iCreate IPO oversubscribed

The ordinary shares of iCreate is set to be the next Junior Market listing that will bring the total companies to listed to 38 and the total securities to 40.
Sagicor Investments advised the Jamaica Stock Exchange that the public issue of shares in the one-year old company was oversubscribed with the issue closing on February 1 at 1:00 pm a little less than two days after it opened.
ICreate initial public offer of shares, sought to raise $70 million from 74,062,500 ordinary shares offered to the public at $1.01 each to help fund expansion. The offer opened on Thursday, January 31 and was originally scheduled to close on February 14.
Financial statements for the company showed that they were close to a break even in 2018.
The company is a creative learning institute developed with the aim of providing skills training and development of creatives in the Caribbean and North America.

ICreate ipo opens January 31

The ICreate initial public offer of shares will open on Thursday, January 31.
The issue is scheduled to close on February 14, with the prospectus set to be released this week, word reaching IC Insider.com reveals.
The issue is a sale of 74,062,500 ordinary shares to the public at $1.01 each. The shares will be listed on the Junior Market of the Jamaica Stock Exchange, if the issue is successful. Revenue is said to be running in the region of just under $50 million per annum with prospects for strong growth going forward. Already the company is making a small profit, IC Insider.com gathers. The business is the training of students in graphic designs and animation.
The majority shares are owned by EMedia Limited, with Sagicor Investments, holding a minority position. Broker to the deal is Sagicor Investments.

Record new JSE listings for 2019

This year could be a busy one for Initial public offers (IPOS) and record new listings on The Jamaica Stock Exchange (JSE), giving investors many more choices for placing their money.  
Nine IPOs came to the market in 2018 with three in December, giving investors more investment choices than in 2017. For 2019, ICreate will be the first IPO out of the block. The government owned Wigton Wind Farm’s IPO will be launched early 2019, probably by March, but it is not one for all investors, in spite of what some politicians would want to see happening. IC Insider.com gathers others to come include, a central Jamaica Manufacturing entity with strong export base, a large paint company and one in the BPO sector. In addition, IC Insider.com gathers that there are at least another three IPOs, should definitely make it to the market this year.
The JSE is projecting for 21 new listing in the current year, Marlene Street Forrest, General Managing Director, informed IC Insider.com recently.
“The main market expects 10 of the total and the Junior Market 11. The list includes both ordinary and preference shares”, Street Forrest stated.

Fontana corrects & explains Q1 figures

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Fontana senior management team

Following IC Insider.com article, pointing to errors in the Fontana prospectus issued to the public on Thursday, December 6, the company subsequently corrected the errors and uploaded the corrected prospectus on the Jamaica Stock Exchange website.
“Please note that Fontana Limited attaches hereto its unaudited financial information for the period ended 30 September 2018. This information is updated from the financial information that is presented in the prospectus of the Company dated Thursday, 6 December 2018. The effect of the update is a revision to the Statement of Cash Flows where the profit before taxation and depreciation charges were inadvertently omitted. The Company also updated a typo to the Share Price of the Company from $2 to $1.88 on page 14 of the prospectus”, the company stated in a release on the JSE website.
The directors and management advised that the pricing error arose from a change in the original planned price of $2 that to $1.88 but the price, the price stated in the body of the document was overlooked. The error in the cash flow arose from the links to the cash flow from the work sheet did not copy over the figures for profit and depreciation when the final document was completed and no one picked up the omission prior to the publication of the error.
The directors at their investors briefing on Monday also addressed the matter of the sharp jump in inventories and the increase in the company’s first quarter profit over the prior year as well as the pace at which they will commence further expansion after the opening of the Waterloo Road branch in 2019. Inventories for the Christmas season were imported earlier than in 2017 the directors stated. Apparently, the movement in the exchange rate of the Jamaica dollar played a role as well as some concerns regarding the pricing of supplies out of China. The financial controller, Judale Smith indicated that the gross profit margins are usually 36 percent but it had fallen in the 2017 first quarter as they had to source some goods at higher prices that affected the margins, as such the 2018 figures better reflect what the out turn should be like.

I Create another IPO coming soon

iCreate, a fairly new company that is involved in the creative industry is at an advanced stage of planning to raise funds publicly by way of an IPO, ahead of a potential listing on the Junior Market of the Jamaica Stock Exchange.
According to the company’s website, they are a Creative Institute, developed with the aim of filling the gap in skills training and development of creatives in Jamaica and the wider Caribbean. As a part of the creative eco-system, students are provided with a wide range of career opportunities in the Creative Economy, while being a key partner of the Advertising Industry, Film Production Companies, Animation and Gaming Companies, and Creative Outsourcing initiatives.
iCreate partners with the University of the Commonwealth Caribbean (UCC) as its Creative Training arm for courses offered in Jamaica and the Caribbean. iCreate is also partnered with the Digital Marketing Institute, to become the only institution in the Caribbean licensed to deliver their Digital Marketing Diploma programme.
The majority shares are currently owned by eMedia Interactive Group with Sagicor Investment said to hold 19 percent of the shares. The total of just over 123.5 million shares issued are issued currently that will go to 196 million if the IPO is fully taken up. The issue should be coming to the market place soon, by the end of the year or early in 2019. Tyrone Wilson is the Managing Director of the Group.

Also expected to list in 2019 are Wigton Wind Farm which will provide an investment more for income than growth. Also exploring listing are a paint company and a manufacturing company from central Jamaica.

Why is Fontana IPO priced so low?

Owners and directors along with their advisors ought to know the value of their company. But this publication must ask the question if Fontana has really done so well and will continue to expand, why is it priced so low?
At a premium over net book value of 88 percent, the stock is one of the cheapest of Junior Market listings, with the vast majority selling at a premium of 3 to 4 net book and an average PE of around 13 excluding the extreme highs and lows. One would expect the stock to be priced closer to 10 times earnings before tax, that would put the price closer to $3 than $1.88 and that would place price to net asset value at a premium of 200 percent, still below the market average. The fact that the company is setting up a new branch and looking for more expansion, makes the case for a higher price more compelling as investors are most likely going to rake in much profit from this stock. The only problem the general public will not get many shares  to buy up front as it is set tobe heavily oversubscribed. Investors can expect this one to at least double shortly after listing.From where we sit we think the brokers did the owners out of several million dollars on this issue but then the owners may want Jamaicans to party with them on the 50th anniversary.

Fontana another IPO another set of errors

Fontana operators of a series of Pharmacies in Jamaica has now released the Prospectus for their initial public offer but like Elite Diagnostic last year, there are errors in this document that needs correction and explanation.
This is an unfortunate development for yet another issue, that seems very attractively priced. The directors have all signed off on the document that has gone through the Financial Services Commission, the Jamaica Stock Exchange and the Company Office of Jamaica, so why the errors and important ommission.
The introduction in the prospectus speaks to a price of $1.88 except for reserved shares at $1.69 but later on in the body of the document it speaks to a price of $2 for each share, making it unclear exactly what the price really should be? In the interim results to September, there are two issues, one is an error and the other, information that really needs clarification. The interim cash flow has no profit, nor depreciation and it therefore is not balanced and needs correcting.
The gross profit in the interim results jumped sharply,even as revenues grew just 5.5 percent with inventories are up 19 percent at the end of the quarter over 2017 and 15.5 percent over June this year. Why the big jump in inventories with sales are just rising moderately? Importantly, this raises questions about the accuracy of the inventory levels and the gross profit margin for 2018. Management should explain the sharp changes in this area so that investors can better understand why there is such a sharp jump in the quarterly profit.
This publication finds it difficult to once more raising issues relating to a prospectus. We are concerned that enough care is not going into them. The breach of GWest Corporation relating to the non-disclosure of information relating to an extraordinary meeting that was said to approve the issue of preference shares that was never brought to investors’ attention is fresh and has not been properly dealt by the regulators or the company. The regulators seem to have turned a blind eye to it. We need to raise the standards if the capital market integrity is the be enhanced.

Gwest’s share issue response inadequate

The response by GWest the issue of preference shares is inadequate and they still have a number of questions to answer about the issue and the lack of disclosure in the prospectus and the audited financial statements.
The openness of directors with their investors is critical in cementing trust between them. A prospectus is a contractual invitation to the public to purchase shares in the offering company. It requires that full disclosure of all material information is made, so that prospective investors can make rational decisions pertaining to the shares being offered for sale. Any rational person reading GWest prospectus would come to the conclusion that the only matter agreed on at the extra-ordinary meeting of November 27 was that which was disclosed in section Page 45 of the prospectus which list details of the “Recent Capital Restructuring of the company to be as follows”:
“At an extraordinary general meeting the shareholders of the Company approved the following actions in respect of the capital structure of the Company: The re-registration of the Company as a public company in accordance with the Companies Act, adopting new Articles of Incorporation for that purpose:”
a)”The increase of the authorized share capital. (b)The subdivision of each Share”
“The disapplication of any pre-emption rights, howsoever arising, for the purposes of the issue of new Shares for subscription. The conversion of all fully paid Shares to stock on issue.”
There is no mention of the issue of any other type of share. Any decision to issue other shares should have been disclosed in this section if a meeting took place before the date of the prospectus.

Dr. Konrad Kirlew, chairman of GWest.

The fact that it was not, is the clearest sign that there was inadequate disclosure of important and material information and that the issue of preference shares after, should not stand before approved by a meeting of the new owners.
The vast majority of Junior Market companies have limited administrative staff, as such all the skill set to properly run them are not in their employ. The end results is that mistakes are made and will continue to be made. Recognizing, that most of them don’t have the knowhow of running a public company, the JSE created the creature called a Mentor, but not even that seems to be adequate to fill the breach.
According to the company in a release to the JSE, “Sections 18 and 19 in the November 2017 GWEST Prospectus specifically disclosed that shareholders loans were to be converted to preference shares, thereby reducing the servicing cost to the Company: Shares in the capital of the Company are under the control of the Directors, as expressly provided for in the Articles of Incorporation.”
That is nonsense. The prospectus only has 16 sections, with the last (section 16) being signed by the directors.
Section 11 contains projections along with supporting notes that were reviewed by Ernst and Young who signed their report on November 28.
The extraordinary meeting at which the change in share capital was approved was said to be held on the November 27. According to the resolution, the directors were given authority to issue, to allot such Cumulative Non-redeemable Preference Shares at such subscription price per Preference Share as the Directors of the Company or such Committee may deem fit, the same to be allotted to shareholders of the Company who have invested in the capital of Company (in cash or in kind) with the understanding/pursuant to agreement(s) that such investment(s) will be recognized as shareholder loans or by the issue of preference shares, in each case on terms and conditions determined by the Directors of the Company, subject always to the Articles of Incorporation of the Company”.
Having given the directors the authority to determine the terms and conditions of the preference shares, GWest in releasing information of the above resolution has not presented the minutes of the meeting of the directors that agreed on the terms. The fact that the extraordinary meeting did not set out the terms of the issue of the shares is even more reason why it should have been fully disclosed in the prospectus.
The company refers to 18 and 19 but it appears they mean notes 18 and 19 of section 11 that deals with the projections. What does the section say about the preference shares?
Note 18. “Borrowings| This relates to the NCB Term Loan and shareholders’ loans converted to preference shares.”
NCB Term Loan| The terms of this loan for $350 million, include a repayment period of eight years payable in equal quarterly installments and an interest rate of 11.5% per annum.”
“Preference Shares| 50% of shareholders’ loan will be converted to non-redeemable preference shares with interest at 10% per annum. The remaining 50% will remain as shareholder’s loan with no fixed repayment with interest at 10% per annum for the J$ amounts and 4% per annum for the US$ amounts.”
Note 19. “Shareholders’ Loan| This amount relates to funds advanced by the shareholders. It is assumed that outstanding balances will continue to attract interest at the prevailing rates of 15% and 4%, respectively for J$ and US$ funds. However, once the IPO is completed and the Company becomes publicly-listed, it is assumed that the interest rates will be reduced to 6% and 2% for J$ and US$ denominated loans, respectively on the remaining balance not converted to preference shares. With respect to the J$ denominated balance, the interest rate is assumed to increase annually by 1%, with a cap at 10% by 2022. The Directors are of the view that these rates are more in line with arm’s length rates prevailing within the market.”
Nowhere in the prospectus is there any reference to a meeting called to approve the issue of any shares other than ordinary shares and the terms of those shares. Under no stretch of the imagination could assumptions included in a financial projections be regarded as disclosure of an agreement to issue shares or that a resolution was already passed to do so. Earlier in the prospectus it is made clear that futuristic statements are just that, as they may not be achieved. That the company withheld pertinent and material information from the new investors even when they had a number of occasions to do so, is glaring and concerning. That the Jamaica Stock Exchange sees nothing wrong with what has transpired is plain shocking, even more shocking is that they did not ensure that proper and full disclosure of the information was included in the relevant part of the prospectus.
The directors cannot over ride, the company’s act that requires that all changes in share capital of a company be approved by shareholders at a general meeting. From all indications this was not agreed to before the prospectus was published, in which case it appears that the new shareholders would have to approve it at a general meeting.
To compound the problem, the preference shares were issued to connected parties to the company. That alone should have alerted all concerned that all decisions should be properly executed.
Of note,  the Audited accounts to March 2018, made no mention of the issue of additional shares that were issued or to be issued. It is the norm in auditing, that minutes of meetings are made available to the auditors and the directors have a responsibility to ensure that the financial statements are accurate. The directors need to state if the audited accounts correctly disclose all relevant information pertaining to the share capital. They need to state why they all signed the Prospectus with no mention being made of the resolution to modify the share capital indicating full details of the resolution.
What date did the directors meet to determine the terms of the preference shares and why were those terms not disclosed in the prospectus for all to see?
The Jamaica Stock Exchange requires that they should be advised in advance of any meeting of directors called to alter the share capital of a company and after the meeting the outcome of the meeting is to be communicated to them as well. There are no indications that the directors complied with this section of the Stock Exchange rules.
The handling of this matter is not the way to properly operate in the capital market.

IPO facts investors should know

“Hello my dear client, the day we have been waiting for to increase your wealth is here. The Mayberry Jamaican Equities IPO has finally arrived, the stock is a must have at this time. Attached are the Prospectus and Application Form for your attention. The official opening date is Monday, July 9, 2018, the demand is high so please don’t delay,” Kind regards, a MIL wealth adviser.
The above was a message sent out by one of Mayberry’s wealth advisor. A group of investors stated in 2017 that investors cannot go wrong with Junior Market IPOs, all that has to be done is just buy, buy, buy and the investor cannot fail to make money. Some investors in the last two IPOs, Sygnus Credit and Everything Fresh bought into the issues heavily, hoping to catch an early bounce and pocket the profit. That the initial bounce did not last, should be a lesson to speculators.

%8 Half Way Tree Road owned by Stanley Motta.

Laden with 6 main and Junior Market stocks, Mayberry Jamaican Equities is issuing 120,114,929 ordinary shares to the public, at a price of $7.57 each. Investors really ought to know what they are buying into when IPOs are being issued, rather than thinking that the price of each IPO can only go in one direction – up. As the stock market matures and more persons come to the party of stock ownership, the valuations that new IPOs come to the market at, will continue to rise and less immediate potential gains will be priced in. In some cases, investors will need to look long term for the payoff from their investment.
Everything Fresh, Sygnus Credit, Stanley Motta and Mayberry Jamaican Equities fall into this category. GWest was another company that many investors got carried away with, in pushing the price to $4 with many buying at inflated values, now the stock trades in the low $2 range. A reminder of an adage, that successful trading starts at buying at the right price. GWest business model is based mainly on generating most income and profits coming from operating mini hospital and other patient care. Real estate income going forward was going to be secondary and would not contribute much to profit. Profit made in the year before listing was mostly from sale of real estate and that was not something that would continue for any prolonged period. Without a track record in providing healthcare, investors who bought the stock in the high $3-4 level must have been hoping that the forecast in the prospectus was going to be achieved on a timely basis. The results to March show revenues well below forecast from the new operations. The company projected medical income to March this year, at $86 million but only generated $17.4 million and that puts the issue of generating the forecasted $710 million for fiscal year 2019, in doubt. Admittedly, the company had projected a loss to March of $110 million but came up sharply lower with a loss of $88 million.
Investors should recognize that not all IPOs are equal. They should also realize that there is a clear pattern that prices then to move up for strongly demanded issues and the undergo some correction. The data shows that the best time to buy after the IPO closes is on the first day or two or a few weeks after when demand falls off and supply increases as short term investors try to offload.
Data for listings in 2016 to 2018 show and average of 31 percent correction for Junior Market stocks from the highest point to the lowest, after listings which tends to occur within 4 weeks of listing. IPOS from Mayberry seem to have a lower pull back in price, around an average of 23 percent while most others, average around 33 percent. Three main market stocks pull back from their highest point, range from just 15 percent for Victoria Mutual Investments to 31 percent for Wisynco and 29 percent for Sygnus Credit Investments.
Based on how investors have gone about pricing IPOs at their peak it seems likely that Indies Pharma will peak around $2.40 based on projected earnings in 2018, of 16 cents per share. It could even go higher if the number of investors who apply for shares exceed those Junior Market listings IPOS from those going back to 2018.

Sygnus Credit IPO rakes in $3.8B

Some 3,200 applications with more than $3.8 billion chased after the Sygnus Credit Investments offer of 90,909,091 ordinary shares preliminary data out of the company is indicating.
The company went to market to raise J$1.3 million but have the option to upsize the amount it takes in case of over subscription of the offer.
The offer is expected to close on the Wednesday May 16 received applications from Jamaicans and persons from overseas including the wider Caribbean, IC Insider.com was informed. The company is likely to take up approximately 60 percent of the excess demand in keeping with the clause in the Prospectus that gave them the right to up lift the take in case of an oversubscription.
With the level of oversubscription, the total issued shares that was projected to be just over 250 million units should end up at just over 300 million ordinary shares.
Sygnus Credit Investments is a specialty private credit investment company, dedicated to providing non-traditional financing to medium-sized firms across the wider Caribbean region. These companies typically have revenues between US$5 million and US$25 million.
The investment objective of the Company is to generate attractive risk adjusted returns with an emphasis on principal protection, by generating current income, and to a lesser extent capital appreciation, through investments primarily in Portfolio Companies using private credit instruments.
The capital structure of the company and the choice of investing funds will tend to result in a return closer to fixed interest levels, but likely higher than some bank lending rates, in the short to medium term as such investors should be looking for steady growth but relatively high dividend payments in the medium term. The falling interest rates on Jamaican dollar money market instrument will make the dividend payment very attractive source of income.
The company intends to pay out up to 85 percent of its net income as dividends to shareholders, payable on a quarterly basis. The target dividend yield is over 7 percent on the IPO price.
At December 2017, SCI had US$16.7 million in assets and generated net profits of US$660,855. The value of investment in Portfolio Companies was US$11.6 million, generating a yield of 10.3 percent.
Earnings for 2019 fiscal year could be around J$1-1.2 per share and that could see the stock trading between $15 and $20 within twelve months. Returns could be greater if they use borrowed funds to meet some of the demand they have for funding.
The Company currently has a robust pipeline of US$31.4 million in deals to finance, of which US$3.2 million has been approved, US$12.3 million has been mandated and US$15.9 million are at various stages of prospecting.