IPOs are back the Tropical issue

Just when investors thought COVID 19 had killed off IPOs for this year, suddenly pops up, Tropical Battery‘s long-promised initial public offer. The prospectus for the issue is now available to the public.
The issue for 325 million ordinary shares at $1 each of with up to 187.5 million units reserved for priority applications, opens September 22 and is scheduled for closing on September 30, subject to the right of the Company to close it earlier.
The Company intends to apply for the shares to be listed on the Junior Market of the Jamaica Stock Exchange, subject for at least $260 million being raised, by way of this invitation.
The total issued shares following the offer will be 1.3 billion units, with the parent company owning 75 percent. That will allow enough shares to be in the public hands to facilitate adequate liquidity in the stocks for some time.
The Company generated profit before tax of $87 million from revenues of $1.74 billion in 2019, a decent increase of 18.6 percent higher than in 2019 and a pretax profit of $45 million from revenues of $1.47 billion in the prior year, to September or 8.6 percent above the 2018 sales.
Gross operating revenue for the nine months to June this year increased nine percent to $1.36 billion from $1.25 billion in 2019, with profit before taxation falling from $67.6 million to $62 million.
Future growth, the Company says, “will come primarily from the addition of new product lines, i.e., Renewable Energy Batteries, Oils and Lubricants, Tyres, etc., organic growth of existing products, expansion and the renovation of our retail stores.”
The proceeds of IPO will be split equally between the selling shareholder and the Company, resulting in $162.5 million going to each, net of cost.
The Company plans to use the amount collected for expansion and working capital purposes, including but not limited to new product lines, expansion and renovation of retail stores, including an expansion of the parking area at the retail store at Grove Road in St Andrew. Completion of the buildout of and relocating to the new warehouse, head office and retail store at Ferry, Acquiring and install information technology systems for greater efficiency and improve customer experience and expansion of Mobile delivery fleet of vehicles.
Total shareholders’ equity at the end of June stands at $593 million, while our long term liabilities fell by to $315 million with the total interest-bearing debt of $415 million. The Company is owed $190 million by a related party and is interest-free, but payable on demand.
With earnings per share around 7.7 cents, the stock is priced around a PE ratio of 13 times 2020 earnings, leaving little or no room for short term gains.
NCB Capital Markets are the brokers for the offer. Unfortunately, for investors, there are no forecasted earnings included in the prospectus to help to guide them. This practice leaves a lot to be desired and it is fulltime, the authorities step up to the plate and ensure that all prospectuses include forecasted data for a least three years. That is not asking too much in the drive to build a developed capital market.

34% surge in Derrimon Q1 profit

Profit jumped 34 percent at Derrimon Trading in the first quarter of the current financial year, to reach $99 million up from $74 million in 2019, following a 5.5 percent increase in revenue to $3.3 billion from $3.15 billion in the March 2019 quarter.

The significant improvement in the bottom-line compared to the slimmer revenue growth is driven by an increase that was more than twice the growth in revenues in the gross profit margin of 11 percent from 2019, resulting in gross profit rising to $613 million up. Direct expenses rose 4 percent, from $2.6 billion in March 2019 to $2.7 billion in March 2020.
The Group also recorded other income of $22.6 million compared to $5 million in 2019 that helped in driving profit for the quarter. Excluding the increase in other income net profit would have climbed by only 10 percent and much closer to the increase in sales. Other income includes gains from the disposal of plant, property rental and other inflows. Administrative expenses rose a strong 16 percent to $373 million, from $321 million in 2019, while selling and distribution expenses grew by a much more moderate 7 percent to $100 million and resulted in total operating costs of $473 million, a 13 percent increase over March 2019 of $414 million. The group provision for taxation on profit amounts to $7.6 million versus $5.5 million in 2019.

Caribbean Flavours a Derrimon’s subsidiary

The group generated cash inflows from operating activities of $153 million, working capital needs plunged the group into a negative cash position of $208 million. At the same time, loan repayment pushed the cash burn, down to $271 million, leaving cash funds at $239 million, down from $510 million at the end of December 2019. The group, however, has $246 million in investments as well.  Net current assets ended the period at $2.2 billion. Current assets increased sharply by 17 percent from $3.39 billion to $3.9 billion, with inventories rising stunning 70 percent from $1.16 billion at the end of March 2019, but down slightly from the December 2019 position, to end the 2020 first quarter at $2 billion. Receivables were down 15 percent to $1.4 billion compared to March 2019. Current liabilities were down by 20 percent to $1.7 Billion, with Payables the largest component, down 18 percent to $1.1 billion. At the end of March, shareholders’ equity stood at $1.4 billion, an 11 percent increase over March 2019, but the group continues to use a high degree of leveraging in funding its operations. Loans amounted to $2.3 billion at the end of March, with lease financing standing at $1 billion.
Earnings per share came out at 3.4 cents for the quarter and IC Insider.com forecast is for 22 cents per share for PE of 10.2 times 2020 earnings at the closing stock of $2.25 on the Junior Market of the Jamaica Stock Exchange.

Carib Cement Q2 profit jumps 41%

Profit at Jamaica’s sole cement producer, Caribbean Cement rose 41 percent in the June quarter, to $521 million from $368 million for the comparable quarter in 2019 and thus reverses the poor first-quarter performance, with results that fell 57 percent.
For the six months to June, profit fell 33 percent from $1.5 billion in 2019 to $1 million for the 2020 half-year. First-quarter profit fell sharply from that in 2019 to just $483 million, with the major repairs and maintenance of the plant carried out in the first quarter compared with the second quarter in 2019. Foreign exchange losses also contributed to the fall in the profit for the March quarter.
Sale revenues rose two percent for the June quarter to $4.78 billion from $4.68 billion and for the year to date, to $9.33 billion, from $9.13 billion in 2019.
Gross profit was flat for the first half of the year at $4.1 billion but grew 13 percent in the June quarter by from $2 billion in 2019, to $2.25 billion.
Administrative and Other expenses rose three percent to $604 million in the quarter and increased nine percent in the six months to $1.25 billion. Finance cost declined 28 percent in the quarter, from $231 million in 2019 to $167 million and dropped by 29 percent from $468 million to $330 million for the six months. The company repaid $231 billion in loans for the year to June, and This will help in reducing interest expenses going forward, including the second half of the current year. Losses incurred primarily on loans denominated in foreign currency resulted in foreign currency losses of $167 million, 18 percent lower than a loss of $231 million for the second quarter of 2019 but increased 69 percent for the year to date, to $658 million from $390 million in 2019.

Caribbean Cement silos

Depreciation charge was flat at $401 million for the June quarter and was slightly down to $765 million for the half-year. Provision for corporate profit taxation, jumped 70 percent in the June quarter to $526 million and is up 34 percent for the half-year to $739 million.
Gross cash flow amounted to $2.7 billion, after repaying loans and spending $342 million on new fixed assets and working capital needs, the company ended the half with $527 in cash funds. At the end of June, current assets stood at $3.2 billion, down from $3.47 billion at the end of 2019 and current liabilities ended the period at $4.75 billion.  At the end of December, shareholders’ equity stood at $9.3 billion and borrowings at $10.35 billion compared to $13.8 billion at the end of June 2019.
Earnings per share came in at 61 cents for the quarter and $1.18 for the half-year, with a net asset value of $11 per share. IC Insider.com is forecasting a profit of $3.50 per share for 2020 and places the value of the stock at a PE of 13 times earnings and four times net asset value, based on the last price of $46 the stock traded on the Jamaica Stock Exchange.

138 Student Living huge gains

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Revenue at 138 Student Living, jumped 31 percent for the March quarter, to $289 million from $221 million in 2019. For the six months to March, the revenue jumped 69 percent to $753 million from $445 million in 2019.
138 Student Living boasted an eye-popping turnaround in its profit before interest and taxes of 262 percent for the quarter and 588 percent for the six months to March 2020. The company recorded a profit before tax and finance cost of $137 million for the March quarter and $396 million for the six months. Profit after tax ended at $87 million for the March 2020 quarter versus a loss of $45 million in the prior year’s second quarter, for the half-year, profit after tax climbed to $270 million compared to a loss of $44 million in the 2019 period.
Since reporting profit before tax for the 2017 fiscal year, the current period is the first that the company is reporting profit that suggests a full-year profit. The company noted four consecutive quarters of recording an operating profit, peaking in December 2019. Contributing factors included the decrease in operations costs, particularly utilities, increased occupancies, and variation claims relating to Irvine Hall.
There is much more than meets the eyes of the glowing 2020 performance. “Three main items positively impacted this result: (i) effective management of operating costs (primarily utilities) (ii) increased occupancies for long-term and short-term rentals and (iii) variation claims relating to Irvine Hall. The last item includes a variation claim for the full 2019 year as well as a first and second quarter claim for the year 2020. Adjusting for the variation claims, the group recorded year-to-date profit amounting to $71 million,” Chairman Ian Parsard informed shareholders by way of directors’ report accompanying the quarterly.
138SL is yet another company that fails to provide shareholders with relevant information by bundling direct and administrative expenses into just one line item on the financial report. Administrative costs fell by 17 percent for the quarter and 8 percent for the six months to March, posting figures of $153 million and $358 million, respectively. Finance cost amounted to $67 million for the quarter down slightly from the 2019 period, with $68 million and for the half-year $134 million down from $138 million.
Earnings per share came out at 21 cents for the quarter and 65 cents for the six months and should end the fiscal year higher, but profits from the continuing business will be far less than the half-year numbers indicate.
At the end of the 2020 first quarter, 138SL generated gross cash inflows of $267 million but saw receivables rising by $181 million and had a net repayment of loans amounting to $106 million leaving cash equivalents at $270 million. Current assets stood at $712 million, with receivables of $418 million. Current liabilities were $1.15 billion, including payables of $602 million. Shareholders’ equity stood at $5.8 billion, with borrowings of $4.6 billion.
138SL adjusted its operations as a result of COVID-19, which has resulted in an occupancy reduction of 25 percent in April. The Chairman noted that while they expect to see the continued impact on their revenue, the company has made necessary changes and the Concession Agreement of a 90 percent occupancy guarantee provides a meaningful buffer.
The stock traded at $6.69 on the Main Market of the Jamaica Stock Exchange, with a PE ratio of 13.5 times 2020 earnings from ongoing revenues.

Profit soars 103% at Seprod

Seprod expected their entry into sugar production in 2009 was going to be a lucrative endeavour with their business acumen, strong capital base and vision they would succeed where others failed for decades. According to a Gleaner report in 2010, “the company not only acquired some 820 hectares of lands last year to add to its Golden Grove Sugar Company operations but also upgraded its factory. The strategy of an upgraded factory and “economies of scale” is expected to reap increased revenues for the group, according to Group Chairman Paul Scott.” Shortly after they acquired the business, the directors were told they were undertaking a huge gamble and would have been better off if they had left it alone. Ten years later, with billion-dollar losses, Seprod finally stopped the costly experiment.
Having disposed of the sugar manufacturing operation, the company slashed its sugar losses by 89 percent from $139 million for the first quarter in 2019, to just under $15 million for the quarter just ended. The reduction in the sugar operating losses helped the net profit to soar 103 percent to $633 million, up from $312 million from the first quarter of 2019 that includes net loss from discontinued operations of $139 million. So strong are the first-quarter numbers that the profit amounts to 65 percent of the full year’s profit in 2019. Earnings per share came out at 86 cents for the quarter.
First-quarter revenues increased six percent to $9.14 billion over the $8.6 billion for the comparative period last year. Manufacturing segment revenue was up 17 percent to $5.2 billion compared to March 2019, while distribution revenues increased 14 percent to $6.9 billion. Segment profit for the Manufacturing segment grew from $682 million to $1.14 million and that for the distribution segment increased from $156 million to $418 million. Export sales rose 13 percent over last year’s first quarter, accounting for $405 million in revenue or 4 percent of the total revenue.

Some of Seprod’s products.

The net profit increase for the quarter comes on the heels of an 8 percent decline in profit for the year ended 2019, dropping from $1.1 billion in 2018 to $973 million, although revenue increased for the year by 45 percent to $32.7 billion, resulting from acquisition and mergers mostly from businesses within the Musson Group.
For the quarter, direct expenses rose a modest one percent coming in at $6.4 billion and other operating expenses increased two percent to $1.78 billion year over year and finance costs fell three percent, from $287 million at the end of March 2019 to $280 million at the close of 2020 first quarter.
Seprod raked in $1.1 billion in operating profit for the quarter, a 32 percent increase over the $835 million in the corresponding period to March 2019. Operating profit margin rose 20 percent from 10 percent to 12 percent, year-over-year.
The group generated gross Cash inflows of $1 billion and ended with cash and equivalents of $1.1 billion, down from $1.48 billion at the start of the year. There was a sharp reduction in payables but a big increase in receivables since December 2019 and there was a near billion-dollar drop in inventories. Net current assets ended the period at $7.8 billion, after accounting for current liabilities of $6 billion. At the end of March, shareholders’ equity stood at $15.6 billion, but borrowings totaled $13.5 billion. Seprod paid $366 million in dividends compared to $330 million in the previous year’s first quarter.
The company executives note that COVID-19 had a “minor negative impact” on its first-quarter results and it is expected that the full effect of the pandemic on company operations will be realized in subsequent quarters. Notwithstanding, it is important to note that the Seprod group includes several companies that manufacture or distribute what many consumers deem as essential foods and pharmaceutical items, which should also factor into the company’s ability to withstand this economic shock during this period.
IC Insider.com is forecasting $4 per share for 2020, with the stock trading at $51 on the Jamaica Stock Exchange with a PE ratio of 12.8 times 2020 earnings.

Q1 profit down 57% at Carib Cement

Jamaica’s sole cement processing company, Caribbean Cement recorded a modest 2 percent increase in revenues to $4.5 billion for the quarter ending March 2020, over the 2019corresponding period and finished with a 57 percent decline in profit to $483 million, down from last year’s $1.1 billion for the March quarter.  
The quarterly performance followed a weak December 2019 quarter when profit dropped from $1.1 billion in the 2018 December quarter to just $319,276.
Helping to pressure the company’s performance for the latest period was a 16 percent rise in direct production cost that moved from $2.3 billion to $2.6 billion, with repairs and maintenance increasing $100 million and equipment hire moving up by $170 million over the 2019 period with raw materials accounting for most of the balance of the increase. The Directors pointed to the fact that the annual maintenance shutdown occurred in the first quarter this year versus the second quarter in 2019. As a result, operating profit decreased by 23 percent, moving from $1.58 billion to $1.22 billion resulting in profit margin falling from 35.5 percent in the 2019 first quarter to 27 percent in 2020.
Other operating expenses rose 15 percent from $568 million to $651 million in the quarter. Finance cost declined in the quarter, from $236 million to $164 million as the company paid down loans during the past year. Foreign exchange losses rose to $281 million for the quarter, from a surplus of $67 million in the previous year’s corresponding period.
The Directors note that “the full impact of COVID-19 on the company’s operations, particularly in its export market, is yet to be seen.”
The company continues to enjoy a healthy cash flow with the quarter bringing in $1.1 billion, just a few million dollars lower than for the 2019 period. Shareholders’ equity stood at $8.8 billion and total borrowed funds of $12 billion down from $14.8 billion in March 2019. Current assets ended the period at $3.1 billion inclusive of trade accounts receivables of $450 million and cash and bank balances amounting to $348 million. Current liabilities rounded out the quarter at $4.9 billion, including short-term borrowings of $1.7 billion.
Earnings per share came out at 57 cents for the quarter, down from $1.33 in 2019. IC Insider.com is forecasting around $4 per share for the year with the PE currently at 12.5 times 2020 earnings, but a lot will depend on if there are not many dislocations to cement demand from the current economic slowdown. The stock last traded at $51.50 on the Main Market of the Jamaica Stock Exchange.

Depreciation melts Kremi profit

A quick look at the audited accounts for Caribbean Cream to February shows another year of disappointing results that cut across the likely outturn the November 2019 results suggested. Closer examination of the data reveals a far better picture of the company’s performance than initially meets the eye.

Caribbean Cream Kremi brand

Profit for 2020 fell sharply, but gross cash flow rose for the year in which revenues rose 10 percent as a sharp rise in depreciation charge knocked net profit down to $55 million from the $89 million reported in 2019 with earnings per share falling to 14 cents, down from 23 cents in 2019.
The depreciation charge more than doubled in the year, with an increase of $63 million, to end at $115 million as fixed assets amounting to $432 million were added during the year and were subject to be depreciated. Leased assets costing $115 million, also incurred depreciation, a different treatment than in the prior year. Although the profit fell sharply by 38.5 percent, increased depreciation resulted in gross cash inflows being $195 million compared to $165 million in 2019.
Revenues rose 10 percent from $1.55 billion to $1.7 billion for the year, with the final quarter growing at a faster pace than the 7.7 up to November. In the last quarter, revenues grew a healthy 16.2 percent to $471 million from $405 million in 2019. Unfortunately, of the $115 million depreciation charge for the year, only $53 million was booked up to November last year, resulting in $62 million booked in the final quarter.
Gross profit margin declined in the year leading to gross profit rising slower than the increase in revenues at 5 percent to $546 million and is due primarily to a 12 percent rise in raw material cost and a 76 percent increase in depreciation charges in the manufacturing operation. Overall, cost rose faster than the increase in revenues for the year with Administrative, selling and distribution expenses 15 percent for the year.
The company is in a healthy financial position at the end of February, with shareholders’ equity stood at $744 million with borrowings of $232 million. Net current assets ended the period at $74 million inclusive of trade and other receivables of $58 million, cash and bank balances of $129 million while Current liabilities closed the period at $232 million.
IC Insider.com is forecasting earning per share of 50 cents for the current fiscal year, assuming only minimal negative impact from Coronavirus. The stock traded at $2.20 on the Junior Market of the Jamaica Stock Exchange with a PE ratio of 4.5 times 2021 earnings.

Junior Market up 33% from March low

The Junior Market of the Jamaica Stock Exchange continues its recovery from the savage decline of March and is back to levels reached in the first week of that month and is up 33 percent from the March low.
Within half an hour of trading, the Junior Market Index crossed over the 2,700 points mark to 2,706.06 and is up 63.25 points from Thursday close and is ahead of the March 5 ending of 2,656.41 points but lower than the close on March 4 of 2,758.76, but is some distance from the February close of 2,911.92.
The Main Market continues to recover and the All Jamaica Composite Index is up 5,703.56 points to 443071.44 and is above the March 16 close of 434,832.42.

QWI recovers 26% of lost value

QWI Investments‘ net asset value (NAV) per share surpassed the $1 mark again in hitting $1.01 per share at the close of the markets on Thursday. The NAV is up 26 percent from the lows reached in March.
The share price tumbled over the past month with the fall in the overall market, in sympathy with the fall in the net asset value per share to a low of 80 cents on March 20 but recovered some lost ground to close on April 3, at 93 cents per share. The stock traded on the Jamaica Stock Exchange as low as 63 cents on March 10 with that price proving to be a bottom so far. The price moved upwards to close on Thursday at 83 cents for a rise of almost 32 percent since the low in March.
The Company’s investment portfolio is invested in stocks that are listed on the Jamaica Stock Exchange, USA stock exchanges, with a few stocks that are listed on the Trinidad and Tobago Stock Exchange.
The local stock market has seen a V-shaped recovery over the past three weeks, and if this continues into the fourth week, it could result in more gains in the NAV for the Company. The stock is listed on the Main Market of the Jamaica Stock Exchange.

Berger Paints set to surprise

Berger Paints is one of IC Insider.com’s top stocks for 2020.  It is may not the most popular company listed on the Jamaica Stock Exchange, but it seems set to surprise many investors with its performance in 2020.
It gained much attention with strong growth in profits in the financial year to March 2017, ahead of a switch in majority ownership in August 2017 to the Trinidad based ANSA McAL Group resulting in significant changes in directorship and management. In 2019, the company changed the General manager after a relatively short stint at the helm, a move that could augur well for the company going forward.
In 2019, raw materials accounted for 50 percent of the input into paint production. Most of the raw material used in paint production is petroleum-based, resulting in paint companies benefit when the petrochemical industry goes into a downswing and conversely, a hike in the price of petroleum products raises input costs. Titanium dioxide and crude derivatives form about 50 percent of the raw material cost of paints. In 2019 the average price of crude oil on the world market US$57 for WTI, for 2020 so far, it is at US$43 per barrel, with the current price around US$22 per barrel. If the current trend holds, it will result in lower input costs for Berger for 2020. Management in reporting to shareholders for the year to December stated, “year to date to February 2020, performance indicators are ahead of 2019 with signs of a positive trajectory”.
Between 2012 and 2017, profits increased at an outstanding rate, however, in 2018, the profit was relatively flat and declined in 2019. The company reported lower sales and sharply reduced profit for 2019. The company recorded a two percent reduction in revenues to $1.12 billion for the six months to June and a 6 percent reduction to $1.6 billion for the nine months to September 2019, versus $1.7 billion for the corresponding period in 2018. It ended the year down 7 percent at $2.5 billion. Adverse weather conditions experienced in the third and fourth quarters, negatively impacted revenues, the company told shareholders in a statement accompanying the third and fourth quarter reports. Also affecting sales was the extensive road works that disrupted their customers’ businesses.

Berger Paints is one of IC Insider’s TOP 10 stocks.

The company reported a loss in the final quarter of 2019, a period that generates by far the highest revenues and usually the highest profit. Berger ended with a profit of $29 million compared to the full year compared to $40 million at the end of September. While revenues fell in the fourth quarter to $892 million versus the 2018 period, it was the highest revenues in any quarter with the June quarter of $601 million being the closest. Yet, it recorded a loss when the June quarter recorded a profit of $28 million. Analysis of the reports shows that other operating expenses of $118 million in the September quarter jumped to $254 million for the December quarter. The 2019 fourth quarter also much higher than in the same period in 2018 at $136 million, suggesting there may be some one-off cost that was incurred in the period and distorted the results.
“The company implemented a new an Enterprise Resource Planning Software (ERP) system which provides a fully integrated manufacturing and financial platform and is providing the required details and analytics for the business, the management stated.” The company also introduced a new automotive line of paints to deepen BPJL’s reach into the automotive market.
IC Insider.com projects earnings per share amounting to $2 for the current year and it now trades at an attractive P/E of just over six times projected earnings.