Scotia hikes dividend

David Noel new Scotia Group’s CEO.

Scotia Group delivered below par performance in that final quarter of the 2018 fiscal year, with profit falling to just $1.6 billion from $3.36 billion in 2017.
The quarterly results, however, is not an indication for what can be expected for the 2019 fiscal year as one time fall in revenues and in some cases, expenses are unlikely to be reflected for the full year to come. In keeping with expected pick up in profit the banking group hiked their dividend from the usual 48 cents per share to 51 cents in their latest announcement. Based on Scotia’s long held policy, when dividends are raised it is usually an indication that future dividend payments will continue at the elevated level for the ensuing period. Investors in the stock can therefore look forward to at least $2.04 cents for all of 2019. That will be a return on the latest stock price of $54.01 of 3.8 percent. Dividends paid in 2018 amounted to $1.92 per share. The total amount of dividends to be paid in January will be $1.59 billion which is alomost all the profit reported for teh quarter. The dividend will be paid on January 18, 2019, with the ex-dividend date set for December 24.

Strong food & insurance sales gains at Grace

Grace new HQ close to the end of construction in downtown Kingston

Grace Kennedy reported net profit attributable to shareholders of $3.26 billion for the year to September compared with $3.3 billion in 2017 on strong gains in Food and Insurance segments. For the September quarter, the group earnings of $1.06 billion was realized, down from $1.5 billion.
The current quarter’s result is negatively impacted by one off expenses.
Segment results show declines in the Money transfer business with segment results down to $2.34 billion from $2.46 billion in 2017. Banking was flat with results of $401 million but both Insurance and Food trading recorded healthy increases. Food reported $1.35 billion in 2017 and climbed a strong 12.5 percent to $1.52 billion and Insurance jumped a robust 22.7 percent from $508 million to $734 million.
When adjusted for non-recurring gains in 2017 and one-time expenses of $236 million in the September 2018 quarter, profit for the nine months would have been greater by approximately $600 million.
For the nine-months, the Company revenues rose 7 percent to $73.8 billion but climbed a healthier 11 percent to $25.46 billion for the September quarter, over the same period in 2017. Group Chief Financial Officer, Frank James, informed IC Insider.com that the savings from the rationalisation exercise will generate savings considerable higher than the cost, due partially to some former employees being retired and not incurring separation cost.
Operating cost rose faster than revenues, with an increase of 13 percent to $24.6 billion for the

Group Chief Executive Officer, Don Wehby.

quarter and an increase of 8 percent to $71.4 billion for the nine months. Unfortunately, Grace continues the backward practice of not breaking out direct selling cost from other costs in their interim results as such investors cannot determine how movement in cost is affected by changes in revenues versus fixed and administrative cost.
Shareholders’ equity increased of $3.2 billion to $48.4 billion over 2017. Loans receivables remained flat at $26.4 billion compared to $26.58 billion in September 2017 and is down from $27.55 billion at the end of 2017. At the end of the period total assets increased $7.3 billion to $137 billion since September in 2017 and liabilities rose by a smaller $3 billion to $86.44 billion.
In speaking to the recent performance, Group Chief Executive Officer, Don Wehby, affirmed, “The Company is investing strategically for future growth and efficiency to achieve this objective. We are seeing a 12.6 percent increase in profit over prior period, with the one-off adjustments, and we expect continued growth based on our strategy.”
Since 2018, the Group embarked on a programme which aims to improve its return on investment and shareholder value. The process involves a review of its overall organizational design, cost structure, and business processes at all levels resulting in restructuring which affected a number of positions in August. In expounding further Wehby stated, “Although the restructuring costs of $236 million impacted the quarter’s performance, I am confident that the Company will realize the benefits of this in subsequent periods.”
Grace pays an interim dividend of 50 cents per stock unit on December 13, bringing dividends to date to $1.35 per stock unit of more than $1.3 billion.
Wehby and the group’s chairman Gordon Shirley in their report to shareholders stated that Grace Kennedy anticipates continued growth for the fourth quarter, subsequent to the quarterly report the group announced changes in their Florida distribution with an investment in the company that manufactures it patties that will take over Graces distribution and warehousing in that area. The new arrangement will mean less cost and more profits for Grace.
IC Insider.com projects earnings is $4.80 for the current fiscal year to December and $6 for 2019. The stock is listed on the Jamaica Stock Exchange and trades at $60 for a PE of 12.5 times current year’s estimated earnings versus an average for the market in the region of 15, with a premium of a mere 20 percent above net book value per share and seems undervalued, currently. The stock looks like a good long term investment.

One time cost hits Broilers Q2 profit

Jamaica Broilers recorded profits attributable to stockholders of $230 million or 22.42 cents per stock unit for the October 2018 quarter, down sharply by 48 percent from $446 million generated in the same period in 2017.
The major contributor to the decline was as a result of foreign exchange losses of $231 million.
For the half year to October net profit fell moderately to $644 million compared to $658 million for the similar period in 2017. Sales revenue for the quarter amounted to $13.6 billion, an 18 percent increase over the $11.5 billion generated in the corresponding quarter of the previous year and rose 12 percent to $25.7 billion in the six months to October from $23 million in 2017.
Gross profit inched up by just 3 percent for the quarter to $3 billion, compared to $2.96 billion in the previous year and climbed 10 percent from $5.63 billion to $6.22 billion for the six months to October. Gross profit margin collapsed in the quarter to 22.4 percent from 25.7 percent in 2017 while year to date, it came in slightly lower than the 24.5 percent in 2017 at 24.2 percent.
Jamaica Operations reported segment result of $1.35 billion, 28.4 percent above last year’s $1.05 billion. The directors attribute the improvement to increased poultry sales which was up 7 percent to $17.2 billion and enhanced inventory management. Revenue for increased by 24 percent over the prior year to $7.38 billion. “The increase was driven by increased sales of main products – fertile eggs and baby chicks, as well as, feed sales from the acquired feed mill”, Management stated.  US Operations reported a segment result of $666 million, down slightly from $674 million for the 2017. The “decrease

Christopher Levy – Jamaica Broilers President and Chief Executive.

was primarily attributable to one-off staff cost elements and acquisition costs related to the recent feed mill purchase; these cost elements are not expected to recur”, the directors stated. Haitian Operations increased market share of table eggs to 34 percent, compared to 31 percent of the market at the end of the second quarter last year. Revenue for the Haitian Operations increased13.4 percent over the prior year but the segment result drifted down moderately to $85 million from $86 million in 2017.
The Other Caribbean Operations reported segment results of $1.23 billion an increase of $1 billion over the corresponding quarter of 2017, mainly due to the net results of the JBGL Stockholders Nominee, driven by the unrealised fair value gains and eliminated on consolidation of the Group.
Distribution costs, increased 16 percent for the quarter to $482 million and 7 percent for the six months to $918 million. Administrative cost grew by just 5 percent in the quarter to $1.94 billion and 13 percent for the half year to $4.2 billion. The results also include the operating expenses of the new hatchery in Pennsylvania and the costs associated with the formation of the Shareholders’ Trust – these costs were not in last year’s comparative results.
IC Insider.com projects earnings is $2.30 for the current fiscal year to April and $3 for 2020.The stock is listed on the Jamaica Stock Exchange and trades at $29.50 for a PE of 15.6 times current year’s estimated earnings, with a premium of 127 percent net book value per share and seems to be fairly valued, currently.
Shareholders’ equity stands at $12.9 billion with borrowed funds at $12.8 billion and cash and investments of $3.9 billion. Current assets total $20.66 billion verusus current liabilities of $14.45 billion.

Blue Power profit jumped 55%

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Sales at Blue Power for the half year of its 2019 fiscal year to October, increased 13 percent to $862 million from $761 million for the same period in 2017, while sales for the second quarter to October were up nearly 12 percent to $426 million from $381 million for the same period in 2017.
Profits for the six months grew 55 percent to $87 million, from $56 million in the same period last year. For the second quarter profit after tax jumped 52 percent to $26.6 million from $17.5 million in 2017 in spite of picking up foreign exchange losses in the current period. Earnings per stock rose from 10 cents to 15.4 cents for the half year.
Lumber Depot sales rose 9 percent from $544 million to $592 million and the Blue Power division increased 25 percent from $217 million to $270 million for the six months
The Lumber Depot contributed $38 million before tax compared to $32 million in 2017 while Soap Division jumped to $61 million from $2 million in 2017.
Net finance cost was $9.5 million compared to $2.7 million for the quarter and for the six months it was a net inflow of $13 million in 2018 and was flat for the 2017 period.
For the half year, “exports sales of soap accounted for 24 percent of overall soap sales,” Noel Dawes, Managing Director told shareholders, in a report accompanying the financials. He further stated that “sales in the Caribbean market continue to be brisk as greater interest, acceptance and satisfaction of our product range materialize. The increase in export sales over the same quarter in the previous year was 64 percent from $47 million to $77 million.”
The company should earn around 30 cents per share for the current fiscal year and close to 40 cents for the next fiscal year ending April 2020. The stock trades at $5.45 at a PE ratio of 18 times estimated current year’s earnings.
Blue Power has investments and cash funds amounting to $247 million, with current assets of $655 million versus current liabilities of just $131 million and shareholders equity of $839 million.

Scotia Group stuck in neutral

Investors could find themselves in shark infested waters if they are not careful with the prices of several stocks now at very high levels. Investors need to be careful of being sucked into attractive profit results that are not based on sustainable earnings.
A case in point is Scotia Group. In the July quarter the interim results showed a big jump in profits, but that was based on an unsustainable rise in foreign exchange earnings due to the slippage of the Jamaican dollar, resulting in nearly $2 billion raked in for the quarter. For the October quarter only $396 million is reported for that line item, but the year shows a big jump from $2.5 billion to $4 billion. Net interest income is on the slide, falling from $26.64 billion in 2017 to $25.2 billion in 2018 and in the quarter the decline continues with October falling to $6.1 billion from $6.3 billion in July and $6.7 billion in the October quarter in 2017. While loan provisioning is down, year over year to October, to $1.9 billion from $2.2 billion it rose in the final quarter to $744 million from $695 in 2017 and $620 million in July this year. Net fee income has been steady for the various quarters at just over $2 billion but fell in the fiscal 2018 year to $8.1 billion from $8.6 billion.
Operating expenses rose to $5.74 billion in the October quarter from $5.1 in July and $5.18 billion for the 2017 final quarter. For the full year operating expenses rose to $22 billion from $21.3 billion. The group had a gain on disposal of a subsidiary of $753 million which saved profit from falling for the latest year with a rise to $12.78 billion from $12.17 billion in 2017. For the quarter, profit dropped to just $1.6 billion from $3.36 billion in 2017.
Importantly, the loan portfolio that rose strongly in the July quarter to $177 billion is up at a slower pace of 3.2 percent to $183 billion, an annual pace of 13 percent, but it needs to increase further to really deliver a reasonable increase in profit going forward.
The stock closed at $54.05 on the Jamaica Stock Exchange on Thursday, but its recent profit performance does not send very encouraging signals to buy.

Barita directors to consider rights issue

Barita Investments advised the Jamaica Stock Exchange that a meeting of the Board of Directors will be held on December 13, 2018, at which the consideration of rights issue of the ordinary shares of the company is being considered.
IC Insider.com, has been reliably informed that a large portion of the recent $5 billion bond issue that was raised by Conerstone Investments Holdings the new majority Barita Investment shareholder is earmarked for the rights issue.
The company will need to call an extraordinary meeting of shareholders to get shareholders approval for the rights, it is therefore unlikely that if approved by the directors it will take effect until late January 2019 at best.

New Elite branch now in black

Elite Diagnostics accounted for 31.7M of Wednesday’s Junior Market trading.

Elite Diagnostic lost money at the Liguanea branch in the first quarter of the 2019 fiscal year but the CEO Warren Chung told shareholders at the company’s annual general meeting held at the Knutsford Court Hotel on Wednesday, that October and November were two very good months at the branch.
The audited financial report on the fiscal year to June 2018 show revenues of $297 million compared to $263 million in 2017 resulting in profit of $45 million after tax credit of $9 million and $44 million in 2017 after tax expense of $15 million.
Liguanea has moved from a loss into profit and will not be a drag on profit from the original operation from now, the CEO confirmed.  Data for the first quarter shows profit before tax dipped sharply from $14 million to $1.8 million the direct result of a loss at the Liguanea branch as well some cost involved in the early purchase of MRI machine to be used in the St. Ann Bay branch to be set up in mid-2019.
While revenues rose, a number of categories climbed sharply partially due to the expansion into a new location on Hope Road. Big increases were experienced in legal and professional fees that moved from just $38,000 to $3 million due primarily to the IPO in 2017, rental expense more than doubled to hit $15.8 million from $7.9 million and Utilities moved from $7.3 million to $17.5 million partially as a result of the new branch as well as some cost for storing the MRI machine to be installed in St Ann Bay location.

Elite CEO Warren Chung with a shareholder at the company’s 2018 AGM.

Revenues in the first quarter to September moved to $85.4 million from $69.8 for an increase of 24 percent, due to the second branch that generated $23.7 million in revenues and a loss of approximately $7 million. Chung in response to IC Insider.com’s question, indicated that revenues at the original location is slightly lower than in the prior year due to some business shifting to Liguanea. The fall in revenues is almost $8 million at Holburn Road and resulted in a fall of approximately $5 million in profit. All MRI scanning for prostate are now being done at Liguanea with the stronger and more precise imagery, Chung stated. In addition, he stated that the Holburn Road branch was previously running above capacity with the location running over time and the new location has alleviated the excess.
Cost to set up St Ann Bay is put at $20-22 million plus U$375,000 for the MRI machine. The company bought the MRI equipment early because it became available locally, but it comes at a cost as it is being stored and incurring cost as it has to be stored in certain conditions resulting in the consumption of electricity along with rent. The MRI Machine for St Ann is being stored with rental cost being incurred as well as electricity cost to maintain it at a cool temperature.
While the company has 3 other MRI competitors in Kingston, there will be no immediate competitor within 50 miles in St Ann. Operating cost at this location will less than at Liguanea with the former being staffed by 7 employees versus a planned staffing of 4 or 5 for St Ann.
For the Liguanea location to move into profit would require revenues around $36 million per quarter or 50 percent above that of the first quarter and that would likely move the profit in the second quarter well above the $1.8 million earned in the first quarter.
Elite last traded on the Junior Market of the Jamaica Stock Exchange at $2.85.

More TTSE stocks rise than fall – Wednesday

In market activity on the Trinidad & Tobago Stock Exchange on Wednesday ended with trading in 16 securities against 18 on Tuesday, with 4 advancing, 2 declining and 10 remaining unchanged on a day when both the volume a value of trading rose above Tuesday’s levels.
At close of the market the Composite Index gained 8.17 points on Wednesday to 1,305.72. The All T&T Index inched 0.38 points higher to 1,695.89, while the Cross Listed Index rose 2.21 points to close at 123.78.
Trading ended with 920,887 shares at a value of $4,495,578 compared to 261,740 shares at a value of $3,498,832 on Tuesday.
IC bid-offer Indicator| The Investor’s Choice bid-offer ended with stock with the bid lower than the last selling price and 2 with lower offers.
Stocks closing with gainsClico Investments finished trading with a rise of 5 cents at $20.20, with 70,564 stock units changing hands, Grace Kennedy closed with an increase of 15 cents at $3, with 46,000 stock units trading, Sagicor Financial ended trading 9,000 stock units with a rise of 24 cents to end at $9.24 and Trinidad & Tobago NGL finished 9 cents higher to $29.25, after exchanging 6,575 shares.
Stocks closing with losses| National Flour fell 3 cents and ended at $1.65, with 216,535 units changing hands and One Caribbean Media closed with a loss of 49 cents at a 52 weeks’ low of $10.50, after exchanging 9,350 shares.
Stocks closing firm|Ansa Mcal ended at $55 trading 111 units, First Citizens completed trading at $32.76, after exchanging 4,272 shares, JMMB Group settled at $1.77, with 538,692 shares changing hands, Massy Holdings settled at $45, in an exchange of 594 shares, NCB Financial Group completed trading 8,252 shares at $8.93, Prestige Holdings ended trading at $7.50, with 1,000 units being swapped, Republic Financial Holdings settled at $107, after exchanging 8,944 shares, Scotiabank ended at $64.74, trading 250 units, Unilever Caribbean concluded market activity at $23, with 620 stock units changing hands and West Indian Tobacco ended at $95.50, with an exchange 128 units.

Prices of securities trading for the day are those at which the last trade took place.

Barita profit jumps but 2019 to be big

Barita last traded on the JSE at $29.

Barita Investments reported profit of $374 million after tax for the year to September, a rise of 84 percent over the 2017 results but final quarter profit after tax surged 315 percent, to $193 million.
The September quarter benefited from strong increase in net interest income moving from $69 million to $117 million and from $287 million to $424 million for the full year, even as interest rates declined sharply during the year. Gains on foreign exchange swelled earnings in this category pushing it to $145 million in the quarter from just $12 million in 2017 and to $188 million from $45 million for the fiscal year. Gain on sale of investments came in well below the level in 2017 at $25 million for the quarter down from $62 million in the quarter and from $259 million it fell to $136 million for the fiscal year. Even as realized investment gains fell, unrealised gains rose by $362 million for the year, bringing unrealized gains to $1.1 billion and shareholders’ equity to $3.26 billion.
At the close of the quarter the company had 3.3 billion in marketable securities up from $2.49 billion in 2017. Since the end of the quarter, the exchange rate that was at JS$134.65 at the close of September and $130.39 at June, is now down to just over $127 and that could mean a big drop in the value of the US dollar-based portfolio. With the movement of stock prices particularly NCB Financial and a few others, gains in investments which will now all be reported through the regular profit and loss statement will most likely wipe out the FX losses and leave a nice surplus, unless changes for the worse were to occur in the next few weeks before the end of the calendar year.

NCB stock should add gains for Barita in 2019 fiscal year.

During this year, the majority shares switched hands with Cornerstone majority owners of Myer Fletcher Merchant Bank acquiring 75 percent ownership. Barita was founded by Rita Humphreys-Lewin and quietly built into a force to be reckoned with, within the investment banking arena. The brokerage house has been seen as conservative, but observers within the financial sector are of the view that those days are over, at least for now. As a result, investors have been piling into the company’s stock as they see swelling earnings ahead. The stock which was on the IC Insider.com buy rated list for a long time finally exited recently, but there seems to be a longer road ahead before the gains are over.
Barita has so much potential for growth but was being managed in a conservative manner. Margin accounts, a big source of added revenues was not being pushed, Unit Trust was marketed more as a take it or leave it manner, than a more aggressive approach to pull in many more customers. Not even the stock market, the company best known for, has the potential been fully taken advantage of. Hopefully, the new majority owners will take a more aggressive approach, especially in light of an improving economy and one that could lead to long term growth for the economy, stocks and unit trust investing. There are some hopeful signs. One is a more aggressive dividend policy that will enhance the value of the stock. A more aggressive staff recruitment is under way that will modify the culture and drive business going forward.
IC Insider.com understands that Barita is in the process of acquiring an investment portfolio with assets of more than $10 billion from a large financial institution that they have had a close relationship with for decades. More efficient management of some resources is likely to add significant income to the operations in a full year, estimated by IC Insider.com to be around $100 million per year, not to mention the added income from the investment funds being acquired, that should contribute around $75 million in net revenues per year. But there is more, Cornerstone successfully closed a $5 billion bond issue last week at 7.25 percent per annum. Word is that the vast majority of the proceeds is slated to be used by Barita and will most likely to be invested across a wide spectrum of the investments within Barita and this could add a great deal of income and profit to the operations. With the chnage in accounting policy relating to how investment gains or losses are reported and the added income from the various changes and expansion being undertaken 2019 profit should exceed $1 billion, the first time that this nbenchmark would be acheived.
When all is said and done, the fixed income portfolio is the bread and butter earner but in this environment of a bullish stock market, it is ability of the management to take advantage of the opportunities that the market will throw up that will be the real driver of the company’s stock price in the short to medium term.
Some investors are speculating that the company could be going after a rights issue soon which could absorb much of the inflows from the just concluded bond issue. IC Insider.com had reported previously that the stocks is an ideal candidate for a split. With the current price now at $29 and the prospects looking very bright, a split seems very likely in 2019.

Persons or entities associated with IC Insider hold shares in Barita Investments.

Carib Cement locks in $170M in FX gains

Carib Cement could earn $5.30 in 2019.

Caribbean Cement secured a Jamaican dollar denominated loan from National Commercial Bank amounting to J$3.076 billion and available in United States Dollars. The report from the company advised that Board of Directors approved the facility on November 30 the same day the facility was received.
The company advised that the proceeds from the revolving Loan Facility were received on November 30 and will be used to pay related party debt denominated in United States Dollars, diversifying the sources of funds for the company. Throughout its term, the Loan Facility will also be used for general corporate purposes, reports Caribbean Cement.
The facility is an unsecured revolving loan facility for five years at a fixed interest rate of 7.45 percent per annum.
Cement owed the parent company $11.09 billion plus $1 billion due short term as of September, the September interim results show. The amounts were contracted in US dollars and resulted in devaluation losses of $464 million. Since September, the exchange rate swung in favour of the Jamaican dollar by over J$7. Carib Cement will enjoy a big foreign exchange gain and a reduction in the amount due on the loan to around US$65 million as a result of the revaluation of the local dollar, once NCB facility fund is used to pay down the loan from the ultimate parent company. As of today, the exchange rate is JS$127.4623 to the US dollar and on September 30, the average rate was $134.6486, a gain of more than J$7. The amount received for the loan amounts to just over US$24 million and has cut J$174 million from the devaluation losses incurred in the September quarter. The revaluation of the Jamaican dollar to date have reversed another $470 million in losses incurred on the amount of the loan that will not be paid off, with the combined savings being $640 million.
The facility, will allow the company to pay down the overseas loan from cash flow from its operations in the order of J$4-5 billion per annum. By the end of 2019, the foreign loan exposure should be reduced sharply.