Stocks to watch: week of 1st July, 2013

Keep an eye on these stocks for movement | There aren’t many changes to this week’s posting compared to last weeks’. We added two new ones in the junior market as the Lasco companies gain interest from the approved stock split of 10 for 1 and one for the TTSE.

StocksToWatchJul1

JSE: Advancing & declining stocks in a battle

Monday, 1st July 2013 | While the junior market index continues to advance towards the all-time high of 811 points, the main market indices fell moderately as investors try to find acceptable prices to execute trades.

Based on the recent rise in the prices of many stocks, it’s hard to see how this stalemate will change in the short term without new information to entice investors to view stocks as attractive to acquire now, rather than later. Although the majority of the indices fell today, the advance decline ratio was just able to remain positive as 8 stocks gained to 7 that declined. Trading levels of 4.7 million shares was half of Friday’s, but even less was expended as only $38 million traded compared to $116.17 million invested on Friday. Three stocks closed with the last selling price reaching an all-time record. These are Blue Power at $11, Lasco Distributors at $16 and Lasco manufacturing at $16.

Carreras shares gained 27 cents to $52 as just 9,096 units valued at $482,000 traded, JMMB closed up 50 cents as Scotia Investment bought the bulk of the 1,093 million units that traded, with the stock closing at $8.50. Active offers for JMMB is now at $9.25 an indication that the supply at recent market prices is drying up, but investors may well sell below this price as there is a big gap between bids of $7.72 and offers prices.  Sagicor Life traded 248,000 units valued at $2 million as the price slipped back by 18 cents. Scotia Group traded 176,000 units, valued at $3.7 million and lost 31 cents in the process.

The supply of Cable & Wireless share on offer at 15 cents fell below the 30 million mark at the end of trading as the amount offered is now at 29.88 million units. RJR has a bid of $1.23 to buy 4.79 million shares as this stock has had a fair volume of trading recently.

Junior market | Eight junior market stocks traded as Lasco Financial, continuing to respond to the 10 to 1 stock split, closed at $12.70 down 30 cents on Friday’s last traded price with 101,185 shares trading between $12.60 and $13. Lasco Manufacturing also responding to the announced stock split, traded over 736,000 shares, closing at $16 up by 40 cents with $11.66 million invested, while Lasco Distributors closed at $16 after trading at a record high of $16.50 with only 206,408 units valued at $3.37 million trading. Caribbean Cream traded down 15 cents to close at $1.05 with 350,000 units changing hands. Blue Power closed at $11 up $1 on the last selling price with 38,000 units but the offer was for 303,000 units at $10.50 at the end of trading. AMG packaging traded 27,800 shares at $4.20.

IC bid-offer Indicator | At the end of trading, the Investor’s Choice bid-offer market sentiment indicator shows that bids for 3 stocks were higher with 1 stock having an offer lower than the last selling price.

JSEIndicesJul1

Blue Power dividend

Blue Power Group Limited declared a dividend of 15 cents per share payable on August 16, 2013 to shareholders on record as at July 31, 2013. The ex-dividend date is July 29, 2013.

The company last paid a dividend of 10.5 cents per share on September 6, 2012. The latest dividend is in keeping with the rise in profits to $1.84 per share compared with the earnings of 83 cents in 2012.

The board also agreed to introduce a resolution at the next Annual General Meeting to modify the Articles of Association to permit the appointment of two more directors to the Board which consists of six members at the present time.

To know more about Blue Power, read Blue Powered huge profit increase posted 16th June 2013.

$2.85 for JSE shares, is it worth it?

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The Jamaica Stock Exchange (JSE) prospectus to raise $107,865,000 is now released to the public for consideration with the issue scheduled to open at 9:00 am, Friday 5th July 2013.  The Invitation is scheduled to close at 4:00 pm, Friday 19th July, subject to the right of the Company to close the Invitation at any time after it opens.  The total amount of shares being made available will be 38.25 million units comprising 28 million being issued directly by the Jamaica Stock Exchange and 10.2 million by JMMB. JMMB is selling the shares they acquired when they took over the Capital Group, which put their holding at 18.18 percent, well above the threshold of 10 percent any one investor is allowed to hold as stipulated by the JSE articles.

The issue price | IC Insider computes that the stock carries a value around 10 times 2013 earnings, based on the assumption that trading activity continues for the rest of the year at the rate experienced in June. For the 12 months to December last year, profit of $93 million was reported but that figure included revenue from the sale of a board seat to Proven Wealth Management for $60 million, as well as large fee income from the purchase of Lascelles’ shares that were acquired by Campari last year and to a lesser degree the shares traded when Capital & Credit was acquired.

Existing capital | There are currently 112,200,000 (formerly 28 million) ordinary shares in issue and the new shares will bring the issued capital to 140 million units.  The shares have a book value of $5.52 but earnings per share based on 2012 profit will be just over $0.83 and that figure is inflated by the non-recurring income mentioned above.

jse_logo150x150Profit after tax amounted to $5.8 million compared to a loss of $6.1 million in 2012. For the quarter ending March, the JSE’s income rose 8 percent to reach $69.5m compared to $64.4m in 2012. Other Operating Income increased by $5.5m or 32% over the same period, primarily due to an increase of $5.3 million in revenue from the JSE regional conference. Investment income of $22 million jumped $14 million over 2012 due largely to the gains on US dollar investments as a result of devaluation of the Jamaican dollar.

Positives | The number of shares to be issued is relative small but shareholding is limited to 10 percent of issued shares. The preference shares which was a debt instrument was repaid and these funds replace the amounts paid out. The stock market is not at its most buoyant but with interest rates having declined below ten percent and government slashing the fiscal deficit, rates could go lower. This development ultimately makes stock market investments more attractive and drive up trading volumes and therefore fee income for the exchange. The stock exchange plans for more instruments to be traded on the exchange but there are no imminent new listings that are known. The stock exchange is showing signs of greater activity this year but it has not reached a level to ensure that the JSE makes an operating profit. The JSE will benefit from listing fee income if the value of shares rise, as the annual listing fees are tied to the value of each company’s shares that are outstanding at the start of each year.

Negatives | The number of shares to be issued will not ensure a good level of liquidity for the stock, which will keep bigger investors away. There are no rules preventing existing shareholders from selling their holdings in partially or in full thus increasing the volume that could become available to the wider public. Short term profit prospects are not exciting suggesting that the stock is not very attractively priced relative to the rest of the market. The company has an oversized board of 19, resulting in an unnecessary waste of funds and an unwieldy structure that makes it more difficult to properly run board meetings and by extension, the company.

Revenues | The Company derives its revenue from a range of sources including the JSE cess, calculated on the value of each market transaction, fees charged for listing companies at the initial stage, annually, as well as any supplementary listings, membership, transactions, the registrar and trustee fees paid to its subsidiary company JCSD, amongst others, income generated from the provision of conferences, seminars and the e-Campus. The JSE has recently entered into a Memorandum of Understanding with the Bank of Jamaica to work towards the development of a fixed income trading platform for Government of Jamaica securities and corporate bonds. It is also conducting research into the development of exchange-traded products and other exchange-related products.

In summary | Stock markets are cyclical in nature resulting in peaks and troughs in earnings flowing from bull and bear markets. At this juncture, the market is in the process of moving into a bull market. Investors who buy the shares now are essentially buying at the lower end of the market. The levels of trading currently are a fraction of what they have been in the past, so the potential is huge going forward. The change in interest rates and the focus of government on controlling the fiscal deficit will ultimately have a huge impact on the fortunes of the stock exchange. Investors should not be looking for any big pay day any time soon from this stock.

Jamaica Broilers is buy rated

IC Insider is projecting a doubling of earnings for the current year ending in April 2014 for Jamaica Broilers. We project profits to hit $2.22 billion, which translates to $1.85 per share, up from the $1.1 billion reported in its latest audited results.

The improvement is expected from restoration of the gross margin for the broiler and feed business to levels that preceded the 2013 fiscal year, as well as increased sales and margin in the ethanol segment from full production compared to only partial production for most of last year. The ethanol operation generated the bulk of the profit in the April quarter of $260 million on revenue of $500 million compared to only $74 million on revenues of $1.36 billion for the nine months to January this year. Just maintaining the profitability in this segment, assuming that the other areas hold up as well as they did in the last year, earnings would likely grow by about $750 million or a little more than 60 cents per share.

The 2013 profit resulted in earnings per share of 91 cents based on 1.2 billion shares issued and arose from a 12.5 percent increase in revenues to $26.7 billion. IC Insider is projecting revenues of $29.8 billion for 2014, representing 11.6 percent more than in 2013.

While the increased results for the full year may not seem impressive as seen by the lack of reaction in the stock market to the results, the final numbers reflect a major recovery from the end of January as profit was down for the nine months from $687 million to $562 million. The last quarter profit jumped by 114 percent suggesting that this trend could continue well into the new fiscal year and is in keeping with the above forecast.

Jamaica-Broilers-Group_logo150x150Management’s Comments | In releasing the January results, the company management stated, “Gross profits were negatively impacted by increased US$ costs for corn and soya bean residue — our main feed ingredients. This, in addition to the depreciation in the value of the Jamaican currency, has resulted in continuing cost increases. Management felt constrained during this quarter from fully passing on these cost increases in selling price adjustments.

“Distribution and administrative costs reflect increases when compared to this quarter last year due to a number of unexpected items of expenditure. For much of this quarter our Co-Generation electricity operation was out of service. During this time over $50million in fixed costs were carried in administrative expenses while Jamaica Public Service invoices were charged to the Best Dressed Chicken Processing Plant. The Co-generation plant came back into service in mid-January. In addition, costs were incurred in relation to organizational strengthening and an assessment by the Tax Authorities, related to GCT deferred on imports.

The Ethanol Division maintained production under tolling contracts at 100% of capacity during this quarter. The segment result for this Division reflects a positive $81 million for the quarter; with the year-to-date result now showing $74million versus the negative $7 million at the end of the second quarter. Also, the build out in the Haiti operations is continuing with ever increasing sales of Haitian produced baby chicks, feed, layer birds, table eggs and processed chicken.”

Balance sheet | JBG was able to reduce the levels of inventories carried from sales to inventories of 7 times to 9 times, but it did not stop there, as inventories actually fell by $400 million, while at the same time, receivables climbed by $500 million at year end. The group took on more debt to fund asset acquisitions during the year as net debt climbed $1.38 billion to reach $5.49 billion but equity is up by $1.3 billion.

To read the full report Jamaica Broilers major profit gains, click here

JSE: Junior market index over 800

Friday, 28th June 2013 | The junior market index was the only one to advance today surpassing the 800 point level for the first time since November 11, 2011 and is now within a stone throw from the all-time high of 811 points. Although the majority of the indices fell today the advance decline ratio was once again positive with 7 stocks moving up in price whilst 3 declined. Trading levels picked up as 8.19 million shares changed hands with a value of $116.17 million.

There was heavy trading in Carreras shares which fell 77 cents to $52 as 1.146 million units valued at $60.7 million traded, Sagicor Life traded 1.456 million units valued at $12.45 million, Scotia Group traded 563,000 units valued at $11.9 million, and Seprod traded 285,000 units at $4.14 million. Cable & Wireless, which has more than 30 million shares on offer at 15 cents, traded 650,000 units 15 cents each. Jamaica Producers gained 45 cents to close at $18.50 with nearly 25,000 shares trading, Sagicor Investments gained 49 cents but hardly any shares traded.

Proven Preference shares traded 1.7 million units at a value of $8.7 million.

Junior market | Nine junior market stocks traded, as Lasco Financial closed at an all-time high of $13 gaining a $1 in the process, having traded 162,300 share between $11 and $13. Lasco Manufacturing traded over 300,000 shares closing at $15.60 while Lasco Distributors closed at $15.90 with only 73,600 units trading. Consolidated Bakeries moved back to $1.60 at the close while trading 847,000 shares. AMG packaging which had put on 20 cents yesterday while trading a very small amount, closed at $4.20 today with 55,613 shares changing hands and lost 50 cents.

The junior market is in the golden cross which indicates that further big increases are ahead.

IC bid-offer Indicator | At the end of trading, the Investor’s Choice bid-offer market sentiment indicator shows that bids for 1 stock was higher with 2 stocks that had offers lower than their last selling price.

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Major management changes at D&G

Desnoes & Geddes Limited (DG) has advised that Jed Dryer, Finance Director, has come to the end of his three year rotation at Red Stripe and will be transitioning to a role in Miami as Finance Director for Projects commencing July 1, 2013. Dryer will remain on the boards of DG and Celebration Brands Limited.

Vernon Douglas, Group Financial Controller at Red Stripe will be Acting Finance Director effective July 1, 2013. As a result of the reorganisation of the operations in D&G, the role of Human Resources Director will no longer exist as of June 30, 2013. Lisa Lewis, Human Resources Director, Red Stripe will therefore no longer be working in this capacity as of June 30, 2013. Lisa will be resigning from the Board of Directors and Board of Trustees for the pension plan as at that date. She will be working as HR Director for Projects, Diageo WestLAC, from July 1, 2013 to September 30, 2013. After September 30, 2013 she will be leaving Diageo to pursue other interests.

D&GRedStrip_Banner600x250Ali McLennan, former Diageo Global Beer, People and Talent Manager, will be Acting Head of HR for the company effective July 1, 2013. Marguerite Cremin Chung, Head of Corporate Relations will be taking the role of Head of Corporate Relations for Central America and the Caribbean effective July 1, 2013. Her replacement will be the subject of a future announcement. Daan De Kroon, Head of Red Stripe International & Licensed Brewing will be taking up the role of Export Director, Ypioca, Brazil. His replacement will be the subject of a future announcement.

Profit | Desnoes & Geddes reported improved results for the nine months to the end of March this year with profits after tax being up 30 percent to $1.050 billion, but in the latest quarter profits was down 18 percent to $243 million after tax. The company took a $152 million charge in the third quarter for making workers redundant, flowing from the decision to transfer the sales and distribution of its products to Celebration Brands, a joint venture company with Pepsi. The company’s management indicates that the amount written off in the quarter is 50 percent of the total separation cost.

Overseas production | The results reflect the decision last year to switch the production and sales of Red Stripe to the USA. Export sales are down as a result, but so is cost relating to exports. Local sales grew to $2.67 billion up from $2.56 billion in 2012 and for exports it was $564 million in the current fiscal year versus $450 million.

Scotia Insurance enters 15th year

[Press release dated June 26, 2013] Scotia Jamaica Life Insurance Company Ltd (Scotia Insurance) marks its 15th year with more than 200,000 policy holders, assets in excess of J$50B, and in 2012, recorded over J$4.1billion in new premiums.

Hugh Reid, President of Scotia Insurance, attributed the company’s success over the last fifteen years to the dedication and commitment of its staff, loyalty of its customers and keen attention to developing products that respond to customers’ needs. “We did all the right things very early, including developing a world class team, listening carefully to our customers and investing heavily in research so that we were able to provide exactly what the market needed, “Mr. Reid said. But a major part of the success it the association with the original parent company, Bank of Nova Scotia, which provides a ready source of customers as well as a strong sense of sfability.

Scotia Insurance’s most well-known product is ScotiaMINT, an interest-sensitive universal life insurance policy and long term savings plan that includes tax-advantaged benefits when invested for five years or more. This product, which heralded the birth of the Company in June 1998, had $41 billion in assets as at December 2012.

Scotia_Hugh Reid150x150Scotia Insurance now offers eight products including the market leading ScotiaBRIDGE, an approved retirement scheme (ARS).  The company has been the ARS market leader every year since 2009 when ScotiaBRIDGE was launched and now has more than J$2.4 billion under management.

Other products offered by the Company include two new whole life products launched last year: Lifetime Security – designed to provide beneficiaries with financial support in the event of death, personal accident or terminal illness and its companion, Life Shelter, which provides coverage for final medical and funeral expenses.

One of the traditionally areas for Scotia Insurance is the provision of Credit Insurance to Scotiabank retail customers who have loans and credit cards. There has been consistent double digit growth in this area which Mr. Reid attributes to increasing awareness among consumers of the importance of a contingency plan their credit facilities, in the event of death or critical illness.

“As we look forward to the next fifteen years, Scotia Insurance will continue its aggressive product expansion which has seen six new products launched in the four years since 2009. The company has acquired a new core life insurance administration system and this platform will allow us to develop new products faster and more efficiently. We look forward to the future knowing that our work and contribution helps to make individuals and families more secure in planning and shaping their lives,” Mr Reid said.

Jamaica Broilers major profit gains

Jamaica Broilers (JBG) is reporting 17 percent improvement in after tax results for the year to April 2013 with profits of $1.1 billion versus $936 million in 2012. Earnings per share is 91 cents for the latest year based on 1.2 billion shares issued.

These results arise from a 12.5 percent increase in revenues to $26.7 billion, a record in nominal terms. Profit growth did not come from the company’s traditional business but from ethanol production and other operations. The increase may not seem impressive when looked at for the full year but it represents a major recovery from the results at the end of January when profit was down for the nine months from $687 million to $562 million, resulting in a comeback in the last quarter with profits jumping by 114 percent. Profit before tax was up less impressively, by 70 percent from $307 million to $521 million.

Jamaica-Broilers-Group_logo150x150Most of the profit growth came from the ethanol and other operations according to the segment data. Poultry contributed $82 million less than in 2012 and feeds contribution was $215 million less. Ethanol delivered $273 million and others $385 million more than 2012.  The ethanol operations made the bulk of the profit in the April quarter. Up to January, only $74 million was generated from this operation but it jumped considerably in the last quarter.

Cost pressures hit the operations with segment profits lower to December for poultry and feeds as well as in the last quarter compared with the same period in 2012. In the last quarter, things were coming back for the poultry with segment profit of $296 million versus 300 million in 2012 and for the feeds segment, it was still off badly as just $161 million was generated in April quarter compared to $271 million in 2012. For the nine months to January, the poultry had a segment profit of $633 million versus $713 million in 2012 and for the feeds segment it was $749 million compared with $854 million.

The company took on more debt to fund assets acquisitions during the year as net debt climbed $1.38 billion to reach $5.49 billion but equity is up by $1.3 billion.

All 3 Lasco companies approve splits

All three Lasco listed companies approved a 10 for 1 stock split at yesterday’s meetings called solely for that purpose. While the notice suggest that the splits take effect immediately the stocks traded at the old price levels in Thursdays trading. Lascelles Chin, the Chairman of all three companies confirmed to IC Insider that the record date for the Lasco splits is July 9, 2013 and the ex-date is July 5, 2013.

It will mean that Lasco Manufacturing will have 4.087 billion shares, Lasco Distributors will have 3.3664 billion shares in issue and Lasco Finance 1.228 billion shares. The split will mean that the stocks will trade for less than $2 initially as they are all priced under $16 now. Improved results for the first quarter of the 2014 financial year which ends in March should help pushed the prices up when they are released by early August this year.