Republic is going higher soon

Trinidad’s Republic Financial Holdings should be heading higher on Trinidad and Tobago Stock Exchange, sooner than many investors may think.
One reason is that the financial powerhouse, just posted pretty strong results, with profit before taxation rising a healthy 22 percent, to $490 million in the March quarter and a still respectable 14 percent for the half year. Increased taxation wiped out a bit a of the top line gains leaving profit at 3 percent higher for the quarter at $333 million and an increase of 4 percent at $694 million, for the half year. The improvement arose from slightly lower cost in the current year than for the previous one and an overall 8 percent increase in net income for the quarter to $1.17 billion from $1.08 billion in 2017 and 4 percent rise year to date to $2.34 billion. Earnings per share rose to $4.02 for the half year from $3.90 and compares favourably with $7.75 million reported for the fiscal year to September 2017 and gives it a PE around 12 on 2018 full year earnings and Friday’s closing price of $101,
Improvement was generated by the bank in Ghana, where that subsidiary moved from a small loss of just over $1 million to a profit of $68 million and the Cayman Islands’ operations that moved from a profit of $82 million to $113 million. Barbados also should marked improvement with profit of $149 million compared to $111 million before.
Helping the performance is increased lending, with loans rising from $34.4 billion at March 2017 to $37.4 million in 2018, a solid 9 percent increase.
The other factor why the stock price is set to move, is that the it peaked at $122 in 2014 and slid downward since and seems to have found a bottom. Added to that, is a wedge formation showing in a technical chart of its price movement that seems set to steer the price upwards in the months ahead.
IC would normally give the stock a BUY RATED accolade, concerns linger about the Trinidad economy from which it earns the vast majority of income and profit, and what is seen as an overvalued currency.

Note that all prices are in Trinidad & Tobago dollar.

Profit climbs 31% at Cargo Handlers

Overvalued Cargo Handlers.

Revenues rose 32 percent for the Montego Bay based, Cargo Handlers, in the December 2016 quarter, with profit rising 31 percent to $46 million after tax.
The company recorded earnings per share of`12 cents for the quarter which is in line with IC’s forecast of 55 cents, for the full year. “Increased passenger vessel traffic coupled with the seasonal increases in containerized cargo, pushed revenues to $91.1 million,” management stated in their report accompanying the results. While revenues grew quite strongly, cost also grew, with operating cost rising in line with revenues by 33.5 percent to $33.5 million and administrative expenses climbing by 36 percent to $4.5 million.
Gross cash flow, generated in the quarter was $52 million, increased receivables and reduction in payables help to reduce the net flows for the quarter to just $6 million, but still ending with a healthy cash position of $232 million at the end of the year. Receivables ended the year at $86 million and current liabilities at just $27 million.
Montego Bay is one of the fastest growing regions in Jamaica, with increasing tourism and BPO activities and more expansion in these areas to come. The port is likely to be used as the centre for exporting of LNG to the Eastern Caribbean, Cargo Handlers should benefit from the growth in the area down the road. Cargo Handlers last traded on Tuesday at $24.50 for a rich PE of 45, based on IC’s forecast of 55 cents per share.
The company is slated to pay an interim dividend of 13.5 per stock unit on March 21.

Scary data pushing some stocks

Overvalued Cargo Handlers, rated a buy by Barita.

Investors have been acting strangely of late, buying a few stocks at inflated valuation that are well ahead of anything in the market. There are just no logical explanations for it. It is downright dangerous for some investors, who seem set to get badly burnt.
IC attempted to get an understanding of this unusual development of scary PE ratios. One possible clue came from two seasoned investors. One bought shares in Jamaica Stock Exchange (JSE) on the assumption that the PE was only 4, he was unaware that the earnings per share, last reported by the company, was not adjusted for the 5 to 1 stock split. The other investors pointed out that Cargo Handlers was selected by Barita Investments as the top junior market stock for 2017. That is a strange selection as research going back to the early years of the JSE, shows that only around 20 percent of top 10 stocks ends in the top 10 in the subsequent year, in very bullish periods, even less do so. A look at Barita’s stock market update chart, shows the Cargo Handlers having a PE of just 11.47 with earnings of $2.18, but the earnings is well ahead of the 43 cents the company reported for 2016. The PE for the stock, based on 2016 earnings is near 60 and 46

Jamaica Producers is one of the company’s that investors seem to be pushing the price, based on pre-bonus earnings.

times, IC Insider’s 2017 projection, making it the richest priced stock on the market.
Cargo Handlers may not be the sole stock that investors seem to be ignoring the effect of stock split on values. Barita shows JSE with a PE of 12.5 with earnings of $1.02, thankfully there is no recommendation for this one. Jamaica Producers is shown with a PE of 6.52 from earnings of $3.02, with a buy recommendation. Producers earnings are at best inflated with one off items, with them earning at the above level highly unlikely, as such the stock boast a PE of 40 times 2017 earnings. Pan Jam Investment is shown with earnings per share of $3.97 and a PE of 10.08. The only problem is that Pan Jam earnings for the nine months from continuing operations for 2016, is in the order of $1.92 making reaching the Barita’s earnings forecast challenging.
When the quarterly reports start coming in with adjusted earnings, it could be a huge disappointment and wake up call for some investors. It just does not seem smart for investors to be buying stocks that are valued well ahead of the market and expect to beat the market, unless there are huge increased profits down the road.

10 TOP JSE main market stocks for 2017

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It is not always that main market stocks are more attractive buys than those in the junior market, but that is what is happening currently. Strong gains, in 2016 to end of January this year, in junior market companies, resulted in Jamaica Stock Exchange main market having stocks with better values than in the junior market.
The end result is that unlike other years when the junior market stocks tended to outperform those of in the main market by a ratio of 2 to 1, this year could see both markets gaining roughly the same.
The big question, of course, is what will be the accepted PE of the market? Currently, while the average for 2016 is 17 for the main market and the ratio based on 2017 estimated earnings is 11, with 11 stocks selling above this level, Jamaica Producers and Kingston Wharves have PE ratios over 30 times 2017 earnings.
The main market faces turbulence currently as the market is sitting just below a major resistance level around 243,000 points on the All Jamaica Index. If it can overcome this level, then it will encounter resistance around the 265,000 mark.
The TOP 10 list includes 4 financial sector stocks, two communication stocks and two from the manufacturing sector.
Cable & Wireless has made considerable progress in recent years, moving from major annual losses to a stage where they reported a small profit in fiscal year 2016 to March and should break even for the nine months to December, the new financial year end. Revenues have been climbing at double digit pace and should increase even more with the upturn in economic activity and with more persons being employed. The company recently raised rates on a number of its services that should help move revenues upwards. They have also made considerable recovery in their cellular customer base and have expanded it, generating increased revenues as a result. IC forecast calls for a profit in 2017 with growth in 2018 as well.
On this basis, the stock is set to make solid gains. The only factor preventing that is a strong possibility that the parent company may move with an offer for the minority shares that would place a cap on the upside.
Radio Jamaica is under selling pressure as investors ignore the fundamentals and an improving economy that could result in increased profits and growth in the stock. The merger with the Gleaner was predicated a great deal on cost cutting. The group is doing just that and should benefit from a stronger marketing team and from increased advertising as businesses augment their advertising spend.
Caribbean Cement cut cost sharply in 2016 and saw growth in local sales for the first six months. However, closure of the plant for upgrading resulted in lost sales in the third quarter but sales recovered in the fourth quarter. Going into 2017, the cost savings should reduce operating cost and boost gross profit margins. Increased economic activity and lower cost of capital is leading to an uptick in the construction sector and consequently, an increase in demand for cement. The stock remains highly undervalued and has room for major gains ahead.

Barita is one of the top IC Insider’s stock for growth over the next 12 months in the main market.

Barita Investments has more than doubled in price since the start of September 2016, partly due to the 2016 results, but more on prospects of improved results for the 2017 fiscal year. The quality of the earnings improved markedly with fees and commission income tripling while net interest grew sharply from $118 million to $158 million for the September quarter, heralding healthy growth in these areas in 2017. Barita is set to benefit from appreciation in the value of the assets of unit trusts, especially in the equity-linked unit that will boost fee income. The company will also benefit from increased value to its equity portfolio that should grow sharply, allowing the company to realise investment gains that should add to profits. The equity linked unit trust fund should also enjoy healthy inflows from new investors as local stocks record gains and encourage new investors to use the unit trust as a viable vehicle for their investment funds.
Pulse Investments reported earnings of $1.35 last year and 32 cents for the September quarter that places the stock in the undervalued category even as the price climbed to $7.10 recently. It could go higher, but a bit of the earnings flow from revaluation surplus on property and that may cause some investors to discount the earnings. In a very bullish market, that may not matter much, for many investors. One positive, is that the cash flow statement shows cash inflows growing at a much higher level than in 2015.

Keith Duncan, Group Chief Executive Officer of JMMB.

JMMB Group is undervalued, period. The group is expanding and recording increasing profit and should end with earnings around $3 for the 2018 fiscal year with the eps for 2017 looking like $2.50.
Berger Paints had a very good run to December last year, with strong gains in profit as revenues grew attractively. Growth should continue into 2018 fiscal year, helped by increased building activity and an improving economy. Dividend payment should be high, thus boosting yields.
Scotia Investments should benefit in much the same way as Barita Investments. The investment bank reported earnings of $1.27 for the October quarter and IC forecast is $4.96 for 2017. The increase should benefit from widening net interest income, as interest rates soften and more funds generated are added to the pool of interest earning pool as well as from growth in unit trust funds that will engender higher fee income, in addition to robust stock market activities that will also enhance fee income for the brokerage arm. On the negative side, the revaluation now taking place in the local currency could negatively affect earnings from trading in this area.
Carreras is one of the few stocks that have languished at the old price while many others have recorded active gains. The company just announced an interim payment of $2.20 bringing the payment since August last year to $5.40. The full year’s amount is likely to be in the order of $7.60 for a yield on the current price of 11.5 percent. This yield will not last as investors are going to eventually push it downward by bidding the price up as an income substitute. IC Insider’s forecast is for earnings of $9 per share for the 2018 fiscal year. The stock may well languish at current levels for a while. The longer it stays the better for those investors who may want to add it to their portfolio.
National Commercial Bank reported impressive profit results for their December quarter with a jump of 49 percent to $3.56 billion with earnings per share ending at $1.45, up from 96 cents in 2016. IC forecast earnings of $8 per share for the current year. NCB declared an increase in its interim dividend payment from 50 cents in 2016 to 60 cents per ordinary stock unit payable in February. The payment represents 42.76 percent of the first quarter profits and is an indication of future payment.

Persons associated with this article may have an interest in the companies commented on.