LASCO Distributors lowers profit

Revenue for the year to March increased 11 percent, but profits fell by 8 percent cooling the rapid growth experienced in the previous year for Lasco Distributors. The stock price nevertheless jumped just before the release of the results from $10.50 to $15 in response to an announced stock split.  Profit came in at $507 million without any tax charge, down from $550 in 2012 after a tax charge of $30 million. The result helped to maintain the stock at the level reached before the actual results were published as earnings per share came in at $1.51.

Revenues grew by $795 million to $8,255 billion in a period when official data says the local economy recorded negative growth. Gross profit margin declined quite sharply to 19.9 percent  from 21 percent in the prior year due to a what management states is “a one off adjustment to cost of sales related to import duties, absorption in increased volumes for institutional sales at lower margins, and the impact of the volatility of the exchange rate.”

The management statement continued “during the last financial year there were unavoidable disruptions in the supply chain for key products which impacted on revenue and profit performance. Whilst the company makes efforts to improve efficiencies there were also investments for future growth.

lasco_logo_150x150“Administrative and other expenses increased by 15 percent to $871 million, due to organisational changes in staff resources to strengthen the company’s market presence and preparation for impending new projects.

“The company has had success in its marketing activities as it has seen growth in some core categories and deeper penetration in targeted distribution channels. The widening of appeal and stronger brand presence is the platform for newly launched products and other planned projects with our partners.”

Balance sheet | Inventories increased by $535 million over the corresponding period in 2012, primarily due to inventory carried for important institutions and planned major promotional activities for key products which extend beyond March. Trade and other receivables increased by $315 million due to the increased marketing activity and extended credit arrangements for key institutions. “The trade receivables continue to be managed within industry standards and extended terms for supplies to key accounts is achieved in collaboration with our suppliers. Current liabilities also increased as trade and other payables was $267 million over the corresponding period and this is due to the continued supply agreement with our strategic partners,” the company stated in a release to shareholders.

Equity capital stood at $1.89 billion while current assets amounted to $2.7 billion versus current liabilities of $1.16 billion. The company is virtually debt free with just $46 million in overdraft outstanding on the books at March.

LASCOPharma_logo150x150Looking forward | The company has geared up for improved business. Some of it seems to be government related. Additionally, Lasco Manufacturing expansion is well on its way and when completed and in full production, Lasco Distributors will benefit from increased flow of items to market locally.

The stock may be fully valued, currently at $15 each, bearing in mind the valuation of other junior market companies, but profits should improve going forward thus providing opportunities for further gains in the future.

Legal matter | There is a claim by Pfizer Limited (Pfizer) against Lasco Distributors Limited  and others for damages for breach of a patent relating to a particular product. The action has been tried and judgement entered in favour of the company. The judgement has been appealed by Pfizer. The appeal has been heard in the Supreme Court of Jamaica and the court has reserved its judgement. The matter has been further appealed to the Privy Council and the records of appeal have now been settled and communicated to London. It is anticipated that the matter should come before the Privy Council either by the end of this year or during the first quarter of next year.

The attorneys are of the opinion that the company should be successful on this appeal and anticipate that the amount to be recovered by the company may be approximately $400m. If not, the company will be liable for cost estimated at $25M and for an accounting as to profits made by the company as damages to Pfizer for its loss of profit attributable to the sale of the product from the commencement of the company’s dealing to the date of the interim injunction issued on 29 March 2005.

Proven, FCIB declare dividends

Proven delivers 10% cash return | PROVEN Investments has declared a dividend of US$0.0032 per ordinary share payable on June 26, 2013 to shareholders on record as at June 12, 2013. The stock will trade ex-dividend date is June 10, 2013.

This brings the amount of ordinary share dividends to US97 cents in the last twelve months. The dividend yield is close to 10 percent based on the stock price in early June 2012.

A dividend of US$0.0022 per ordinary share was paid in March this year.  One was paid in December 2012 amounting to US$0.0025 per share in August they paid US$0.0018 per share.

The company will also pay a dividend of $0.10 per preference share payable on June 24, 2013 to shareholders on record as at June 10, 2013. The ex-dividend date is June 6, 2013.

US$&Coins280x150First Caribbean International Bank | Operating throughout the Caribbean region and listed on the Barbados, Trinidad and JSE exchanges, First Caribbean has declared an interim dividend of US$0.015 cents per share payable on June 28, 2013 to shareholders on record as at June 13, 2013. The ex-dividend date is June 11, 2013.

The bank reported net income for the six months ended April, 2013 of US$34 million that is up $4.6 million versus net income of $29.4 million for the same period in the prior year thanks to a sharp reduction in loan loss provisions. Total revenues of $263.3 million were down $5.9 million and continue to be challenged by the struggling economic conditions of the region. Loan loss impairment expenses were down $22.4 million.

Lasco Financial strong profit

The smallest of the three listed Lasco companies, Lasco Financial posted impressive results for the year ended March 2013. Revenues climbed 30 percent to $485 million and profits jumped 60 percent to $164 million. The net results is even more impressive considering that in 2012 there was net addition to profits coming from revaluation of a $90.3 million property which was partially offset by the write off of $$46.28 million for the full purchase costs incurred from the take over of Supreme Venture Financial Services MoneyGram operations, in December 2011.

Quarterly results | In the quarter to March 2013, revenue was $144 million versus $184 million but the latest quarter figures are better than the $132 million generated in the December 2012 quarter. The revaluation gain was booked in the March 2012 quarter thus swelling the revenue figure in the period.

The quarterly profit for March was also down compared to 2012. More importantly, the $52 million earned in the last quarter of the 2013 financial year was just $2.5 million less than that earned in the high-earning December 2012 quarter.

Cost has been kept under control with a slight dip in administrative cost, most of that would relate to the removal of the one-off cost of $46 million reflected above. Selling and promotional cost were up by half to reach $152 million but the growth was much slower than the rise in trading revenues of 73 percent.

LascoCambioServices_logo150x150Business lines | The company is involved primarily in the business of cambio operations, money transfer and lending. It has a ready market for the foreign currencies that it purchases which it can sell to the other companies within the family.

Much of last year’s growth came from the acquisition of the business purchased. Operations have been extended to Barbados but it will take hard work to come close to repeating the 2013 performance.

The capital base is $475 million with total assets of $640 million and enjoys return on equity of a strong 39 percent and a gross profit margin of 34 percent.

The stock | This company seems to be coming into its own and investors have noticed. The stocks has gained 100 percent since December last year, when it traded at $4.90 and closing on Friday at $9.80. The results were released after trading closed on Friday. The other two Lasco companies are trading around 10 times 2013 earnings and if this company does the same it should be trading around $13 this coming week.  The PE is currently 7.5 and the share price to book 2.6 times. The company, which is not subject to taxation on profits for another three years, should report around $1.70 per share for the 2013/14 year.

JMMB posts improved profit

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Jamaica Money Market Brokers reported improved 2013 fiscal year results to March with net profits of $3.87 billion, the first time in its history. Not even the $750 million loss incurred in the write-off of investment premiums that the company had to effect in swapping government debt for lower yielding ones could dent the profit for the year.

All the good news did not come about from normal operations. In 2012 the company acquired all the shares of Capital & Credit Group (CCFG) and merged some elements into JMMB‘s other operations. The acquisition price was less than the net asset value of the acquired company resulting in a book gain of $2 billion. Had it not been for these one-off items, profit would have been lower by approximately $1.1 billion. In 2012, the company earned $2.2 billion after tax but those results were boosted by a large one-off gain from a security sale. IC Insider’s assessment is that earnings from ongoing operations, is around $1.65 per share.

Interest earned | For the year ending March, JMMB earned $11.25 billion in interest. In 2012, the comparative amount was $9.17 billion. The company improved the interest margin considerably, from 63 percent to 70 percent, garnering $4.648 billion compared to $3.54 billion in 2012. Net interest and other income amounted to $6.997 billion up from $5.99 billion in the previous year. The 2013 figures have 9 months income from the CCFG acquisition. Unfortunately, operating cost rose faster that the income with expenses climbing $1.4 billion to $4.6 billion. When the one-off gain in income realised in 2012 is taken into consideration, the increase cost does not look that bad against the growth in income.

jmmbGrouplogo150x150Size can matter | Total assets climbed to $167 billion, higher than the amount at the time of the take over. Growth here is important if the group is to keep profits on the rise. Mergers and acquisitions usually result in duplicated cost which is reduced overtime. JMMB should fully integrate CCFG operations during this year and should minimize cost and start to enjoy most of the benefits of the merger. To date, not much is seen in the profit results to suggest that the group has benefited much from the acquisition. The improved interest margin may have been one of the benefits.

The last quarter had revenues of $3.85 billion, a gain of 28 percent over the similar period in 2012 and is up from an increase of 20 percent realised in the December quarter. Pretax profit before exceptional income and charges was up to $735 million compared to $590 million in 2012. In spite of the debt swap charge, a tax credit of $791 million for the quarter resulted in after tax profit climbing to $647 million versus $441 million in 2012. In the March 2012 quarter, there was a tax charge of $144 million.

Capital | In spite of the write-off of the premium on GOJ bonds that were swapped, JMMB still carries $1.7 billion as investment fair value reserves up from just $400 million in 2012. The gains have helped, along with the profit reported for the year, to push the equity capital to $16.7 billion up from $10.8 billion in 2012.

Undervalued | JMMB will be acquiring the shares it does not already own in International Bank in Trinidad, no terms have yet been announced. This acquisition will put management in full control and enable them to optimize business and returns from it. The annual accounts show minority interest of $118 million, so this share of profit plus whatever increase obtains for this year will flow to profit.

JMMB could produce net earnings in the order of $3.2 billion for the year ending in March 2014. The outcome could be positively influenced by trading gains and how active the stock market becomes. An active stock market would result in increase brokerage fees and gains from trading shares for their own account as well as increase in the size of the unit trust portfolio that would also result in increased fee income.

Stock outlook | The shares that were languishing at $8 jumped on the release of the results to $9 on heavy volume. The shares which are listed in Trinidad are also in demand on that stock exchange. The PE is around 6 times 2013 earnings from ongoing business and is selling below net book value as well.

JSE: Junior market jumps 23% in May

Junior market stocks climbed 23 percent on average in May as all but 5 stocks increased in price. Three stocks registered price losses and one, C2W, did not trade. Caribbean Cream, newly listed during the month, traded as a high as $1.15 but closed on the last day at the issue price of $1. Lasco Distributors gained 56 percent, Lasco manufacturing gained 46 percent, Lasco Financial Services 32 percent, Blue Power 24 percent and Consolidated Bakery fell 37 percent. A major part of the move was fueled by the announcement last week by Lacso companies that they were calling a meeting of shareholders to consider a 10 for 1 stock split for all three entities that are listed on the junior market.

BullMarket280x150The main market activity was not as robust as the junior market. In contrast to the 23 percent movement in the junior market index the JSE Market Index advanced by 4,101.54 points (4.68 percent) to close at 87,577.92. The JSE Cross Listed Index advanced by 8.29 points (1.02 percent) to close at 810.31, the JSE Combined Index advanced by 4,806.77 points (5.36 percent) to close at 89,724.01 and The JSE US Equities Index remained unchanged. The main market did have some attractive gains by some of the companies. Good results helped Kingston Wharves climbed 30 percent during the month, Ciboney recorded a gain of 50 percent, Berger Pzints moved up 22 percent, D&G 21 percent, Pan jam 15 percent, JMMB 13 percent as only 4 stocks fell and 21 gained in price.

While the junior market may have lead the main market so far, there are signs that the main market could do well in the weeks ahead as investors reassess the fortunes of some of the listed companies.

JSE: Trading picked up momentum

Friday, 31st May 2013 | The stock market had one of the most active days with 33 stocks trading for a volume of 24,880,202 units with a value of $53,568,552. Although 10 stocks advanced in price with 6 declining, all indices fell marginally by less than 10 points.

Consolidated Bakeries had one trade which amounted to 18.3 million units at $1.01 each. This was a cross done by Stocks & Securities on behalf of clients. Two of the Lasco companies responded to the release of audited full year results with Lasco Manufacturing gaining 19 cents to close at $15.39 and Distributors gained 40 cents to close up at $15.

Results impact | Lasco Financial Services which released results after trading closed lost 35 cents to close the day at $9.80. The company reported earnings of $1.33, up strongly on the 83 cents earned in 2012. This should be enough to push the stock up next week.

Access Financial traded at an all-time high of $8 with 65,151 units changing hands. Carreras gained 45 cents to close at $60.45 with 9,324 units trading. The company had reported slight improvement in earnings from ongoing business of $6.14 versus $5.35 in 2012.

Graph_paper_up280x150JMMB put on 50 cents while trading 1,169,369 units valued at $10.54 million. The stock responded to full year results to March with earnings of $2.35 per share compared to $1.55 in the previous year. The group’s earnings were boosted by a one-off gain of $2 billion booked when it acquired the shares of Capital & Credit Group last year, the effect of this was reduced by $750 million loss when government bonds were swapped out in February this year as well as $181 million written off for impairment to financial and intangible assets. Without these charges earnings would have been up to approximately $1.65 per share. In 2012 the group had picked up a large one-off gain from trading in certain security that was not expected to recur.

Late Move | Late in trading, National Commercial Bank gained $2 to close at $21, Pan Jam posted a $2 gain on to close at $57 with just 4,980 units trading. Scotia Group shed 74 cents to close at $21.06 after it traded as high as $22 with 306,220 units trading for $6.48 million. Scotia Investments lost 42 cents to close at $26.48 with 7,000 shares trading. Supreme Ventures traded 2.76 million units between $2.90 and $3 but closed at $3. in the junior market, newly listed Caribbean Creams traded 1.12 million units between a $1 and $1.10 and closed at $1, the IPO price.

Stocks that could move | At the close, 9 stocks had bids that were higher than the last selling price and there were 3 offers below the last selling price. Lasco Manufacturing closed at a 52 weeks high, Access Financial closed at an all time high. Kingston Wharves traded at a 52 weeks high of $8.50 but closed lower than yesterday’s price.

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JSE: Junior market dominant

Thursday, 30th May 2013 | Trading activity was mostly focused on the junior market as the Lasco stocks all traded at 52 weeks highs for the day. Lasco Financial closed at $10.15 up $1.15 an all time high, 154,320 units traded between $10 and $10.15, manufacturing traded 66,350 units and closed at $15.20 up a $1.20 an all time high and distributors traded at $15.40 an all time high but slipped back to $14.60 at the close, while trading 131,348 units. Blue Power closed at $6.81 up 61 cents for the day when 42,000 shares traded. Dolphin Cove traded 208,868 units at $8.35, Consolidated Bakery saw 975,000 units going through the market for $1.01 each.

The junior market index closed at 761.34 up 13.70 points on the day. Technically, this leg of the junior market movement should take it to 950 points with a second leg to 1,350 or beyond. The second leg may seem like a stretch at first, but with interest rates so low the potential for stocks have gone up, making present PEs much lower than they may first appear to be. The junior market index 50-day moving average has crossed over the 120-day moving index and the current level of the index is well above the 200-day moving average. The 50-day moving average is about to cross over the 200-day moving average — all bullish signals.

BullMarket280x150Investors may have to wait on the next set of company results to see a major push of the index upwards. The three Lasco companies were the main pushers this week. Their last quarter results cannot be expected to push their price much further for now. The stocks are selling at a PE of 10 times the latest earnings, a level that some other junior companies are trading at. Blue Power, Caribbean Cream and Paramount Trading should be releasing full-year results soon and that could help the market move further.

The Main Market | The all Jamaica index closed over 88,000 points when it hit 88,443.97 points, up 494.15 and the highest since January 23  when it closed at  88,841.39. Notwithstanding the index move, the market was pretty subdued today.  The major movers in the main market were Grace put on 75 cents, JMMB 49 cents and Kingston Wharves 50 cents.

The JSE market has broken out of the downward channel and is poised for the 105,000, with 130,000 as the next major target.

The market traded 6.2 million shares at a value of $28.8 million as 10 stocks advanced and 6 declined.

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JSE: Juniors marching on

Wednesday, 29th May 2013 | The junior market index jumped 4.33 percent today, the most by any of the indices as most of the market focus was on these stocks. With the exception of cross traded index and the US dollar indices, where no price action took place, all other indices moved up on a day of light trading.

The junior market index closed up 31 points and closed at 747.64, not very far from the important 800 level where resistance comes into play. The all Jamaica index closed up 188.48 points to close the day at 87,949.82 on a day when market activity was low and only $8,804,947 worth of stocks traded.

52 weeks High | Six stocks traded at new 52 weeks high during the day with 3 ending up closing at 52 weeks high. Lasco Financial traded as high as $10 but closed at $9.50 which remains the highest closing price. The same went for Jamaican Teas that traded at $4.60 during the day but closed back at the 52 weeks high previously attained this month at $4.40.

Lasco Distributors closed at $15 while gaining $1.30 for the day and Manufacturing put on $1 and closed at $14, Grace Kennedy closed at $60.25 but traded as high as $62 failing to record a new 52 weeks high at the close. Kingston Wharves closed at $7.50 the highest price attained in the last 12 months while gaining 48 cents.

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JSE: 130,000 in 2013?

Tuesday, 29th May 2013 | The market was dominated by Scotia Group with 2.265 million shares trading for value of $49.4 million in a market that traded $59.6 million for the day. The bulk of the trades in this stock were crosses done by Scotia Investments on behalf of clients. The stock jumped $1.24 on the day to close at $21.80. The gain in Scotia, plus a 40 cent increase in Sagicor Life which closed at $8.50, were the main contributors to the 1,452 points rise in the all Jamaica Index which closed above 87,000 points for the first time since February 6th and it now sits just below January 25th close of 87,888.49 on a day when advancing stocks again out paced declining stocks 3 to 1 with 12 stocks climbing versus 4 that fell.

Technically speaking | The junior market is heading to the 800 points level before it meets resistance and closed today at 716.63, so the target may not be that far away. The main market has broken the 85,000 mark decisively and today broke a minor resistance level created this year when the market slipped with the NDX and tax announcements. It now looks as if the market’s next serious resistance level is around 130,000 points. Using the all Jamaica Composite index, even if the market moved at the level it did today, it would take until mid-July to reach it.

jse_logo150x150The challenges the main market faces is that it requires the big companies to fully participate in any major rally to meet such a target within the time frame. So far, two of the big ones, National Commercial Bank (NCB) and Scotia Group, have not made any great moves to lend confidence that they are about to contribute in any major rally. Based on where money market interest rates are and the low level of stock valuation, this level may only be a temporary stop — if it becomes one at all. An indicator of the near-term future of the market can be measured by the advance decline ratio, as well as the number of stocks closing either  bids higher or offers lower than the last sale price. At the end of Tuesday’s trade it was 8 to 1 a positive for continued advances.

Other price movers | Other stocks to post worthwhile moves include Carreras up $2 on Mondays last traded price with the stock closing at $60 with 16,246 units trading between $58 and $60. Jamaica Broilers gained 30 cents to close at $4.90 while trading 86,706 units. All three Lasco companies posted gains in continued response to the 10 for 1 stock split. Distributors gained $1.69 to close at $13.70 with 83,079 shares trading, Financial Services traded only 7,500 units to close $1.20 higher at $9.50 and Manufacturing was up 94 cents on just 5,000 units to close at $13. NCB shed 21 cents, closing at $18.80 as 19,134 units traded. Scotia Investments gained 50 cents with only 1,000 shares changing hands.

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Scotia Group’s profit surprise

Scotia Group Jamaica was the one exception of the financial institutions to buck the trend of lower profit resulting from the write-off of fair value investments gains from the debt swap of Government of Jamaica bonds in February.

The banking group reported improved results for the second quarter of the 2013 financial year to April, with net income of $2,930 million, $210 million above the previous quarter and $214 million above the quarter ended April, 2012. For the six months ended April, 2013, net profit was $5,651 million compared to $5,364 million for the same period last year. Profit available to shareholders was $5.47 billion, resulting in earnings per share of $1.76, this is after the group took a one time charge of $397 million for the write-off of fair value securities gains.

Net interest income | After impairment losses for the period, Net Interest Income was $11.13 billion, up $341 million or 3%  compared to the same period last year. For the quarter, interest income and interest cost declined but net income fell compared with the January 2013 quarter by $470 million and was marginally up on the similar quarter for 2012 by $48 million. The reduction in interest rates that obtained after the debt swap would have been a major contributing factor to the decline. A partial switch in the portfolio from Jamaican dollar denominated investments to foreign currency ones would also be a contributing factor as foreign exchange gains climbed to $955 million versus $526 million in the first quarter.

scotiabankBuilding150x150Other Revenue | For the six months Other Revenue was $5.5 billion, up $858 million or 18.6% compared with prior year due to increased insurance revenue and fee income gains on securities trading as well as higher gains on foreign currency trading and investments.

Operating Expenses | $9.11 billion for the quarter, an increase of $1 billion or 13% over prior year. Staff related costs represented $439 million (10.2% increase), other operating expenses increased by $606 million reflecting primarily inflationary increases, devaluation of the Jamaican dollar and the impact of new tax measures.

Non-performing loans | (NPLs) at April stood at $5 billion, $440 million less that at April 2012, an increase of $270 million over January this year, the increase is a charge against the income for the year to date. During the six months period in 2012, the bank recovered a large corporate loan that was classified as non-performing during 2011, resulting in a net charge in 2012. Total NPLs is down to 3.88% of total gross loans compared to 4.83% last year and 3.82% as at January 2013 due greatly to the growth in the loan portfolio.

Balance Sheet | Total assets increased year over year by $33 billion or 9.46% to $382 billion as at April this year. Loans grew by $16.2 billion to $127.26 billion. Customer liabilities (deposits, repo liabilities and policyholder’s funds) grew to $294 billion, an increase of $28 billion over last year. As per the management report, “This growth was mainly reflected in the deposit portfolio as we continued to acquire new customers and see increased balances from existing customers.”

scotiabanklogo150x150Bruce Bowen, President and CEO said, “Scotia Group generated strong results for Q2 with continued growth in all of our key business lines. Our culture of prudent risk management and strong liquidity enabled us to weather the challenges in the market during the quarter. Looking forward, the National Debt Exchange (NDX) has reduced margins and recent tax measures have increased operating costs. To offset these effects we are focused on deepening our relationship with clients and growing our customer base, while improving operating efficiencies and maintaining tight control of expenses.”

Bowen went on to say, “In times of turmoil in the financial sector Scotiabank is known for providing Jamaicans a safe place to bank. With the addition of Scotia Investments, Scotia Jamaica Life Insurance and Scotia Jamaica Building Society, and our commitment to providing a great customer experience, I believe that we can truly help our customers be financially better off. If we focus on our customers we are in an excellent position to build market share during this difficult economic period.”