading on Thursday, the price the stock traded at was $27.90 and will result in an opening price of $5.58.
The stock split will result in an additional 561,000,000 ordinary shares will be listed, increasing the issued shares from 140,250,000 to 701,250,000.
JSE reported of profit of $32 million for the June quarter versus $15 million in 2015 and $158 million compared to $102 million for the six months to June 2015. The improvement in net profit flowed from a 52 percent rise in revenues to $188 million for the June 2016 quarter compared with $124 million in 2015 and $525 million for the half year to June for a rise of 37 percent versus $382 million in 2015. Earnings per share for the half year ended at $1.12 versus 73 cents in 2015. The JSE had a big month of trading in August with some special trades that took place thus swelling the volumes and value to $6.6 billion for July to August compared to $6.5 million for the June quarter.
The stock split will take effect from the opening of trading on Monday, 14 November 2016. The stock closed trading on the junior market of the Jamaica Stock Exchange on Monday at $24, if the price remains at the current level, the price after the split would end at $2.40.
Paramount reported lower profit of $15 million, down from $43 million in 2015 in its latest quarterly report, ending August, from increased sales revenues of $253 million versus $238 million in 2015. The company indicates that cost increased in the quarter in connection with rebranding and celebration for the company’s 25th anniversary celebration.
Paramount is expanding into the processing of lubricants in a joint venture with Allegheny Petroleum with the plant expected to be operational early in 2017.
No recommendation is being put to the shareholders as to the level of the split. The timing and extent of the split is proposed to be left for the directors of the company to determine. The resolution included on the agenda of the annual general meeting and included in the company’s annual report states: “That each of the issued ordinary stock units in the capital of the company be sub-divided in accordance with the Articles of Incorporation of the company, into such number of stock units as may be prescribed by the Board of Directors.”
Based on the current stock price of $17.50 and lack of supply, the split seems likely to be in the order of 5 or 6 to 1. The top 10 shareholders of Paramount own just over 95 percent of the 154.24 million shares issued by the company.
Directors of the Jamaica Stock Exchange approved a 5 for 1 stock split effective October 5, 2016 but the directors do not have the power to effect the change without the approval of shareholders at a general meeting.
According to a release today on the JSE website, the board of directors at a meeting approved the stock split of the company effective in October at the JSE’s board meeting held on September 21, the stock is expected to reflect the split in the price on the JSE on October 3, 2016. The release goes on to state that “as a result of the proposed stock split, the JSE will list an additional 561,000,000 ordinary shares, increasing the issued shares from 140,250,000 to 701,250,000”.
But there is a bit of a problem with the implementation of the decision. The directors have no power to effect the split. A change in the number of issued share capital has to be approved at a general meeting of the company. No resolution has been put to the shareholders at a meeting so to date and none is planned as such the decision will be voidable if legally challenged.
This development is strange as all of the several companies who have split their stock have had it approved by the shareholders at a general meeting. The latest is Cargo Handlers who have called an extraordinary meeting solely to approve it, admittedly, in this case the number of the authorised shares would be inadequate to facilitate it.
Best practice suggests that the directors should err on the side of caution even if they feel otherwise. Shareholders have the power to make fundamental changes to a company not the directors, the latter are just servants.
The Companies Act makes it very clear the subdivision of the shares must be approved in a general meeting. It is very clear directors can only recommend changes to the share capital, they have no power as directors to change it.
An extract of section 65 of the companies Act of Jamaica states.
(1) A company limited by shares or a company limited by guarantee and having a share capital, if so authorized by its articles, may alter the conditions of its articles as follows, that is to say, it may—
(a) increase its share capital by new shares of such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
(d) subdivide its shares, or any of them, into shares of smaller amount than is fixed by the articles, so, however, that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.
(2) The powers conferred by this section must be exercised by the company in general meeting.
The company had in issue only 140 million shares with nine of the broker members holding 10 million units each leaving only a small amount to trade regularly. The stock which now sells at $27 tends to be a bit illiquid and it is expected that the split will foster greater liquidity and allow the stock to trade more freely.