Great period ahead for stocks

Interest rates are falling and will drive stocks higher in 2018.

Last year was a great one for Jamaican stocks but an assessment of the market suggests that 2018 could be a grand year as well with overall price gains likely to be in excess of 40 percent.
Based on projected earnings for 2018, the average PE ratio suggests that the main market stock prices should grow by 26 percent and Junior Market by 36 percent. Falling interest rates could add another 20 percent to gains during the year, bringing them to be in excess of 40 percent.
Technical readings of the markets have the main market heading initially to around 390,000 points or 23 percent ahead of the December close, for the all Jamaica Index, with the junior market moving to 3,900 points, 43 percent higher than the end of 2017, before resistance sets in. Before moving much higher, the Junior Market must break through the 3,000 and 3,200 levels which were set when the market dropped after Lasco Distributors fell from the $7 level to below $4 late in 2017, helped by a fall in Lasco manufacturing.
Last year was a great one for Jamaican stocks, with 14 of the 64 ordinary shares of companies that were listed prior to the December new listings, rising 100 percent or more and 16 rising between 50 and 81 percent.
Although, the Junior and Main Market index rose just 5.3 percent and 51 percent respectively, at the end of the year, only 9 of the 34 listings at the end of the year recorded losses, while the main market recorded just 5 declining stocks.

Elite Diagnostics is the first 2018 IPO out of 9, that is expected this year.

Importantly, the average gains for the Junior Market is 79 percent and losses, averaging of 20 percent, for a net gain of 59 percent. The average main market stock rose 68 percent while losses averaged 22 percent, for a net of 48 percent.
2017 IPOS|The past year saw 9 new companies listing on the exchange, another 9 could list in 2018. If the trend of the 2017 IPOs with all ordinary IPO shares rising, repeats for 2018 IPOs, then investors can look forward to another round of profitable new offerings. Added to that, a number of last year’s listings should continue to deliver above average returns in 2018.
Stocks to grow in 2018| IC projects a better performance in the Junior Market Index in 2018 than for 2017 but the main market may be challenged to deliver a similar performance. Many of the main market heavy weights will find it tough to repeat the strong gains they enjoyed in 2017, if that is the case, their impact on the market index is likely to be less than for 2017. Another factor that could make a repeat of 2017 tough, is the movement of interest rates. Last year, Treasury bill rates fell 29 percent from 6.56 percent to 4.83 percent, that level of decline, is unlikely to happen in 2018, even as some of the decline in the latter part of 2017 is yet to be fully reflected in the prices of stocks to date and should positively affect prices in 2018. IC is forecasting rates on 182 days Treasury bill hitting 4 percent by the end of the 2018 first quarter. New listings could help move the indices in 2018, the likely impact on them is unknown at this point.

Growth in tourism is expected to directly impact a number of companies positively in 2018.

Increasing GDP| There are a number of other factors at play that are set to impact the market. Increasing employment taking place should continue in 2018 as economic activity gains momentum, this will mean more spending and increased tax collection for government. Alpart resumption of Alumina production is a big positive for the overall economy, for increased government revenues and increased demand for local goods and services, some of which are provided by listed companies. The tourism sector is enjoying strong growth, apart from increasing foreign exchange intake for the country, will have direct impact on Jamaica Producers, Dolphin Cove, Express Catering, Caribbean Producers and Sagicor X Fund. Jamaica seems to be going through a construction boom with several new buildings under construction, Caribbean Cement and Berger Paints should benefit considerably while Blue Power’s lumber segment should see improved sales from such developments.
Lower interest rates mean lower cost for many companies and revaluation of the Jamaican dollar also means lower cost but could result in lower revenues in some cases. More listing on the market means more fee income for JSE and brokerage houses, from increased trading volumes.

Junior stocks beat majors in 2017

Junior market stocks performed better than main market stocks in 2017 but that performance does not show in the gains in the market indices of both markets.
A cursory look at the Junior and Main Market indices would lead to the conclusion that investors in the main market were far better off in 2017 that their Junior Market counter path. Such a conclusion would be completely wrong. The Junior Market rose just 5.3 percent at the end of the year, down from a high of 31 percent in May, compared with almost 51 percent gain for the main market for, the full year.
Data is showing that while the Junior Market index was barely up, 8 stocks gained more than 100 percent compared to 6 in the main market. 7 Junior Market stocks rose between 50 percent and 76 percent and 9 gained between 52 percent and 81 percent in the main market. Importantly, the average gains for the Junior Market is 79 percent and losses, an average of 20 percent for a net gain of 59 percent. The average main market stock rose 68 percent while losses averaged 22 percent, a net of 48 percent.
A 43 percent fall in the price of the heavily weighted, Lasco Distributors and 14 percent in Lasco Manufacturing dented the Junior Market index in a big way.
The main market benefitted from big gains in heavy weighted, Supreme Ventures, NCB Financial, Jamaica Producers, JMMB Group, Carreras and Scotia Group with increases of 61 to 100 percent. Added to that PanJam Investment gained 60 percent, Cable and Wireless 56 percent and Sagicor Group 31 percent.

Bulls take charge of Exchange Place

Bulls at large in down town Kingston again

The Main Market of the Jamaica Stock Exchange closed at another record on Friday with 21 securities changing hands in the main market and 3 in the US dollar market and 22 in the Junior Market.
At the close, the JSE All Jamaican Composite Index jumped 8,028.94 points to a record close of 313,990.54 and the JSE Index to surged 7,315.27 points to 286,080.89. The Junior Market rose 48.58 points to end the week at 3,034.13. The US dollar Index fell 2.29 points to 183.01.

Friday’s move pushed the market outside of the medium term channel it has been trading in since 2014 and if the price of NCB holds, the break out for the market will be significant as it move on to the 360,000 points level.
NCB Financial traded at a new record of $107 and is ahead of the $102 it traded at in Trinidad on Friday, up until today it trailed the price of J$100 it was trading at in the twin island state. Berger Paints traded at $14, after news broke on Thursday that only 6.6 million shares were sold by minority shareholders to Ansa Coating following the company’s mandatory offer of $10.88 per share. Attempts were made to trade it as high as $17.50 but the price exceeded the 30 percent limit it could trade at for the day and was cancelled at the close of the market. Trading closed with bids to buy Berger ranging from a low of $11.02 to a high of $14 to purchase 259,773 shares, 204,458 units are on sale from a low of $16.75 for 41,583 units to mostly 89,388 at $22.
For the year to date, the All Jamaican Composite Index is up 49.4 percent and the JSE Index 48.8 percent.
In the foreign exchange market at midday dealers bought US$13,372,228 at J$127.31 and sold US$11,367,821 at J$127.74.

All-time high for JSE in early trading

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The Jamaica Stock Exchange main market is trading in record territory just after opening on Friday morning.
Trading on the Main Market saw the JSE All Jamaican Composite Index rising 2,955.43 points to record close of 298,567.15 and pushed gains for the year to date up by 42 percent. The JSE Index jumped 2,692.74 points to record close at 272,028.45, the Combined Index surged 2,465.92 points to a record 282,248.23.
The Junior Market index slipped 1.42 points to 2,945.06 as trading in that market continues to lag that of the main market as investors seem to have refocused on the more matured companies that are listed on the main market.
At the current levels, the market is sitting just below the short term resistance level of 300,000 points and seems set to attach it soon.

NCB Capital assesses JSE market

The stock market continued its upward trajectory in 2017. Year to date, market performance has been significantly stronger than 2016 with the Main Market Index returning 32.94 percent as at August 2017 compared to 6.43 percent for the corresponding period last year.
The Combined, returned 31.2 percent, Junior Market 19.48 percent and All Jamaica Composite Index and 33.6 percent, for the calendar year to August 31, 2017 relative to increases of 8.4 percent, 23.78 percent and 6.6 percent, respectively for the 2016 corresponding period.
Improvement in Jamaica’s macroeconomic fundamentals have boosted business confidence and contributed to a positive outlook for corporate earnings. In addition, increased investor confidence and appetite for riskier assets continue to drive market activity despite the run up in prices.
Stock price appreciation was broad-based with the strongest performers being in the main sectors of manufacturing, financial services and conglomerates. In particular, the manufacturing and financial sectors accounted for six of the top ten advancing stocks during the period. Financials continue to churn out positive earnings on the backdrop of significant growth in private sector credit.

NCB Financial Group profit surged in 2017, helping with other financial stocks to push the JSE higher.

The annual growth in private sector credit at end-February 2017 was 30.7 percent, which was stronger than the expansion of 10 percent in February 2016. Financials have been successful in weathering the low interest rate environment as margins have generally remained stable and fee income growth has been robust. Furthermore, low rates have helped to drive loan portfolio growth while fees and commission income have played a major role in income diversification. The manufacturing sector experienced some expansion buoyed by strong local demand for consumer products and growing export markets in the Food and Beverages segment. Additionally, Jamaican dollar appreciation within the earlier part of Q1 supported the performance of firms with a more concentrated focus on domestic operations. Of note inflation has remained subdued which has also assisted in increasing efficiency and improving margins.
While economic growth outturn was flat during the first quarter of the year, macroeconomic conditions remain stable and augers well for business operating environment. Against this background, the market should see improved activity and an uptick in the number of listed firms aided by the reinstatement of the Junior Market incentives in the last quarter of 2016.

The above is an extract  from The NCB Capital Markets’ September 2017 stock market recommendations.

NCB Capital stock talk

NCB Capital Markets (NCBCM) recommends that investors maintain focus on stocks of companies with diversified revenue streams by operations, geography and currency in its latest recommendations on the Jamaican stock market.
According to the brokerage house, main market companies tend to have more mature operations, stronger fundamentals and are likely to pay more attractive dividends for investors heavily dependent on cash flows. This should form the core of a moderate investor’s equity portfolio. Investors with the appropriate risk appetite should also take a closer look at some Junior Market stocks given that the potential for growth is greater than their main market counterparts. More aggressive investors should also consider taking an active approach to stock market investing by crystalizing gains on stocks that are trading above their fair value estimates, with a view to re-enter at more favourable prices in the near term.

Jamaica Broilers is a recommended buy by NCBCM

Interestingly, there are only three stocks recommended as buys, with six stocks placed on the sell list.
NCBCM recommends investors buy Jamaica Broiler with a forward price of $24, JMMB Group with a forward price of $23.80 and PanJam Investment with a forward price of $43.63.
The brokerage house is recommending selling Caribbean Cement, based on their assessment that the fair value price for the cement producer is $29.92 which is below the current price of $29.99, also on the sell list is Honey Bun, that they are saying that the PE ratio and price to book multiples for Junior Market manufacturing companies were used to derive a fair value estimate of HONBUN with a forward price of $3.70. Jamaica Producers is on the sell list as well with a forward price of $12.99 based on a price to book valuation, Mayberry Investments’ forward price is put at $3.95 and therefore a sell NCBCM says. The fair value of Scotia Group is estimated at $46.48, which is below the current price. The projected dividend yield of 3.5% is not sufficient to offset expected capital loss the NCB Financial brokerage arm says.

Scotiabank is a recommended sell by NCBCM

Stocks that are recommended as holds are Carreras based on the justified P/E and Dividend Discount Model resulted in valuation for Carreras up to $113.91 per share. Kingston Wharves forward price is $29.24, close to existing market price and Sagicor Group with fair value estimate of $34.21.
Ratings Definitions| BUY: The company has sound or improving fundamentals that should allow it to outperform the broader market over the next 12 months. The risk factors to achieving price targets are minimal.
HOLD: We believe the stock is fairly valued at the current price. The company may have issues affecting fundamentals that could take some time to resolve. The risk factors to achieving price targets are moderate. Some volatility is expected.
SELL: The stock is overpriced relative to the soundness of the company’s fundamentals and long-term prospects or the stock is fully priced.

Earlier JSE trade settlement coming

Investor in securities listed on the Jamaica Stock Exchange (JSE) starting December 11, this year, will see a change in the time required to settle transactions, from 3 days to 2.
The stock exchange and Jamaica Central Securities Depository (JCSD), will change the time for settlement of transactions from the current period of trade date plus three (3) days (T+3) to trade date plus two (2) days (T+2).
According to the exchange, “this faster settlement cycle will align the JCSD to International Standards, facilitate Increased liquidity and better cash management for stockbrokers and investors, and be generally more efficient for all stakeholders.”
“The change to T+2 will see the JSE on par with other global markets by the end of 2017,” said JSE’s Managing Director, Marlene Street Forrest.

Critical trend investors must watch

Interest movements have a telling effect on the movement of stock prices and every investor should keep a keen eye on the direction of interest rates for clues to the direction of the market.
Interest rate movement is only one factor, the other critical one is profit. The attached chart shows clearly the relationship between the two and highlights the sharp rise in the JSE against the steep fall in interest rates from 9.1 percent to 5.45 percent now for the 182 days instrument.
Why investors need to keep an eye on interest rates? Apart from the relationship with stocks, the chart of the trend of Treasury bill rates, shows resistance just below 6 percent to rates falling, now solidly broken, with the likelihood of rates on Treasury bills, heading to the 4 percent range before too long. Such a fall would translate to about a Twenty five percent fall in rates and by extension, a rise to around the same level in the value of stocks, assuming no change in profit expectation and would push the All Jamaica Composite index to 360,000 points.

JSE AJI breaks 290,000 points

Helped by a jump of $2.99 in the price of Scotia Group shares in the early morning session on Tuesday to reach a record $54.99, the All Jamaica Composite Index is up to record levels, breaking through the critical resistance of 290,000 points.
The move today have lifted the gains in All Jamaica by an impressive 38 percent for year to date. If the market continues to hold above the 290,000 points mark, it could be setting up for a huge rally ahead with no major resistance levels in sight for sometime to come.
The market index sits just above the resistance level, having exceeded the level at 10.30 earlier in trading today before Scotia Group price fell back to $51.60, after trading just 2,384 shares for the day so far.
At 10:30am, the All Jamaica Composite Index rose 2,173.29 points to 290,234.60, the JSE Market Index rose 1,980.12 points to 264,436.58 and the JSE US dollar market index remained at 198.22 and the Junior Market lost 4.13 points to 3,071.28.

JSE just below resistance at 190,000 points

The main market of the Jamaica Stock Exchange surged to a new high at 12.30 pm on Friday with the all Jamaica Composite index jumping 8,505.30 points to a record 289,062.69 while the main market index rose 7,749.29 points to a record 263,368.84.
The Combined Index jumped 7,344.21 points to a record 276,121.30 as market sentiments suggest that the market may be at an early stage of a major bull run. The junior market that slipped 1.95 points at 11am is now up 18.94 to 3,117.84 while the US dollar market index that was unchnaged at 182.58 in the morning session is now up4.60 to 187.18.
Scotia Group is a mjor contributor to the big market gain with the privce jumping to $52 and only 389 units are now offered at $52. Supreme Ventures traded at a new high of $12.90 but sits at $12.50 with half an hour of trading to go.