Is Fesco’s pricing rational?

Investors who bought shares in Future Energy Source in the IPO in April or a few months after are laughing all the way to the bank, with the price providing a gain of 311 percent up to Friday. The recent rally in the stock has moved it from an IPO price of 80 cents to $3.29 at the close on Friday, making it the highest valued Junior Market stock at a PE of 25 times current year’s earnings, with the next closest being, Honey Bun at 18.3.
With just 15 service stations within its network and the planned opening of the Beechwood Avenue station, there is much scope for the company to expand and grow profits in the future, but it seems a bit overdone for Fesco to be priced at a 38 percent premium to the next highest priced stock on the Junior Market.
The company’s latest financial report shows profit surging 55.5 percent to $40 million before taxes for the 2021 June quarter versus $25.7 million in the first quarter of 2020. Profit after taxes rose 66 percent from $24 million. There is no tax charge for the latest quarter, resulting from listing on the Junior Market of the Jamaica Stock Exchange. The tax incentive provides a 10 years tax concession, with no taxes payable for 5 years and at 50 percent of the normal rate for the second 5 years.
A 29.5 percent spike in the volume of fuel sold added 2.9 million litres to volume sales, helping to push revenues for the quarter up 58 percent to $1.9 billion from $1.2 billion in 2020 and much greater than the $1.5 billion generated in March 2021 quarter. Most of the June increase over the March quarter would be due to the increased price of imported fuel, emanating from the upward movement in world oil prices during the period. Sales for the June 2020 quarter, was negatively affected by disruption to business following the outbreak of covid-19 last year.

Beechwood Avenue service station, under construction.

The first quarter performance is ahead of the opening of the new Fesco Ferry service station on July 15, which is dealer owned and operated.
The Company recorded a gross profit of $55 million, an increase of 63.4 percent over the June 2020 quarter of $34 million.
Operating and administrative expenses for the 2021 first quarter popped 139 percent from $8.6 million to $20.5 million, due mainly to spending in new areas during the quarter, with no cost in 2020. Advertising consumed $2.9 million, directors fees $1.4 million, amortization of right of use assets $867,000, while legal and professional fees rose from $310,000 to $2 million and audit and accounting fees added $1 million, with virtually none in 2020.
Finance Income increased from $1.7 million to $6.4 million, with foreign exchange gains accounting for $4.4 million in the 2021 quarter. Interest cost was minimal at under $1 million in the 2020 and 2021 periods.
Current assets amount to $547 million and current liabilities $210 million, with net current assets of $336 million versus $145 million in 2020. Cash funds amount to $282 million and receivables and amounts due from related parties amount to $250 million.
Shareholders Equity stands at $582 million, up from $231 million at the end of June 2020, reflecting the net proceeds from the IPO earlier this year and an increase in retained earnings. The company outlaid $238 million in work in progress in building out the service station on Beechwood Avenue in Kingston, with $114 million incurred in the June quarter.

New IPOS expected in October

The initial public offer of shares in Jamaica Fibreglass Products is expected to come to the Jamaican Capital market in October, our source advises, with Spur Tree Spices to come shortly after.
The company produces fiberglass based furniture and beddings, with revenues said to be in the region of $600 million, is expected to raise approximately $250 million for expansion purposes. The prospectus of the Metry Seaga owned company is said to be at an advanced stage of preparation and should be moving through the various stages for approval soon.
Spur Tree Spices, with revenues, said to be just over $1 billion, should also be coming in October, if all goes well, with a view to pull in $250 million. GK Capital are brokers of the two issues that are slated to list on the Junior Market. The prospectus of the company that has been manufacturing seasonings and sauces since 2006 for the local and export markets is also at an advanced stage of readiness, ICInsider.com gathers.
ICInsider.com is informed that the prospectus for one issue is in a draft form currently, so it should be ready to move to the regulators shortly. IPOS are subject to approval, primarily by the Jamaica Stock Exchange and Financial Securities Commission, before the prospectus can be released to the public as such, the exact timing is subject to signing off by them.
One source advised IC Insider.com that there are several potential listing candidates in the Manufacturing sector, with a number of them expressing interest in the listing. Another source advises that there are a number of potential listings in the NCB Capital Markets pipeline. The disruption to business caused by covid-19 is creating delays in some of the issues.
What appears to be a rush to list is a marked departure from the situation that existed before the advent of the Junior Market, with many business owners now seeing the major benefits that listings bring and the usefulness of long term capital.
In the meantime, Sygnus Real Estate Finance IPO that is seeking to sell 207.6 million up sizeable by 38.86 million units to raise a maximum of US$15 million, is extended to Friday, September 10.

Barita APO to be priced at $80

Barita Investments‘ directors have approved the issue of 125 million ordinary shares at $80 each, with an option to upsize the amount issued by 62.5 million shares to raise $15 billion in an additional public issue (APO).
The New Ordinary Shares will be reserved for the benefit of certain specified investors in amounts determined at the discretion of the Company. The APO should open on September 3, or such other date as determined by the Group Chief Executive Officer and is to close on September 21, or such other date as determined by the Group Chief Executive Officers.
The original notice to the Jamaica Stock Exchange stipulated the issue of up to 160 million units that could have been upsized 80 million shares. Since the first notice to the Jamaica Stock Exchange, on August 5, the stock price moved up from the low $83.90 to $92.77, with the proposed price being a discount of nearly 14 percent.
The company reported nine months results to June, with profit after tax for the June quarter coming in at $1.6 billion, up a strong 62 percent from $990 million reported in 2020 June quarter and ended the quarter, with earnings per share of $1.48 versus $1.21 in 2020. Earnings for the nine months ended at $3.38 per share from after tax profit of $3.67 billion, up 82 percent from $2 billion in 2020.

Q3 profit bolts 62% at Barita

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Fresh from recommending the issue of new shares to their shareholders, the directors of Investment bankers, Barita Investments, approved the payment of an interim dividend of $3.029 per stock unit to be done on October 7, to shareholders as of September 23, 2021, to cost $3.29 billion.
The company also reported nine months results to June, with profit after tax for the June quarter coming in at $1.6 billion, up a strong 62 percent from $990 million reported in 2020 June quarter and ended the quarter, with earnings per share of $1.48 versus $1.21 in 2020. Earnings for the nine months ended at $3.38 per share from after tax profit of $3.67 billion, up 82 percent from $2 billion in 2020.

Barita eyeing acquisition.

Revenues net of interest expenses rose an impressive 75 percent in the quarter, to $2.64 billion from $1.5 billion and spiked 77 percent from $3.78 billion to $6.69 billion. Fees and commission income generated half of the revenues for the quarter in contributing $1.34 billion and $2.7 billion in the year to date period accounting for 41 percent of net revenues. Foreign exchange gains brought in $647 million in the quarter versus $321 million in 2020 and $1.78 billion year to date versus just $428 million in 2020. The above two areas are the fastest growing for the current fiscal year. Gain on investment activities is down in the quarter, from $257 million to $214 million and down from $1.1 billion in the nine months last year to $1 billion in 2021.
Expenses for the quarter surged 178 percent from $345 million in 2020 to $959 million and jumped 87 from $1.3 billion for the nine months to $2.43 billion. The latest results suggest that earnings per share for the full year could come close to $4.50, of course, with investment banking institutions, they could pick up or drop revenues in many different areas.
Shareholders approved the directors to issue 160 million shares to the public, its fourth capital raising foray since the majority shares in the company was acquired by Cornerstone United Holdings, but the issue may be upsized to as much as 240 million shares.
The shares to be issued may be upsized to a maximum of 80 million additional units if the invitation is oversubscribed. If all 240 million shares are taken up, the company could raise as much as $18 billion in fresh capital, ICInsider.com estimates on the basis that there will not be a steep discount to the price the stock has been mostly traded at up to last week.

Shareholders at Barita Investments AGM.

The pricing and date of the issue are to be determined by the directors, but the offer document seems to be with the Financial Services Commission awaiting signing off of the issue. The last APO was done in August of 2020, the offer document was dated July 30, at which time the JSE closing price was $57.93, with the last traded price of $54, the offer was set at $52 for the general public and existing shareholders. With the stock trading around $82 recently, the price for the new APO could be around $75 to $80. The company could offer existing shareholders a much steeper discount as they did back in 2019, in which case the total take would be less.
Barita Investments is listed on the Jamaica Stock Exchange and has total assets of $84 billion, up from $49 billion a year ago, with Shareholders’ equity of $30.3 billion in June 2021. The company has $2 billion invested in Derrimon Trading, shown as Investment in Associated Company on Barita’s balance sheet. Derrimon contributed $42 million to profit in the quarter.
On Monday, the shares closed trading at $90.24 after jumping $7.24 and boast a PE of 20 times this year’s earnings.

Profit climbs 20% at Paramount

Reduced administrative, selling and distribution expenses overcame a fall in revenues for the Junior Market listed Paramount Trading, for the fiscal year ending May 2021, to deliver a 20 percent rise in after tax profit to $64 million from $53 million in 2020 after profit surged more than nine times in the final quarter versus the similar period in 2020.

Paramount Trading had expanded into Chlorine and bleach processing.

In the final quarter, revenues rose 15 percent to $421 million from $366 million in 2020 and netted a profit of $36 million versus just $4 million in 2020. Sales revenue slipped 5 percent for the year to $1.44 billion, from $1.52 billion. Other income slipped from $25 million to $23 million, but foreign exchange gains contributed $19 million in 2021 versus $10 million in 2020.
Improvement in profit margin in the year saw margins rise from 30.9 percent in 2020 to 31.6 percent in 2021, but gross profit slipped 3 percent to $454 million, from $468 million in 2020.
Administrative expenses fell 32 percent to $68 million in the quarter, up from $100 million in 2020, and slipped 3 percent for the year, to $355 million from $367 million, a fall of $27 million in staff costs accounted for the bulk of the decline as salaries and wages fell from $179 million to $152 million as the average number of workers employed fell from 91 to 70. Distribution and sales expenses dipped from $19 million to $11 million. Finance cost inched higher from $48 million to $49 million in 2021.
The operations delivered gross cash flow of $121 million, but after changes in working capital, net cash flow from operations ended at $135 million. The company increased fixed assets by $9 million, had a net $15 million repayment of loans and paid $62 million in dividends, ended with increased funds at the end of the year of $49 million, pushing cash and investments to $261 million at the end of the fiscal year.

Paramount lubricant factory.

At the end of May, net current assets stood at $472 million. Current assets ended the period at $836 million inclusive of trade and other receivables of $323 million, cash and bank balances of $91 million. Current liabilities closed the year with $364 million. Non-current Investments being held for more than a year stood at $170 million. Shareholders’ equity ended at $796 million with long term borrowings at $473 million, down from $492 million in 2020 and short term loans amounted to $47 million versus $43 million in 2020.
Earnings per share amount to 4.1 cents for the year. ICInsider.com forecasts 10 cents per share for the fiscal year ending May 2022 with a PE of 12.5 at the last traded stock price at $1.25 on the Junior Market of the Jamaica Stock Exchange. Net asset value is 52 cents per share, with the stock selling at 2.5 net book value.
The Company’s principal activity is the importation and distribution of chemicals, lubricants and other related products, provision of haulage services and blends lubricants.

Profit up at AMG

AMG Packaging posted nine months results recently, with flat revenues for the May quarter after recording lower income for the nine months in 2021 versus last year. Still, the company reported a strong 26 percent increase in profit to $21 million for the May quarter, pushing the year to date results to $42 million ahead of $38 million in 2020.
The improved results for the latest quarter came about with a big fall in inventory input that fell 11 percent from $94.6 million to $84 million, while cost for the nine months declined 9 percent from $295 million to $268 million. Other direct manufacturing costs fell in the May quarter from $30 million to $29 million and for the nine months from $104.4 million to $91 million.
Resulting from the fall in direct manufacturing costs, gross profit rose from $46 million in the quarter to $57.4 and for the nine months $150 million from $134.4 million.
Administrative and other expenses rose four percent, from $30.7 million in the 2020 quarter to $32 million and for the nine months, from $98 million to $102 million excluding gains or losses from foreign exchange movement. Foreign exchange movement contributed a loss of $2.3 million in the May quarter, down from a gain of $2.3 million in 2020 and a loss of $4.6 million for the nine months to May this year versus a gain of $4.5 million in 2020. Other income brought in $1.2 million in the May quarter versus $1.4 million in 2020 and for the nine months, $4.4 million compared to $2.2 million in 2020. Loss on disposal of fixed assets contributed a negative input of $4 million in the nine months period last year while taxation cost $3 million in the 2021 quarter and $2.4 million last year and $6 million for the year to date versus $5.4 million in 2020.

AMG Packaging pfoit rise

Cash inflow generated in the period to May amounts to $71 million versus $60 million in 2020. After working capital changes, inflows rose to $117 million. A sum of $62 million was expended on the acquisition of fixed assets resulted in a net outflow of $116 million, leaving cash on hand of $143 million, down from $233 at the end of May 2020.
Current assets stood at $394 million and current liabilities $87 million, resulting in net current assets of $306 million. Shareholders’ equity grew to $591 million from $530 million as of May 2020 and loans amounted to $122 million, of which $19 million is due to be repaid in the next twelve months.
IC Insider.com projects a profit of $66 million or 13 cents per share for the 2022 fiscal year. The stock last traded at $1.64 on the Junior Market of the Jamaica Stock Exchange at a PE ratio of 12.6, just below the Junior Market average of 13. Still, with more of the local economy opening up, the results for 2022 could prove to be better than the current year. Investors have to watch supply chain issues such as increased cost and dislocation of sourcing raw materials.

Profit doubles at Caribbean Cream for Q1

Caribbean Cream released first quarter results with revenues up a solid 28 percent to $549 million and profit doubled to $54 million after taxation of nearly $8 from $27 million after tax of $4 million with earnings of 14 cents per share.

Caribbean Cream’s Kremi product

Cost of sales rose 17 percent to $341 million from $292 million in 2020. Selling and distribution costs rose 21 percent to $15 million while administrative costs rose 41 percent to $126 million, finance costs came in at $5 million. Taxation rose to $7.7 million from $4 million in 2020.
Commenting on the results for the year in a joint statement Christopher Clarke, Chairman and Carol Clarke Webster director, operating expenses rose 35 percent or 38 million due to a number of factors, higher transport cost for an increased number of deliveries of product. “Internal reclassification of electricity from production to distribution to more fairly reflect energy usage by business segments’ salary increases and other staff related costs and the full annualized cost for the Ocho Rios depot. The directors stated that they are currently carrying out capital works at the properties for operations that will lead to reduced cost of utilities.
Cash inflows for the quarter were $98 million versus $64 million in 2020, but after working capital changes, inflows rose to $117 million, $62 million was expended on the acquisition of property and resulted in cash on hand of $264 million. Current assets stood at $453 million and current liabilities at $210 million, resulting in net current assets of $243 million. Shareholders’ equity grew to $888 million from $771 million as of May 2020 and loans amounted to  $324 million, of which $29 million is due to be repaid in the next twelve months.
IC Insider.com projects a profit of $320 million or 85 cents per share for the 2022 fiscal year and $1.50 per share for 2023. The stocks last traded at $6.90, after releasing the results, on the Junior Market of the Jamaica Stock Exchange, a 52 weeks’ high and the highest since October 2018. At Friday’s last traded price, the stock ended the week at a PE ratio of 8.3, well below the average of 13 currently for the Junior Market.

Lumber Depot profit bolted higher

Lumber Depot profit surges

Profits at Lumber Depot bolted 555 percent from $22 million for the nine months in 2020 to $145 million for the year ended April 2021, as it grew revenues 14.7 percent to $1.43 billion from $921 million in 2020 nine months period.
The company operates a hardware store in Papine, St Andrew, for more than two decades and generated revenues that rose 7 percent in the April quarter over the January 2021 quarter to $377 million from $353 million and 21 percent over the April 2020 quarter of $311 million. Gross profit margin for the full year was 21 percent, an improvement on the 18 percent for the 2020 nine months period. Administrative costs rose 42 percent to $154 million from $108 million in the nine months to March 2020, but it would be up by 7 percent if the comparative periods were the same number of months.
Cash inflows for the year pulled in $157 million, but after working capital adjustments the amount climbed to $186 million and ended the year with a net gain of $114 million after dividend payment of $14 million and loan repaymentof $33 million. The company has cash funds of $143 million and investments of $117 million at the end of April, with the latter shown as a noncurrent asset.
Current assets stood at $317 million and current liabilities at $139 million, resulting in net current assets of $178 million. Shareholders’ equity grew 68 percent to $523 million and pushed cash and investments to $360 million from $129 million in 2020.
The company reports earnings per share of 21 cents, up from just 3 cents in 2020.
The stock traded 580,827 units up to $3.65 in early trading on the Junior Market of the Jamaica Stock Exchange, but the price dropped back to close at $3.50  at a PE of 16.7 times 2021 earnings and 13 times ICInsider.com’s projection of 27 cents for 2022.

Q2 profit jumps 22% at Scotia Group

Profit for the April quarter rose a decent 22 percent to $2.73 billion from $2.23 billion for the same period last year for Scotia Group, helped by lower staff cost and steeply reduced credit loss provision, with net interest income sagging sharply.

Scotia Group Kingston Branch

Net profit of $4.5 billion for the six months to April 2021 is up by $463 million or 11.5 percent compared to the corresponding period last year.
Net interest income dropped 13 percent from $6.3 billion to $5.5 billion in the quarter and for the half year, it slipped 9.5 percent to $11 billion from $12.48 billion. After providing expected credit losses, net interest income for the six-month period was slightly up to $9.9 billion from $9.8 billion in 2020, as expected credit losses were cut by $1.3 billion from $2.67 billion down to $1.4 billion. Other income increased $1 billion or 11 percent for the half year to $10.2 billion from $9.2 billion and increased by 11 percent from $4.29 billion for the April quarter to $4.78 billion. Foreign exchange gains contributed most to the rise in other income, with the April quarter enjoying a 39 percent bounce to $2.56 billion from $1.84 billion and for the half year an increase of 28 percent from $3.55 billion to $4.55 billion.
Segment results show a mixed picture for the half year, with Banking Treasury showing less income of $1.98 billion compared to $2.22 billion in 2020, with segment results of $833 million versus $1.08 billion. Retail banking saw a major about turn with a profit of $537 million from revenues of $9.5 billion against a loss of $139 million from revenues of $9.7 billion in 2020. Corporate and Commercial banking kicked in with revenues of $5.7 billion and profit of $2.18 billion from $5.45 billion and profit of $2.2 billion in 2020. Investment Management Services saw income and profit rising appreciably after generating $1.73 billion and contributed a profit of $1.3 billion to April this year versus $1.23 billion in revenues and profit of $627 million last year. Insurance revenues decreased by $700 million or 30.3 percent to $2.05 billion from $2.75 billion in 2020, while profit fell from $2 billion to $1.35 billion. The directors state that the fall is “due to the reduction in premium income stemming from the pandemic as well as lower actuarial reserve releases.”
Salaries and staff costs fell from $2.7 billion in the 2020 quarter to $2.49 billion and six months from $5.45 billion to $5.05 billion. Total operating expenses ended down at $5.59 billion from $5.88 billion and for the half year, cost rose from $13 billion to $13.36 billion.
The improved results are of import and the higher increase in the April quarter, encouraging. Still, the fall in net interest income suggests that major recovery in the Group’s core business may be some distance off, especially with contraction in the loan portfolio from $221 million at the end of October to $217 in January. Now $215 billion in April, the trend, however, suggests a slowing in the rate of decline. With, strong recovery in the tourism sector, the last major leg of the economy to recover, the bank may find new opportunities for increased lending and possible recovery of loan losses.
Before the impact of Covid-19 on the group’s operations, loans net of provision for credit losses was growing at a decent clip with an increase of 7 percent in 2020 to $216 billion, for 2019 loans grew 13 percent to $202 billion, in 2018 growth was 10 percent to $179 billion there was no growth in 2017 with $162 billion after an increase of 8 percent in 2016 and 7 percent in 2015.
Stockholders’ Equity rose to $118.4 billion from $112.4 billion at the end of April 2020. Deposits by the public grew to $361 billion from $334 billion at the close of April 2020 and Investment Securities remained at $145 billion as of April, similar to the same time last year, while cash resources jumped from $92 billion at the end of April 2020 to $136 billion at the end of the latest quarter, but down from $141 billion at the end of October last year.
What seems clear is that customers are using the Branches less to transact business and this is set to lead to reductions in costs in the future and help improve profitability and the bank’s image.
The group approved an interim dividend of 35 cents per share, payable on July 21, to stockholders on record on June 29. The stock traded at $41 on Monday at PE between 10 and 12 times 2021 estimated earnings.

Junior Market sets for record 4,230 points?

The Junior Market closed the week at 3,367.03 points with gains of near 28 percent for the overall market for the year to date and 66 percent from the 2020 low of 2,031.79 points on March 18 last year and now sits just 8 percent below the historical high for the market of 3,662.94 points back October 14, 2019.
The market was only above Friday’s close for one day in early January last year when the index closed at 3,378.20 points on January 3 and one day in June this year.
In the process, Lumber Depot gained 111 percent for the year, followed by Fosrich, 109 percent, Jamaican Teas 97 percent, Jetcon 96 percent, Stationery and Office Supplies, 76 percent, Express Catering 71 percent, Main Event 66 percent, Lasco Manufacturing and Caribbean Cream 41 percent.
The growth for the year to date would result in a 60 percent increase for the full year if the current trend continues and would see the market index rising to a record high of 4,230 points to sit just around the next area of resistance. That level would equate with an average PE of 16 times 2021 earnings and suggest that the current rally is likely to continue at a measured pace, similar to the rise from the 2020 low point.