I$P Finance earnings now officially 46c
The original audited report had the average number of shares issued at 126.5 million instead of 88.44 million which the amended report now shows.
The company reported profit of $40.24 million after tax from increased revenues of $30 million to reach $241 million in 2016. Other operating expenses jumped sharply from $36.6 million to $64.8 million. Individual items did not move much during the two years. In 2015 a refund of insurance premium amounting to $12.3 million was offset against expenses, reducing expenses from $49 million to $37 million, while 2016 figures had a few items of cost not reflected in the 2015 results. These include directors’ fees, bond issue cost and consultancy fees of $6 million. ISP also benefited from loan loss recovery, leading to lower loan loss provisioning at year end, from $19 million 2015 to just $10 million in 2016. Some debt was, however, fully written off, management informed IC Isider.com, reducing the overall provision to $53.7 million from $63 million at the end of 2015.
The company is gearing to grow. Last year apart from restructuring it finances that led to a public share issue, the company floated a bond issue that raised over $140 million net, which will be used to supplement cash flow from earnings. Discussion with the company’s management team led by Dennis Smith, reveal, that the $60 million growth in loans in the December quarter mostly remains on the books while the plan is for a 30 to 40 percent expansion in the current year. If that level of growth is achieved it would take net loans to more than $400 million by year end and raise revenues in a full year to more than $400 million and raise profit sharply from the current levels.
The company started off serving the security guard sectors but is targeting new areas within the business sector for expansion as well as areas outside of the corporate area.
Management appears to be gathering information as to the feasibility of a stock split and that seems to be a logical move, with just 105 million shares now issued and prospects for a rapid increase in profits going forward. Management would neither deny nor confirm if that is on the cards.
IC Insider.com is forecasting earnings in the current year to be in the order of $1.40-$1.75, with continued strong increase into 2018. The stock closed on the Junior Market of the Jamaica Stock Exchange at and 52 weeks high of $15.50 on Friday, resulting in gains of 675 percent, since it was listed at the end of March 2016.
With the potential to grow rapidly, the stock remains BUY RATED even with the price now at the level reached on Friday.
Audit wrongly states ISP earnings as 32c
ISP Finance earned $40 million for 2016 or earnings per share of 46 cents based on an average of 87 million shares in issue for the year, but the audited statement reported only 32 cents based on a non-existence average of 126.5 million.
The company only issued 105 million shares hence it is not possible for the average to be greater.
The above error along with glaring errors elsewhere in the financial system at large raise the question about the investing public being adequately protected, in spite of regulators in place to do police the system?
Auditors are required to use care and due diligence in undertaking their duties to ensure that the companies they audit maintain proper records that will give a fair view of a company’s profit and financial position. Users of audited statement is not expected to see glaring errors in them. It raises questions about the quality of the audit and the management of the company as well.
Knutsford Express’ audited reports for 2014 and 2015, were filled with errors or questionable treatment of transactions, raising questions about the accuracy of the entire reports.
The earnings per share for 2014 was overstated due to inaccurate computation of the average number of shares issued in 2013, while showing earnings per share of $1.07 for 2014. The income statement erroneously stated by way of note, that “using the weighted average number of shares at end of 2015 would result in earnings being 50 cents for 2014.” Since no new share were issued in 2015 there can be no there is no need for a computation of an average and there can be no change to the earnings for 2014 if the correct average was computed for 2014 in the first place.
The report had further stated “During January 2014, the company raised additional capital of $99,862,700 from its initial public offering of 99,999,003 shares for its enlistment on the Jamaica Stock Exchange Junior Market”. The company in fact issued 26 million bonus shares in 2013 while the public offering was for 20,000,000 ordinary shares, only 4,867,338 new shares were offered by the company while 15,132,662 shares existing shares were sold to the public in the IPO by shareholders. At the time the IPO, 95,132,662 ordinary shares were already issued, the average number of shares should be approximately 60 million rather than 46.8 million used to compute the 2014 EPS, which would have worked out around 83 cents.
According to ISP Finance prospectus, 1n January 2007 the company was incorporated with an authorised share capital of 10,000 ordinary shares at J$1 per share. In June 2007 the company’s authorised share capital was increased to 5,000,000 ordinary shares with all being subscribed for at $1 each.
On February 11, 2016 the company’s authorised share capital was increased to 105,000,000 ordinary shares. Of the 100,000,000 ordinary share increase, 51,017,500 shares were allotted to Gencorp Limited at J$2 per each being the same price at which shares were offered in the IPO. Of the balance just over 48.98 million units were offered to the general public in the IPO.
2 new BUY RATED stocks
Jetcon Corporation and ISP Finance have been added to the IC Insider BUY RATED list. The list continues to sport selections that have some room to grow before they reach the stage of maturing. Some have reached levels that look like they may be close to the top and stay there for a while and the may be just be rated hold than BUY RATED at this stage of the market’s rally in Jamaica.
The Trinidad based companies appear to be saddled by the effects of the recession on their performance.
There are now a few that were previously listed as BUY RATED have moved to Watch, as these stocks are likely to be market underperformers. If these are already owned then investors may want to hold on a little longer, buying into them now, while such a move could be profitable such investment may not be the smartest move at this time. At this stage of the Jamaican market it has become more challenging to continue to back some of the strong performers to date, as their valuation has risen and future gains will most likely come from gain in profit, unless the market revalues the PE ratios higher, a factor that is expected with lower interest rates likely in the months to follow.
Knutsford Express has been to Market Watch as it close to our target price of $24 at this time and while there is more growth to come with increased frequency slated for the north coast routes, increased profits going forward could slow considerably from recent strong gains. Sagicor Group has done well since we selected it, with an increase close to 150 percent plus dividends, the immediate future looks like the gains are going to slow compared to the growth since the start of 2015. In past bull market, investors gave it a big premium over the rest of the market. That is not so now, but could change as the current bull market continues it run.
Lasco Distributors that was moved to a hold is now back to a buy, since the price has pulled back to $5, the company will benefit from taking over the overseas distribution of all of the manufacturing company products. The inflows expected from the lawsuit with Pfizer should add to the company’s value when the courts agree the amount, which management puts at more than US$300 million.
AMG Packaging, Caribbean Cream and Paramount are all up more than 300 percent but expansion into new products should give revenues and profit a kick in the not too distant future for AMG and Paramount. Caribbean Cream full year results are due shortly and should exceed 55 cents per share as the company benefited from sharp drop in raw material cost.
Jamaica Stock Exchange is now a Watch as it seems close to fairly valued currently, but dividend yield could well push it higher. In addition, of note is that while trading levels have improved they are still well off from historical highs, so there could still be much more gains ahead later on.
Trinidad is in recession and the results of companies are showing it with pressure on profit particularly for companies that earn the bulk of their income in the twin island state. As a result prices have been declining for many of the companies on the Trinidad market with a few exceptions. With the exception of Trinidad Cement that is undervalued, a hold has been placed on Trinidad based listed stocks for the time being but investors should wait for TCL to settle before buying.