Barita could spike higher this week

Barita last traded on the JSE as high as $20 on Friday.

The main market of the stock exchange ended the week at another record close with a number of individual stocks hitting new highs but this coming week could well be more challenging, investors have to bear in mind that the supplies for several stocks are very limited and could result in big price movements as happened last week.
Technical chart shows NCB Financial heading to $155 but it traded at new high of $134 during the past week which is not very far from the target of potential resistance. Whether it goes higher during the coming days is anyone’s guess but it is worth watching. Caribbean Cream moved up to $7.90 from $6.16 at the end of the previous week. The company posted better profit results in the August quarter but with less gains than in the first, as administrative cost rose to negate some of the top line growth. Those results may be unlikely to move the stock forward in the short term.
The Junior Market continues to inch forward as it appears that investors are waiting on results. They got Caribbean Cream and Paramount Trading at the end of week, but no major upward price movement is expected.

Caribbean Cream sales & profit slowed in Q2.

The indicators point to continued increased interest in the main market stocks with a number of them are high on the list to watch for this week with less indications that Junior Market stocks will move upwards in droves anytime soon. Stocks of interest this week are Grace Kennedy, Barita Investments with limited supply and technical indicators pointing to a price of $22.50 initially before going on to $27.50. Berger Paints, Jamaica Producers has very little stock offered for sale and that could result in a sharp spike in price at any time, Mayberry Jamaican Equities (MJE), Mayberry Investments that will benefit from increased profit of MJE, NCB Financial, Wisynco Group that has gone back above the $10 price level, CAC2000 that is very scarce, Main Event and Stationery and Office Supplies that seem to have exhausted selling at $09.50 with $10 being the possible next level. A number of these have limited supplies for sale.
With the average PE of the market now at a comfortable 16 times 2018 earnings, stocks valued less than the market average could see increased interest as investors look for bargains.
Grace Kennedy seems ready to break out of the $60 range as there is no big supply on offer now and during the past

Caribbean Cement price is stuck in the mud for now.

week, it traded as high as $75. Caribbean Cement keeps trading between $46 and $50, but there appears no real desire to move the price forward, this one could be negatively affected by foreign exchange losses in the September quarter. Kingston Wharves has always had limited supply, so it could move higher going forward, even the valuation is rich. Supply of JMMB Group has dried up and that could create the environment for the price to continue to move higher, it is also one of the lower valued stock in the main market. Investors need to bear in mind that the price is currently at a resistance level at $37, so it may move sideways with an upward bias for a while, unless strong buying pushes over this level.
An overall view of stocks indicates that the main market continues to be steered higher by an upward sloping support line as well the 45 and 125 day moving averages, lending support just below. The Junior Market is being guided by an upward rising long-term support line and a golden cross. The golden cross is a very strong bullish long-term signal, but market needs fuel of rising profits.

Grace, Proven, Access & Iron Rock in TOP 10

Grace Kennedy HQ


Decline in the prices of three stocks during the week and gains by others resulted in changes to the IC Insider.com TOP 10 list this week.
Grace Kennedy pulled back to $59.50 and Proven Investments down to 21 US cents and Access Financial falling, with the offer at $45.50 and Iron Rock declining to $4.50 moved into the top stock list, taking the place of Sagicor Group that moved up to $42.55 and Salada Foods that moved up to $24.95 in the main market, while Caribbean Cream that fell to $6.16 to enter last weeks’ list moved up in price to $7.68 and with a slight downgrade to earnings to 65 cents per share, fell out of the top list and Caribbean Producers climbed to $7 and is also out.
The main hit new historical highs on Friday resulted in the overall PE for the main market rising to 16.3 up from 15.8 from the previous week, the PE of the Junior market remained unchanged at 15.8.
The PE ratio for Junior Market Top 10 stocks average 9.5 and the main market PE is now 9.9, marginally higher than the prior week’s level, as the market continues to see an upward revaluation of the multiple.
The TOP 10 stocks now trade at an average discount of 40 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 39 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Watch NCB & Kremi this week

NCB Financial could be a winner this week.


The main market of the stock exchange closed the week with two of the highest daily increases in the market index ever, a clear sign that investors want stocks to buy and the supply remains very limited and putting the bulls in control.
The moves last week in the main market and since the start of August has set the stage for several stocks to be on the move this week.
The Junior Market continues to inch forward as it appears that investors are waiting on results. They should get Caribbean Cream this week and that should be a strong set of results as the company benefits from lower raw material cost compared to the first quarter when profits jumped 59 percent.
The indicators point to continued increased interest in the main market stocks with a number of them are high on the list to watch for this week. Stocks of interest this week are Grace Kennedy, Barita Investments, Berger Paints, Mayberry Jamaican Equities, NCB Financial, Wisynco, Caribbean Cream, CAC 2000, Main Event and Stationery and Office Supplies, many of these have limited supplies for sale.
With the average PE of the market now approaching a comfortable 16 times 2018 earnings, stocks valued less than the market average could see increased interest as investors look for bargains.
NCB Financial went sideways for around two weeks but bids started building close to the closing prices last week and that could help it move higher this week. Barita had a relatively strong day on Friday with 261,000 shares trading, leaving only a minute amount of 6,200 units on offer at $25.

Caribbean Cream should post big gains in profit in Q2 this week.

Grace Kennedy seems ready to break out of the $60 range as there is no big supply on offer now and during the past week, it traded as high as $75. Caribbean Cement keeps trading between $46 and $50, but there appears no real desire to move the price forward, this one could be negatively affected by foreign exchange losses in the September quarter. Kingston Wharves has always had limited supply, so it could move higher going forward, as can be seen from the big jump on Friday to $83 at 52 times 2018 earnings the valuation is rich. Supply of JMMB Group have dried up and that could create the environment for the price to continue to move higher, it is also one of the lower valued stock in the main market. Investors have gradually sucked out most of the supply of Stationery and Office Supplies, below $10 and the price could move to the $10 level during the course of the week.
An overall view of stocks indicates that the main market continues to be steered higher by an upward sloping support line as well the 45 and 125 day moving averages, lending support just below. The Junior Market that traded recently at an all-time high, is being guided by an upward rising long-term support line and a golden cross. The golden cross is a very strong bullish long-term signal.

Kremi surges to top IC TOP 10

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Caribbean Cream outlet in Kingston.

Investors pushed Caribbean Cream down to $6.16 on Friday to surge to the top of the list this week, while Stanley Motta was pushed down to $4.50 to reenter this Top 10 stock list.
JMMB Group jumped sharply to close at a new record high of $37 on Friday and was pushed out of the top tier main market list while Iron Rock shot to a record $5 and dropped out of the Junior Market listing. The market could be making a big mistake with Stanley Motta that is clearly undervalued. IC Insider.com upgraded Caribbean Cream earnings to 85 cents from 70 cents with a sharp fall in the price of milk solids since May by nearly 24 percent that should cut the direct input cost of producing ice cream.
Gains in the two markets are driving the PE ratio of the market higher with the overall PE for the Junior and main market, both rising to 15.8 as of Friday, up from just over 15 last week, as the valuation multiple grows with historically low interest rates and high liquidity abounding in the financial market.
The PE ratio for Junior Market Top 10 stocks average 9.2 and the main market PE is now 9.4, just marginally lower than the prior week’s level, even as the market continues to see an upward revaluation of the multiple.
The TOP 10 stocks now trade at an average discount of 42 percent to the average for the Junior Market Top stocks but it’s a third of what the average PE for the year is likely to be of 20 times earnings. The main market stocks trade at a discount of 40 percent to the overall market.
TOP 10 stocks are likely to deliver the best returns within a 12 months period. Stocks are selected based on projected earnings for each company’s current fiscal year. Based on an assumed PE for each, the likely gains are determined and then ranked, with the stocks with the highest potential gains ranked first followed by the rest, in descending order. Potential values will change as stock prices fluctuate and will result in movements of the selection in and out of the lists for most weeks. Earnings per share are revised on an ongoing basis based on new information received that can result in changes in and out of the list as well.

Falling interest rate was huge buy signal

Apartment complex in Kingston – Real estate values to benefit from low interest rates.

Declining interest rate is a huge buy signal for both stocks and real estate investments, if the fall is expected to last. Interest rates have fallen to the lowest levels on record, in Jamaica and while the low rate of 1.7 percent in treasury bills won’t last forever, it is expected that it will not go up too far from current levels any time soon.
In May this year, Bank of Jamaica cut the overnight policy rate, by 25 basis points to 2.5 percent that along with a further decline in short term Treasury bill rates on Wednesday.
IC Insider.com stated then, that the moves provided more ammunition for a big surge for Jamaican stocks. The piece went on to state that with a 15 percent fall in BOJ’s policy rate in 2018 so far, stocks are lagging behind, with an increase of just 6.6 percent for the Junior Market and 4 percent for the main market.
The fall in Treasury bill rates was far greater than the rise of the All Jamaica Composite Index, an indication of a lot more upside for stocks based on the downward movement of interest rates.
Investors seem to be focusing more on profits in valuing stocks than on interest rates so far. That will change. The fall in the overnight rate, translates to a 9 percent rise in stock market prices, but rates seem likely to decline some more before settling off, providing more ammunition for more gains in stock prices.
We stated that with the fall in interest rates, the PE of money is at the high end 40 times income and using corporate bond 12 times, but the PE ratio should be more tied to Treasury Bill rates and that PE is now in 30 range but stocks are mostly in the low teens and below. IC Insider.com further stated that most investors did not appear to be paying much attention to the tsunami that was on the way that will see prices move sharply higher.
Some were skeptical about the assertion that the fall in interest rates could drive stock prices. The record is clear as there are two main developments that drive stock prices – interest rates and profits. With just over five months passing, investors have not only warm to the fall in rates but many are not willing to part with their stocks. Late comers to the party will pay much higher prices than in May and June. Up to Friday the Junior Market is up 24 percent and the Main market is up 31.7 percent and rising. Technical reading of the market suggest that the Main market has another 25 percent run to make before probably cooling for a charge to 720,000 points on the All Jamaica Composite Index in 2019.
The fall in interest rates makes it cheaper to buy real estate with lower interest rates for each dollar borrowed. Additionally, investors will switch funds from fixed interest investments into stocks and real estate thus driving up their values.

Gwest’s share issue response inadequate

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

Dr. Konrad Kirlew, chairman of GWest.

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

All Jamaica pass 415,000 Points

Gains in Grace Kennedy, Scotia Group, Seprod and NCB Financial were mostly responsible in pushing Jamaica Stock Exchange main market to a new record high in early trading on Friday.
The All Jamaica Composite Index jumped 7,892.89 points to a record 415,112.65 and the JSE Index surged by 7,191.32 points to a record of 378,214.61 points after 41 minutes of opening of the market.
The Junior Market has not participated in the bullishness and slipped 3.76 points to 3,397.17.

All Jamaica claims 411,546 – Thursday

The main market of the Jamaica Stock Exchange broke through 410,000 mark based on movement of the All Jamaica Composite Index in early trading on Wednesday and moved higher by 3,093.31 points to a record 411,545.91.
The JSE Index that jumped to a record 374,251.61 in early trading moved on to 374,964.90 with gains of 2,818.36, The Junior Market rose 19.93 points to 3,401.72. Grace Kennedy raced to an all-time high of $75, NCB Financial moved up to a record of $131, Supreme Ventures climbed to $21.70, JMMB Group jumped to $35 and Mayberry Jamaican Equities traded at $12.
The main market broke through all resistance points, with the last being 400,000 points with the next big one being 510,000 points region. If it got there in 2018, would represent a gain of 24 percent from current levels and lift the gains for the year to 60 percent.

All Jamaica pushes pass 405,000

The main market of the Jamaica Stock Exchange continued to push higher in trading on Tuesday with the All Jamaica Composite Index hitting a high of 405,667.18 having risen by 2,566.89 points at 5 minutes past 10 am.
The market has since pulled back. The All Jamaica Composite Indextrades just over the 405,000 mark at 405,149.64 and the JSE Index at 369,137.17 and is up 1,867.19 after it hit a high for the day at 369,608.70 after rising 2,338.72 at 10.06 am. At the same time the Junior Market is just holding on to positive with a gain of 1.48 at 3,398.48.
Subsequent to the earlier trading, the main market has pulled back with the indices now in decline with AJI down 520.91 points to 402,579.38 and the JSE Index off 474.61 at 366,795.37.

All Jamaica trades just 42 points shy of 405,000

The main market of the Jamaica Stock Exchange continued where it left off on Monday, hitting new highs just after opening at the start of trading on Tuesday.
With just limited trading, the All Jamaica Composite Indexrose 1,672.05 points to a record 404,772.34, beating yesterday’s high of 404,050.65 and the JSE Index gained 1,523.42 points to a record 368,793.40, bettering Monday’s high of 368,135.86. The Junior Market rose 8.90 points at the opening to 3,405.90.
With just 16 minutes of trading, both markets inched higher with the All Jamaica Composite Index rising to a record 404,958.30 and the JSE Index gained 1,523.42 points to a record 368,851.17 while the Junior Market moved up to 3406.05.