Investors can lose out on some incredible investment opportunities if they focus too much on headline reports. This is true of the latest annual results for Barita Investments.

With a drop in the 2013 profits to September of $70.3 million, one would be tempted to dump the stock. However, a deeper look into the numbers says it’s a big buy. On the surface it looks disastrous, but when the one-off investment loss of $240 million is taken into consideration, a far different picture emerges. Barita reported a $196 million in loss on sale of Investments in its latest results versus $255 million in 2012. The investment loss, which is before corporate taxation, arose from the swapping of government bonds for new lower yielding ones. When this is factored in, earnings would have been around $230 million for the year or just slightly lower than the 2012 out turn.

The company incurred a small loss in the last quarter having reported a profit of $78.6 million up to June. The figures also indicate a loss of $79 million on disposal of investments in the last quarter on top of the $117 million reported to June this year. Going forward, Barita should not encounter another debt exchange charge and should recover from the reduction in interest rates on the government paper.

Net interest income jumped to $111 million in the final quarter compared to $76 million in the June quarter and $76 million in the final quarter of 2012 fiscal year, a positive development that means that the company has gotten back the interest rate spread to where it should be.

This is a classic case of “buy when blood is in the streets”. The only major thing that has changed in the company over the last year relates primarily to the losses picked up from the debt exchange. This is a not a recurring item and the results should be adjusted to get a proper perspective of the stock’s value. Accordingly, normalised earnings should be around 60 cents per share for the year just ended, rather than 16 cents reported.

Expenses | Expenses were kept under control during the year but much of this may have been due to the impact of the debt write off on profits forcing the company to keep costs down, like reduced bonus compensation based on lower profits. Staff cost fell from $251 million in 2012 to $217 million in 2013, while administrative cost rose by $12 million to $218 million. Taxation fell sharply from $93 million in 2012 to only $222,000.

IC Insider projects earnings of 90 cents per share for the 2014 year.

Finances | The value of shareholder’s equity fell sharply from $1.7 billion in 2012 to $1.4 billion in 2013. Total assets amounted to $13.17 billon just slightly less than the $13.56 billion held at the end of September 2012. Securities of just over $12 billion is included in the assets. On the liability side, repurchase agreements make up $11.6 billion. Not included in assets are the unit trust funds managed by Barita Units Trust Management Company. 

Barita Investments is an IC Insider Buy Rated stock.

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Barita Investments showed vastly improved numbers for the June quarter with profits of $99 million compared to $48.5 million in the same quarter last year. The June quarter numbers had no taxes applied compared to corporation tax of $22.5 million charged for the 2012.

The results swung the loss at the end of the March quarter to a profit of $78.6 million year-to-date for the current financial year, down from a profit of $191.5 million for the same period to June last year. The nine months results is a huge improvement over the loss reported for the six months to March this year. The improvement in the latest quarter came from a nearly $30 million increase in foreign exchange trading and gain on sale of investment of $47 million more than in 2012. However, net interest income fell from $119 million down to $78 million but this may be due to a shift of the investment portfolio to foreign currency denominated investments to take advantage of the weakness in the Jamaican dollar currency, rather than a permanent shift in reduction in net interest margins.

The improved June results seem to bear the fruits of what management indicated would be a diversification of revenue streams by increasing product offerings and growing non-interest income.

Barita Investments suffered a $240 million hit in February as they wrote off investment gains which related to the government’s bond swap. In a release to shareholders, the company in commenting on the March results, stated “without the impact of the National Debt Exchange, the financial performance would have surpassed the prior year to date profits of $143 million”.

March quarter | For the second quarter of the financial year, losses of $98 million were incurred and year-to-date $20 million. The company was able to grow income with the main drivers being dividends, which grew by $13 million, foreign exchange trading and translation gains with an increase of $78 million and unit trust operations. Operating expenses at the end of the second quarter were $240 million compared to $226 million for the same period of 2012.

Looking forward, earnings for this year which ends in September, is unlikely to match that of 2012 due to the debt swap charge. But looking beyond that one-off charge, the results from ongoing earnings make the stock a very attractive medium investment. Revenues could be boosted above normal as the indicators are that the stock market activities will pick up strongly going forward.

Barita is an investment bank with a stockbrokerage arm and unit trust operations. The company is listed on the Jamaican Stock Exchange. At the current price in the $2.32 range and with signs of the local stock market exhibiting increasing interest, investors could reap good returns from this stock in 2014, if not before.

Insider call | Barita Investments is an IC Insider Buy Rated stock.

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