The Jamaica Stock Market has moved from the best performing in the world in 2018 to one of the worse performing in 2020. The fall from grace had to do far less with local factors but more so with global developments. Nevertheless, Main Market listed Pulse Investments came out on top in 2020 with gains of 243 percent, followed by former Junior Market listings, Epply in the second position with 227 percent and Key Insurance with 88 percent.
Even as the markets had their worse year since 2018, the past year ended with a number of stocks recording gains, up to 243 percent for top Main Market stocks and a much lower 36 percent for the best performing Junior Market stock. 
The Junior Market suffered badly, with ten stocks losing upwards of 39 percent out of a list of 33 stocks that declined for the year. The Junior Market was partially saved by two stocks, one that was listed in December 2019 and one listed in the last half of 2020. Mailpac was listed in December 2019 and rose 36 percent in 2020, followed by Tropical Battery by 28 percent as the two leading Junior Market winners. With tax losses as the only major asset of worth, Ciboney came in third and more than doubled with a rise of 118 percent. The Main Market had 32 stocks declining during the year, with losses going as high as 63 percent.
In 2020, both of the Jamaica Stock Exchange major markets were down, with the Junior Market just edging out the Main Market index with a lower decline of 21 percent versus 22.6 percent. Even though 2020 was not a great year, some investors made money by buying stocks at rock bottom prices when many investors were dumping earlier in the year.
The JSE Main Market fell 33 percent to a yearly low in March and the Junior Market by 37 percent. Since then, they have rebounded but not enough to take them out of the year’s negative territory.
Since bottoming in March, the Junior Market is up 30 percent and the Main Market 16.6 percent by the end of the year. There are strong signals pointing to an upward move for both markets as they transitioned from a consolidating phase when investors were assessing developments in the economy and the stock market to a more bullish state since the latter months of 2020.
Proven expanding investment foot print
Proven Investments signed an agreement to acquire a 50.5 percent controlling interest in Roberts Manufacturing Company, a Barbados based company, Proven announced this past week.
The agreement is for the purchase of shares from Massy Properties (Barbados) for US$21,452,500. “The consideration includes real estate for US$1,452,500, with the rate of return on the investment put at 15 percent based on the purchase price,” Christopher Williams, CEO of Proven, advised ICInsidier.com.
“Closing is scheduled to take place 3 business days following the receipt of all regulatory and governmental confirmations, approvals, and acknowledgments, save that the closing date may not be extended beyond 30 days,” Proven further advised.
“RMCL produces a variety of margarine, shortening, soyabean oils and animal feed products, which are distributed to over 15 markets regionally and internationally.
“The proposed acquisition is one of three that Proven has been negotiating,” Williams advised ICInsidier.com. One is said to be a financial institution in the Cayman Islands that is subject to regulatory approval and will result in the group owning two companies in that country with the 100 percent owned International Financial Planning (Cayman) Limited. The other business under consideration is in the business of property rental.
“The acquisition of the majority shareholding of RMCL is aligned with PROVEN’s strategy to grow through acquisition in the real sector throughout the Caribbean and Latin American regions with a view to create value to its shareholders.” the Proven release stated.
Christopher Williams, Proven Investments CEO.
RMCL has Ansa Mc Al as the minority shareholder who manages the operations. Proven decided to invest in the manufacturing operations due to the high rate of returns on investments. Management is already in place running it and the appeal of the products to a wide cross section of customers regionally and in developed countries.
Proven generated profit attributable to shareholders of US$29.98 million for the financial year to March 2020 and is boosted by US$25 million in gains from the sale of part of their investments in Access Financial Services. The company suffered losses of nearly US$18 million on other investments and ended the year with a total comprehensive profit of US$18 million.
For the September quarter, Proven generated profits of US$3.4 million and US$4.8 million for the six months. That should compute to around 1.5 US cents per share for the year, but Williams expects this to jump to 24 US cents per share in 2022. Whether that target is achieved or not is unsure at this stage, but what is known is that the last capital raise was not all fully utilized as expansion plans slowed and would have generated a lower rate of return than if they were used in the acquisition of profitable ventures. In addition, the latest announced acquisition will add around US$3 million to annual profit or about 4 cents per share and push Earnings per share within the 20 cents range. The investment market recovered from the collapse in the March quarter and resulted in total comprehensive profit of US$17 million for the September quarter and US$27 million for the half year, thus reversing the 2020 losses in the investment market.
Proven Investments traded the most shares on the market.
To assist in funding acquisitions and ensuring adequate liquidity, the company has offered for sale 89,416,037 new ordinary shares to existing shareholders and the public. The company has the option to upsize the issue to a maximum of 134,124,037 shares to raise a maximum of US$30 million, assuming the Invitation is fully upsized. If fully upsized, the total number of shares in issue will be 759.43 million units.
The price to be paid per share by Existing Shareholders is 22.50 US cents or J$32.80, Key Investors 22 US cents or J$32.10 and others 23 US cents or J$33.50. All the prices are below existing market prices of 25.69 US cents and J$35.79 in the Jamaican segment of the Jamaica Stock Exchange. Acquisitions in the financial sector will provide the opportunity for cross selling products and services to clients in each company, as well as provide the opportunity for some amount of cost reduction as certain administrative and other costs can be shared within the group.
The Directors anticipate that not less than 50 percent of the Company’s annual after-tax profits will be distributed as dividends, subject to the requirement for re-investment of its profits to finance potential growth and to ensure sustained development, as well as due compliance with the solvency and liquidity criteria set by the Company’s Investment Policies.
The official closing date for the offer is January 29, 2021.
Investment 2021 – Recovery for JSE markets
The JSE Junior and Main Markets retreated in 2020, due mainly to the impact of the COVID-19 on the economy and businesses. Both markets, however, began to struggle in the final quarter of 2019 as a number of new IPOs were either issued or scheduled to be issued, thereby sapping some of the liquidity from the market.
The markets may have been due for a correction anyway, based on their history. Prior to this period, the Main Market had only risen on two other occasions equalling or exceeding six years. Surprisingly, the market went on to move higher during a period of economic turbulence, from 1978 to 1987, nine years of annual gains and again between 1996 and 2004 for another nine-year spell. On the other hand, the Junior Market, for the first time, recorded five consecutive years of increases from 2015 to 2019.
In reality, the market closed higher in each year from 2014 to 2019 for six years’ unbroken run. The JSE Main Market fell 33 percent to the low in March and the Junior Market by 37 percent. Since then, they have rebounded but not enough to take them out of the negative territory for the year.
The number of new IPOs coming to market in the past three years pulled liquidity from the Junior Market, which depends extensively on the involvement of individual investors. In 2018 and 2019, the Junior Market under-performed the Main Market, measured by way of the market indices. In 2020, both markets were down, with the Junior Market just edging out the Main Market index with a lower decline of 21 percent versus 22.6 percent. Even though 2020 was not a great year, some investors made money by buying some stocks at rock bottom prices when many investors were dumping.
The decline in the market gives some investors breathing space from the six years’ bull market and opportunities to pick up stocks at better valuations or prices than for the period up to March 2020.
The markets have been recovering since they bottomed in March with the Junior Market up 30 percent and the Main Market 16.6 percent. There are strong signals pointing to an upward move for both markets as they transitioned from a consolidating phase when investors were assessing developments in the economy and the stock market. The Golden cross technical signal for the Junior Market points to that market heading back above the 3,000 points level within months. 
The Main Market is undergoing a bullish signal with short term moving average line crossing over the medium-term Moving Average a bullish signal. The Main Market is within an ascending channel that points to the All Jamaican index heading towards the 460,000 points range.
Market valuations are reasonable with the PE ratios based on 2020 earnings at 14.7 times for the Junior Market and 17 for the Main Market, a few stocks are priced higher than the average, with many prices well below. Based on 2021 earnings, the PE ratio is an average of 9.2 for Junior Market stocks and 14.7 for the Main Market. The large difference is an indication as to where the best values can be found for investors. Adequate liquidity can be a problem for the Junior Market and many investors need to take a longer-term view in some of these companies as it is sometimes difficult to buy or sell good volume at prevailing market prices under current market conditions.
The local economy is currently down sharply, compared to 2019, but information released by Statin shows the economy picking up from the depressed June quarter, when major areas of the local economy were closed due to COVID-19. However, there are signs that the recovery has been picking up the pace and could move higher if the Coronavirus does not have any greater impact.
While the restrictions placed on economic and social activity has eased since the June quarter, it’s not business as usual in many areas. Investors still need to keep an eye on COVID-19 developments globally and any likely effects on the local economy. Barring any negative developments, stocks highly exposed to tourism, construction, banks and some manufacturing entities could see revenues and profits improving in 2021.
The TOP Main Market stocks’ potential gains range from 70 percent to 290 percent. The Junior Market range is 145 percent to 400 percent. Quite a number of the TOP 15 are recovery candidates. In fact, the Junior Market is filled with these, of which there are six that suffered badly from the effects COVID-19 had on their customers or in dampening demand for their products. A few in the Main Market were partially affected but not as much as some Junior Market companies.
This year 2021, seems set to be the year of surprises as many stocks that suffered badly in 2020 could be making a major turnaround in revenues and profit, while some that may not fully recover could start showing good signs of returning to normalcy.
The TOP 15 Main Market stocks: Berger Paints, Grace Kennedy, Jamaica Broilers, Pan Jam Investment, Radio Jamaica, Victoria Mutual Investments, Scotia Group, QWI Investments, Wisynco Group, Carreras, Sygnus Credit Investments, JMMB Group, Caribbean Cement, Seprod and Sterling Investments.
The TOP 15 Junior Market stocks: Lasco Financial, Caribbean Producers, Caribbean Cream, Main Event, Elite Diagnostic, Jetcon, Medical Disposables, Caribbean Assurance Brokers, Access Financial, Stationery and Office Supplies, Jamaican Teas, General Accident, Lasco Distributors, Lumber Depot and MailPac.
While there are clear signs of improving economic conditions, the path for the year ahead is uncertain for a number of companies. Some that suffered badly in 2020 will be showing signs of recovery, but the timing of their return to fairly good health is unclear at this stage. Investors should be on the watch for these early signs in individual companies.
Banks suffered from the need to increase expected credit loss provisioning, but it appears that it may not be as bad as initially projected. As such, there is likely to be less provision for credit losses in 2021 for banks and other lenders.
JSE Main Market on a rebound and heading to 460,000 points based on the AJ Index.
For other companies, just the fact that the second quarter lockdown of the economy last year is unlikely to be repeated will result in second quarter results in 2021 being better than last year. This would be of benefit to Caribbean Producers, Elite Diagnostic, Jetcon and Stationery and Office Supplies.
Strong growth in the construction sector favours stocks such as Berger Paints, Caribbean Cement and Lumber Depot while a rebound in the tourism sector will help boost revenues for Caribbean Producers, Grace Kennedy, Jamaica Broilers, Wisynco Group and the banks.
The financial challenges caused by the coronavirus are likely to lead to some businesses seeking to merge or dispose of a majority interest to other entities. As such, there is the possibility that a number of listed companies could acquire some of them at good prices. This is a potential development that investors should be on the alert for.
Bulls pushing JSE stocks higher
JSE Main market is up over 6,000 points in early Wednesday trading.
The bulls continue to prowl Wednesday on the Jamaica Stock Exchange with the All Jamaican Composite Index up to trade at 435,382.80, up 6,446.29 points after an hour of trading and is back the April 15 level.
The JSE Main Index is up 5,761.51 points to 397189.72. Junior Market Index rose moderately moving from 2,529.92 points to 2,544.20.
Grace Kennedy rose from $59.99 to $67.98, while JMMB Group is trading up at $34.90 and Sagicor Group is up to $51.51.
Over 25 years of useless circuit breaker
Frequent interruption to trading stocks on the Jamaica Stock Exchange caused by the Circuit Breaker rule that shuts down activity in a company’s stock for an hour is frustrating for investors once the price moves by 15 percent or more from the closing price of the previous trading session.
Introduced by the JSE in the 1990s based on some investors’ complaints about large swings in the price movements of some stocks, the circuit breaker has not been effective in safeguarding investors’ interest by allowing information to flow to investors as to the reasons for sharp price movements. In place for more than 25 years, the mechanism serves no useful purpose, hinders trading and have not resulted in the presentation of new information for stocks so halted to justify stopping in trading.
In the past, this publication made suggestions to modify the system as it operates currently, to simplify it and allow for fewer losses in trading time for stocks subjected to the circuit breaker rule. There is no move by the JSE to implement changes since the price limit increase to 30 percent. It appears that the JSE does not seem to get it. It is better to improve what currently exists to help boost business rather than seeking other businesses.
If the rule is retained, keep it simple that all involved in the market can easily understand.
For example, if the maximum daily price movement is 30 percent, let that be the figure so that anyone can compute what it will be. There is no logic to state that prices can move by 30 percent, which happens in some cases and not in others. There should be no difference to the daily maximum price, whether it gets there in one movement or more than one. Currently, a 15 percent price movement triggers a re-computation of the maximum price of less than 30 percent. If a stock’s reference price starts the day at $10, then the day’s maximum price would be $3. Every investor can compute this. There is no reason to adjust the maximum if it trades initially at $12, with the maximum price for the day dropping to $12.65?
The second modification to the circuit breaker rule is reducing the time that stocks are frozen. An hour break is far too long and prevents prices from moving above 15 percent within an hour of the market’s close.
If there is a need for the circuit breaker, why not break for 15 minutes instead of an hour so that trading can take place more freely. The Stock Exchange still has the power to halt trading in any stock or the market if they consider it prudent.
The Circuit Breaker rule. No stock should trade +/-15% from the close price or the effective close price at the market’s opening. The effective close price is determined whenever the closing bid is greater than the close price or whenever the closing ask is less than the close price. If the Circuit Breaker is triggered, the security will be halted for an hour to allow for the release, circulation and absorption of any relevant market news and a cool-down period while investors consider their options. After the hour, the security will be released for trading and the new reference price, which is a simple average of the trigger price and the close price, will be used to determine the trading range for the remainder of the day. The trade price that triggered the Circuit Breaker should not be +/-15% outside of the original prescribed price band. The stock will not be allowed to trade +/- 15% of the new reference price.
Junior Market beating Main Market again
Back in 2018, the Jamaica Stock Exchange Junior and the Main Markets were trading around 18 times the current year’s earnings towards the end of the year, they parted company since, with the Junior market now at nine and the Main Market at 14 times current year’ earnings.
The Junior Market index outperformed the Main Market index by a wide margin between 2011 and 2016, with gains of 583 percent to 160 percent for the Main Market. The Junior Market annual movements exceeded that of the Main Market, by significant margins, except on two occasions when the Main Market edged out the Junior Market. In 2012, the Main Market beat the Junior Market stocks by two percentage points and 12 percentage points in 2014. In 2011, when the Main Market rose 26 percent, the Junior Market jumped 97 percent in the formative years of the market, with twelve listings by the end of 2011 compared to just one at the end of 2010. The gains in 2011 came from new listings, as Access Financial Services, the only stock listed in 2010, ended at $4.70 in 2011 from $5 at the end of 2010 from an IPO adjusted price of $1.834 after a 10 for one stock split.
The Junior Market performance after 2016 was moderate as investors focused attention on the more established companies on the Main Market as interest rates on Treasury bill started falling below seven percent. 
Notwithstanding the pick outperformance of the market for emerging companies by the more mature market after 2016, the former was still able the beat the latter between 2010 and 2020, with the Juniors outperforming with gains of 588 percent to 415 percent.
The Junior Market fell sharper than the Main Market in the market met down in March this year. Yet, the Junior Market recovered faster than the Main Market and is now ahead with gains since that erased year to date losses to 22 percent up to last Friday, compared to a fall of 26 percent for the Main Market. In the past four weeks, the Junior Market continues to outperform the Main Market. With Junior Market stocks enjoying PE ratio that is far less than the Main Market stocks, the odds favour the newer business entities doing better than the older, more matured ones until the gap is closed.
Four changes to IC TOP 10
The Main and the Junior Market of the Jamaica Stock Exchange saw investors taking profit after a robust run since the second half of March, up to last Tuesday after reopening from the Easter holiday break. At the close of the week, IC Insider.com TOP 10 stocks had four changes to the lists.
Image courtesy of suphakit73/FreeDigitalPhotos.net
The Main Market closed the week with one change as Caribbean Cement climbed 14 percent to $48.50, from $42.50. The latest entrant is Eppley, with the price falling to $14.80 from $17 at the close of the prior week. The more volatile Junior Market ended with three changes. Moving on from the Junior Market TOP 10 are Caribbean Assurance Brokers that traded at a new high during the week, Lasco Distributor and Stationery and Office Supplies. New entrants to the list are Mailpac Group, Elite Diagnostic and Medical Disposables after the prices of all three fell at the end of the week.
The three top Junior Market stocks remain unchanged from last week with Caribbean Producers leading, followed by KLE Group and Lasco Financial with the potential to gain between 300 to 533 percent by 2021. In 
the Main Market, Berger Paints leads the pact, followed by Radio Jamaica and Sygnus Credit Investments with projected gains of 180 to 186 percent.
Significant uncertainties exist in the economy and the financial markets; accordingly, it is not possible to determine the exact impact on company earnings for the rest of the year. Actual earnings could vary materially from IC Insider.com’s forecast. Looking beyond the immediate fallout or benefits for companies can be useful in guiding investment decisions for above-average gains in the period ahead.
The targeted average PE ratio of the market is 20 based on the profits of companies reporting full year’s results for the financial year ending after this year’s second quarter and up to the second quarter in 2021. Both the Junior and Main markets are currently trading well below this level. 
The JSE Main Market ended the week, with an overall PE of 13 and the Junior Market a mere 9, based on current 2020/21 earnings. The PE ratio for Junior Market Top 10 stocks averages a just 5.4 with the Main Market at a much higher level of 8.2.
The TOP 10 stocks now trade at a discount of 40 percent of the average for Junior Market and Main Market stocks trade at a discount of 37 percent to the overall market. The average projected gain for the IC TOP 10 stocks is 296 percent from 278 percent last week, for the Junior Market and 146 percent from 139 percent last week for the JSE Main Market, based on 2020/21 earnings.
IC TOP 10 stocks are likely to deliver the best returns to March 2021. Forecasted earnings and PE ratio for the current fiscal year are in determining potential gains. The ranking of stocks is in order of likely increases, with the highest-ranked, being the most attractive. Expected values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis as new information is received that can result in changes in and out of the list.
Persons who compiled this report may have an interest in securities commented on in this report.
Junior Market up 33% from March low
The Junior Market of the Jamaica Stock Exchange continues its recovery from the savage decline of March and is back to levels reached in the first week of that month and is up 33 percent from the March low.
Within half an hour of trading, the Junior Market Index crossed over the 2,700 points mark to 2,706.06 and is up 63.25 points from Thursday close and is ahead of the March 5 ending of 2,656.41 points but lower than the close on March 4 of 2,758.76, but is some distance from the February close of 2,911.92.
The Main Market continues to recover and the All Jamaica Composite Index is up 5,703.56 points to 443071.44 and is above the March 16 close of 434,832.42.
Worse day for Jamaican Stocks
The Jamaica Stock Exchange suffered it worse day with a fall of 24,224.80 points off the Composite index on Thursday, beating the 14,424.69 points fall on Tuesday when the market closed at 511,165.47.
Main Market stock suffering significant declines include NCB Financial $1.55, Caribbean Cement $2, PanJam Investments $2.01, Scotia Group $2, Sygnus Credit $3.30 and Wisynco off $2.45.
The Junior Market that has been under pressure some months and fell 99.62 points on Wednesday dropped another 102.35 points on Thursday, to close at 2,656.41. Junior Market stocks that suffered the greatest losses that to Thursday’s sharp fall include Access Financial down $2.11, Blue Power off 56 cents, Cargo Handlers with a loss of 96 cents Express Catering falling 46 cents, General Accident down 80 cents, Knutsford Express off by 65 cents and Stationery and Office Supplies down 75 cents.
Jamaican stocks set for 2020 growth
The Jamaica Stock Exchange saw divergent movement in the three markets it operates, in 2019. While the major focus was on the Main Market performance with 34 percent gain, the US dollar market actually outdid it with gains of 40 percent but the Junior Market was nowhere to be found.
Almost clear skies for the Jamaica Stock Exchange
The Junior Market had its worse performance in three years, with an increase of just 3.4 percent. Last year was the fifth year of annual gains for the Jamaica Stock Exchange. In the past, the five-year mark meant that the market had peaked and was due for a major correction. Technical and fundamental indicators are not pointing in this direction currently.
Technically, the Main Market has 900,000 plus points on its radar, 60 percent away for the All Jamaica Composite index from the start of the year. The market is being steered by an upward sloping support line. There is no indication of any major resistance until it passes the 900,000 points mark.
The PE for the Main Market based on 2020 earnings is down to 16 times, 25 percent below the 2019 PE at the end of 2019 of 20. NCB Financial performance is going be crucial to the performance of the market index as it controls so much of the market capitalization. In the end, the index is just a barometer of the movement in the value of all the companies listed and investors would be well advised to focus on the quality of stocks that will provide good returns. IC Insider.com forecast shows 13 to 15 companies that could double in price during the next 15 months in the Main Market starting in January.
The Junior Market is poised to move much higher on improved profits for 2019 and 2020, even as some 2019 results were disappointing and did not stimulate investors to acquire these stocks in increasing volumes with many of them still undervalued relative to values in the Main market. 
Improvement in profitability will convince investors that there are excellent values in this segment of the market.
There are 28 Junior Market stocks with the potential to deliver gains between 100 to 600 percent in 2020 and up to March 2021. The major reason for the large group is the lack of performance in the market in 2019. Investors placed a major focus on the Main Market, driving the PE ration to 21 compared to 14 for the Junior Market. At the end of 2018, both markets were trading around 17 times 2018 earnings. This divergence, suggests that there are good opportunities to profit from in 2020, as investors move to take advantage of undervalued stocks when
The forecast assumes that economic growth will continue during the year around the 2 percent level and that interest rates will remain close to current levels with Treasury bills rates staying under 2 percent. A major factor, that is important in viewing the market is the number of companies that are enjoying strong growth in sales as well as those that are expanding or likely to do so. Such developments bode well for major gains in profit going forward.
Investors should not ignore companies that performed poorly in 2019 but could enjoy a strong turnaround in 2020. 
The Investors’ Choice 80:20 rule based on 40 years of data, shows more stocks rising form the bottom 10 worse performers in a year and surge into the TOP 10 the following year, while an average of 80 percent of those in the TOP 10 fail to repeat in the following year and since 2016 the average is just one.
With the likelihood of twenty IPOs planned for 2020, investors can look for a series of disruptions in the upward trajectory of the market. For the past two years, there were signs that on each occasion of popular initial public offers, prices of existing stocks came under pressure. The most recent were the three issues for 2020 to date. This phenomenon is most pronounced in the Junior Market that is far less liquid than the Main Market. The pullback of prices caused by the sell-off to fund IPOs also provides opportunities for investors who may want to pick up existing listed stocks at bargain prices.
