JMMB undervalued as profit slips

JMMB Group posted net profit of $1.73 billion and earnings per share of $1.04 for the nine months period ended December 2015. JMMB reported lower profit in the December Quarter of 32 cents per share versus 46 cents in 2014 and $1.04 for the nine months compared to $1.08.
The December quarter profit of $519 million is the lowest of the three quarters to date as the group saw increased net interest income but lower gains on securities trading of $714 million versus $942 in the 2014 quarter and Foreign exchange margins from cambio trading of $227 million versus $248 million. Year to date these two categories are up on the prior year’s nine months. JMMB reported profit of $743 million in the 2014 December quarter, 43 percent more than in 2015.
Operating revenues after accounting for interest cost grew 9.2 percent to $8.5 billion, with gains on securities trading, foreign exchange trading, and commission income increasing of 12.8 percent, 16.4 percent and 29.8 percent respectively but with net interest income growing by just $126 million or just 3 percent. “These were driven largely by volume increases and taking advantage of market opportunities mainly in Jamaica” the JMMB directors’ reported stated.
JMMB management reported to shareholders that “the merchant bank in Jamaica contributed net profits of $330 million, an increase of 40 percent over the prior period. The bank’s loan portfolio grew by 32.4 percent from March 2015, with a non-performing loans ratio of 1.7 percent. The operations in the Dominican Republic continue to produce positive results with the Puesto De Bolsa contributing net profits of J$160 million for the period. The full range of services are being rolled out in the Dominican Republic which includes money market mutual funds and the newly acquired savings and loan bank, Banco Rio de Ahorro Y Credito JMMB Bank S.A. (JMMB Bank). The Group also obtained approval from the Regulatory authority in December 2015, as a new licensee, to administer Pension Funds in the Dominican Republic. The directors stated in their release with the quarterly. In Trinidad and Tobago, the Group’s operations continue to move in a positive trajectory, contributing $186.9 million for the period.
The asset base of the JMMB Group increased by $7 billion or 3.3 percent for the period, moving from $217.7 billion at March 2015 to J$225 billion.”
The Group’s managed funds increased by 60 percent to J$65 billion compared to $40.7 billion for the prior year.
JMMB should earn profits around $1.40 per share for the fiscal year that ends March this year, but recent results suggest that growth is reaching maturation levels and management will need to put in lots of effort to rev up business while keeping cost under control. While management indicates that the operation in Trinidad continues to be impacted positively, concerns must exit with the recession in that country, that is placing pressure on corporate profits. New acquisition in Dominican Republic could enhance operations in that country and contribute to increase profits in 2016/17. With the stock price hovering at $10 in Jamaica, the PE of the stock is around 7.5 which make for a good entry point for investors who may want to invest for a few years.