Junior market stocks gained 27 percent for the year to date but those in the main market have gone up just 6 percent over the same time. Seven stocks in the junior market have more than doubled two gained just over 90 percent and one over 80 percent.
In contrast the main market highest gain is at 93 percent followed by 64 percent. The above data points to the need for selective investment decision making to get the best out of investing in the stock market. Last week IC Insider started a list of top 5 stocks in the main and junior market. This week we introduce a list of the top 5 stocks to avoid at this time as some seems fully valued based on appreciation recently or in some cases the companies are not performing well. The list will be reviewed weekly and updates published. Even these stocks appreciate in the medium term they are likely to lag gains in the overall market.
Derrimon in Paramount out – Top 5
AMG Packaging is IC Insider’s top junior market stock for growth in the next 12 months.
Paramount Trading price movement is directly related to limited supply of the stock. There are good prospects for increased earnings to flow from expansion into the processing of lubricants, for the local market. Production is expected to get on the way in the first quarter of 2017. With a PE ratio of 7.6 times 2017 projected earnings, the stock remains attractive. With the limited supply, the stock seems a prime candidate for a stock split later this year.
Jetcon Corporation seems set to move out of the top 5 by the end of the week, if the trend of increased demand and limited supply continues. During the past week, the stock gained 24 percent based on the closing bids that were higher than the last sale price. AMG Packaging fell sharply in the week and has pushed the stock to top of the list, while Medical Disposables has moved down to 3 due to a revision downwards of earnings to 60 cents per share and an increase in the stock price.
Derrimon enters as number 4 but the company is highly leveraged but expanding. Derrimon Trading reported slightly increased profit of $32.2 million or 12 cents per share up from $30.6 million in the June quarter with profit of $58.5 million compared to $51.2 million for the six months to June, with 3.5 percent growth is sales in the June quarter and 6 percent for the six months year over year. Other income grew but the company’s share of associated profit fell in both periods, while costs were held tightly.Barita Investments is the only stock in the top 5 main market list, to show any major change, with the bid moving up to $3.51 at the close of the week and seeming set to trade in the $4 region sooner than later, with limited supply on the offer.
Mavis Bank Coffee sold
Mavis Bank Coffee (‘Mavis Bank’) with sales of $1.15 billion and profit of around $98.4 million in 2015 according to the 2015 audited reports for Jamaica Producers is being sold to Specialty Coffee Investments Company Limited (‘SCI’).
The joint shareholders made the announcement to the Jamaica Stock Exchange on Thursday. Pan Jamaican Investment Trust and Jamaica Producers Group, in separate reports, advised that the Pan Jamaican subsidiary, Scotts Preserves and JP Tropical Foods, a subsidiary of Jamaica Producers Group, entered into an agreement to transfer their shares owned in Mavis Bank Coffee Factory to SCI. SCI is acquiring the shares in Mavis Bank that are owned by both companies on a fifty percent basis each.
The Jamaica Producers audited accounts for 2015 showed Mavis Bank with net assets of $171 million and IC Insider estimates that the sales price, could be in the region of $750 million.
In October 2011, the Government sold its majority interest in Mavis Bank Coffee for an estimated J$243 million and then approximately 150 employees. Since acquisition the company invested additional sums in the venture.
Stunning 47% increased Scotia profit
Scotia Group reported a stunning in net earnings jumping 47 percent for the third quarter to $3.3 billion over the 2015 July quarter. For the nine months, net earnings jumped 36.7 percent to $8.2 billion. Total comprehensive income for shareholders of the group ended at $9.3 billion for the nine months ended July 2016 up 10.5 percent from $8.8 billion.
For the third quarter, total comprehensive income of declined from $4.4 billion to $3.66 billion.
The results translate to earnings per share of $1.07 cents in the July quarter and $2.64 for the nine months, with full year’s earnings set to end around $3.90 and would put the PE at 7.8 versus an average of 9 based on estimated 2016 earnings for the main market valuation.
President and CEO of the banking group, Jackie Sharp, in a report to shareholders, commenting on the performance stated, “We continue to show strong performance this year, resulting from the execution of our strategic initiatives to grow revenues and reduce operating costs. All business lines showed good volume growth year over year, as we continued to meet our customer’s diverse needs. Our loan portfolio, after allowance for impairment losses, grew by $15.2 billion or 10.2 percent year over year. Customer Deposits also increased by $42.4 billion or 20.8 percent year over year. Funds under management in our wealth business grew by $15.9 billion or 14.9 percent year over year.”
Jackie Sharp – CEO Scotia Group
Other revenue for the nine months ended July 2016 amounted to $10 billion, an increase of $1.7 billion or 20.6 percent compared to the same period last year. This was due to growth in net fee and commission income from increased transaction volumes on our deposit and payment services, credit card and merchant service business segments, as well as higher foreign currency gains.”
Sharp went on the further state “Operating Expenses amounted to $15.6 billion over the nine months ended July 31, 2016, a decrease of $464 million or 2.9 percent compared to prior year. Salary related expenses declined by $400 million, which offset higher operating expenses of $276 million. There was also a decline in asset tax of $330 million.”
Loans, after allowance for impairment losses amounted to $163.9 billion as at the end of the 2016 quarter, while nonperforming loans totalled $4.4 billion, representing 2.7 percent of total gross loans down from 3.1 percent last year. Total customer liabilities represented by deposits, securities sold under repurchase agreements, and policyholders’ funds grew to $350 billion, an increase of $35.3 billion or 11.2 percent compared to July 2015. A significant portion of the growth was reflected in core deposits, which grew by 20.8 percent year over year the company stated.
The stock that traded at $30.50 on the Jamaica Stock Exchange is undervalued and importantly with strong growth in the third quarter and increased growth in the loan portfolio as well as a pickup in economic growth in Jamaica augurs well for strong growth in profits going forward. Note need to be taken of a possible fall in foreign exchange gains an area that grew sharply in the July quarter by 127 percent to $1.17 billion.
The group declared another dividend of 45 cents per share and seems set to pay total dividend for the fiscal year of $1.80 providing an attractive yield of 6 percent.
Mayberry active in insider trades
Mayberry Investments is one of the listed companies in which there are regular trades done by insiders, the period since August into September have a number of moderate trades. Mayberry Investments has traded heavily in LASCO Financial Services shares recently to top up their holdings.
A connected party of Mayberry Investments purchased 15,766 shares on September 2, 10,500 shares on September 1. A related party purchased 13,289 shares on August 31, while on August 30. Directors trading in the company’s stocks include a purchase of 60,000 shares and sale of 10,000 shares on August 3 and purchase of 2,000 shares on August 15, 37,300 shares on August 10 and 73,539 shares on August 10-18. A sale of 19,496 shares on August 22, 11,000 shares on August 11, 10,000 shares on August 10, while another 21,000 shares were sold on August 10-11.
Mayberry Investments was the main buyer of LASCO Financial Services shares recently in an effort to up their holdings to maintain their 20 percent holding in light of an increase in the issued shares in connection with the staff option plan an informed source told IC Insider. The inside trades resulted from a connected party purchasing 552,729 of the company’s shares on September 2, while on August 24, a connected party sold 37,480 shares and a connected party purchased 701,234 shares.
A connected party of Caribbean Producers sold 54,074 CPJ shares on September 7 and on September 1 connected parties sold a combined total of 3,245,289 shares.
An Officer of Trinidad Cement purchased through the TCL’s Employee Share Ownership Plan 107,715 TCL shares on September 6 and a related party sold 15,000 TCL shares over the period August 16-18.
A National Commercial Bank, related parties purchased 27,664 shares on August 30. Parties connected with Blue Power Group purchased 48,421 shares during the period June 30 to August 18 and sold 2,000 shares on August 18.
A Supreme Ventures connected party sold 8,000,000 shares and another sold 1,223,602 shares on August 3 and August 16, respectively. A connected party sold 838,345 shares and a member of the Senior Management purchased 12,465 shares on September 8.
A Director has sold 50,000 Honey Bun shares on August 22 and on August 12 a director sold 10,050 shares and an Eppley connected party sold 121,667 shares in the company on August 12.
Active insider trading since August
Sagicor Group HQ -Insiders been buying & selling the stock recently.
In the past some of the trades in the local market have not sent any known information when viewed against developments in the companies subsequent to the trades by insiders. In the case of a few of the listed companies investors are well advised to pay attention.
Insiders’ trade in August and September to date, are as listed below trades the various companies reported to the Jamaica Stock Exchange.
Sagicor – There was slightly more buying than selling of shares in Sagicor Group. A related party of the Sagicor Group purchased 71,716 shares on September 7 and 9, and a member of the Senior Management sold 70,000 shares on September 9, while two executives sold 155,000 shares on September 1, and related parties purchased in total 240,075 shares between September 1 and 2. An Executive sold 82,700 shares and related parties purchased 99,046 of the group’s shares, between August 29 and 30.
A connected party purchased 152,750 of the group’s shares on August 26, while a related party purchased 48,650 shares on August 22, and a director sold 173,800 shares on August 15, while another director purchased 2,350 shares on August 15, and a director sold 165,000 shares on August 16, while a director purchased 236,250 shares on August 16.
A JMMB Group connected party sold 1,000,000 of the company’s shares September 7 and a connected party sold 9,000 shares on August 18.A Jetcon Corporation connected party purchased 199,800 shares on September 6 and 72,964 shares on August 22, while a related party purchased 152,699 shares and connected parties purchased a total of 279,735 shares on August 16-17.
Company Executives purchased 24,633 and 29,240 Caribbean Cement shares on September 1 and a Senior Manager purchased 300 shares on August 17.
At Grace Kennedy, a senior officer sold 75,144 shares on August 29 and 30. Jamaica Stock Exchange saw connected parties purchasing 8,234 and 18,034 shares on August 31, while a director purchased 2,000 shares on August 18.
Dip in profit at Jamaica Broilers
Jamaica Broilers sales revenues increased 12 percent over the $8.9 billion the group generated in 2015 to reach $10 billion for the first quarter ending July this year. Profit after tax from continuing operations fell to $401 million from $420 million in 2015.
The profit performance resulted from gross profit that grew in line with sales with a 12 percent increase in for the quarter to $2.7 billion, from $2.4 billion in the corresponding quarter last year and an increase in finance and other income of $178 million up from $123 million in the company’s 2015 first quarter.
Directors in their report to shareholders state that the “Jamaica Operations reported a normalised segment result (after adjusting for the effects of the disposal of subsidiaries) of $641 million compared to $783 million reported last year. This was a result of increased levels of poultry imports and increased input costs. The US Operations continued to grow steadily and reported a segment result of $297 million, which was a 14 percent increase over the prior years’ $261 million. This quarter’s results include for the first time the operations of the new subsidiary International Poultry Breeders Hatcheries Inc., based in Iowa.”
“In the Other Caribbean Operations segment, the increased production of table eggs in Haiti Broilers SA is now reflected in the profits being reported for the quarter. The normalized segment result, after adjusting for the effects of the disposal of subsidiaries, amounted to $74 million which was $49 million or 196 percent above the $25 million reported last year.”
Distribution costs, grew much faster than sales, with an increase of 29 percent over the previous year, to $321 million from $248 million while administration costs moved up by 20 percent to $1.79 billion from $1.49 billion in 2015.
The profit out turn resulted in earnings of 33.08 cents per share for the quarter. IC Insider expects that with continued growth in sales revenues investors should see increased profit for the current year which will be aided by improved economic activity in the markets the group operates in.
At the end of the quarter, shareholders’ equity stood at $12.7 billion while loans grew from $6 billion in July 2015 to $6.9 billion in 2016 while cash funds and investments ended at $1.7 billion in 2016 versus $1.8 billion in 2015.
Jamaica Broilers’ shares are listed on the Jamaica Stock Exchange and last traded at $14.52 at PE ratio of 11 times last fiscal year’s earnings.
Stock split coming for JSE
Jamaica Stock Exchange (JSE) advised after trading closed on Thursday that the Board of Directors will be considering a stock split at a board meeting scheduled to be held on Wednesday, September 21, 2016. With only 140 million shares issued and 90 million being held by brokers members there is a strong possibility for a 5 for 1 stock split to allow for greater liquidity.
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.
Expenses in the June quarter rose less than the growth in revenues at 40 percent and for the half year by 26 percent. Increase in salaries related cost was the major area of cost increase rising faster than the increased revenues. Salaries and related cost jumped 65 percent in the June quarter compared with a 52 percent gain in revenues for the quarter and 44 percent increase in wages for the half year to June, 7 percentage points higher than revenue growth. Wages accounted for 55 percent of total cost in the quarter and 46 percent for the six months period for all of 2015 the ratio was 43 percent.
Segment results show a sharp jump in both revenues and profit for the Exchange Operations and that of Trustees Services for the half year. Exchange operations revenues grew to $326 million from $233 million in 2015 resulting in pretax profit of $151 million from $84 million in the six months to June 2015 while Trustees Services saw revenues shooting to $114 million from $46 million and with profit of $64 million from $18 million in 2015.
The stock traded on Thursday at $24.10 delivering a huge gain for investors who bought shares in the public offer in June 2013 at $2.85 per share. Some investors have done even better in buying the stock below $2 per share after it was listed.
ISP Finance revving to expand
ISP Finance plans to issue $150m in bonds in September.
The issue opens at 9 am on September 1 and will close at 4:30 pm on September 22, 2016. The Company will have the option to prepay the bonds at par before the due date. ISP reported revenues of J$52 million, a 7.2 percent increase over the J$49 million record in the second quarter of 2015, according to its unaudited financial results for the second quarter ended June, this year. Gross profit amounted to J$49 million compared to J$44 million in the comparative quarter in 2015. Net profit for the June quarter came out at J$11.7 million representing a 240 percent the $3.4 million generated in 2015, however, the company reversed $7.9 million in the June quarter, cost relating to the IPO, which it expensed in the first quarter, thus inflating the second quarter profit. For the six months to June revenues grew to $106 million from $99 million in 2015. Net profit for the six months ended at $8.6 versus $3 million in 2015.
The increase in the company’s revenue in the 2nd quarter of 2016 resulted from increased business activities, while the decrease in interest expenses in the 2nd quarter of 2016 was due to repayment of a loan to commercial bank.
At the end of December 2015, the company’s loan portfolio, before loan loss provision stood at J$304 million and grew marginally to J$305 million at the end of June. After loan loss provision of $70 million, it stood at $234 million as of June this year versus $241 million at December and is up from the $225 million at the end of March 2016. Cash on hand stood at $67 million while the amount borrowed fell to $127 million including overdraft balance of $38 million from $328 million at the end of 2015.
The funds being raised could propel loan growth significantly and with it profits particularly in 2017 as the funds would be available for a full year compared to a few months for 2016. Importantly, more funds will be available for the busy Christmas period. IC Insider forecast earnings for 2016 at of $59 million or 57 cents per share with earnings jumping sharply higher in 2017, if most of the bond funds are received and are on lent.
The company is not without risk and success will be highly dependent on management’s ability to make proper credit assessment and police tightly loan repayments by its clients.
Undervalued JMMB Group
JMMB Group traded 1,790,063 shares but fell 34 cents to $9.50 on Monday.
Total comprehensive income for period, amounted to $1.14 billion versus $894 million in 2015 and is a factor worth paying attention to as it gives a better indication of the performance of the group than the regular profit out turn.
The JMMB Group reported net operating revenue of J$3.42 billion for the first three months of the new fiscal year, reflecting a 9.9 percent increase compared to the corresponding period in 2015 and was due mainly to positive growth in net interest income, fee and commission income and foreign exchange margins from cambio trading.
Keith Duncan, Group Chief Executive Officer of JMMB
Operating revenue grew in all the territories with 26 percent of operating revenue generated outside of Jamaica. Nevertheless, the Jamaican entities continued to post positive performance. In Trinidad and Tobago, the Group’s operations continued to move in a positive trajectory, reporting a 32 percent or J$150.2 million growth in operating revenue at J$614.6 million. The operations in the Dominican Republic also posted growth in operating revenue; up 22 percent or J$49 million to J$275 million.
Operating expenses rose 14 percent to $2.58 billion a bit faster than a 10 percent rise in overall revenues net of interest cost, but if one off gains are adjusted for, revenues would have grown by 31 percent, much faster than operating cost.JMMB Group’s asset base totalled J$245 billion, up J$22 billion or 10 percent relative to a year ago. The growth was due primarily to larger investment and loan portfolios. The investment portfolio increased by J$20 billion or 13 percent to J$171 billion. In addition, loans and advances, net of provision for credit losses was J$40 billion, up 21 percent or J$7 billion. Growth in the asset base was funded by customer deposits and repurchase agreements. Customer deposits increased by J$6 billion or 15 percent to J$46 billion, while repurchase agreements were 7 percent higher at J$156 billion.