Cost control boost Purity’s profit

Consolidated Bakeries (Purity) recovering from 2017 loss

Cost fell and profit margin rose at Consolidated Bakeries in the June quarter, this year, as the company put in a vastly better performance in the quarter than for the similar period in 2017.
For the half year, administrative, selling and distribution cost rose just 2 percent to $166 million but declined 6 percent to $79 million in the June quarter. While sales revenue grew 10 percent for the six months to $493 million and less than one percent to $221.5 million in the latest quarter. Input cost climbed just 3 percent for the half year, compared to 2017 and fell 4 percent for the quarter, giving rise to increased profit margin in the first half of the year to 38 percent, from 34 percent in 2017 and in the June quarter, to 35 percent from 31 percent in the year ago period.
Profit rose from a loss of $8.5 million in 2017, for the six months to June, to a profit of $22.6 million this year and earnings per share of 9 cents, but the company is reporting a loss of just $891,000 after tax credit of $128,000, a big improvement over the loss in the prior year’s quarter of $14 million. Full year’s profit should end at around 17 cents per share. If achieved, it would be the first time since the year it listed that profit has been this high.
Administrative expenses fell 13 percent to $42 million in the quarter and increased marginally in the six months period to $92 million from $91.6 million. Distribution and sales expenses declined 4 percent to $33 million. Finance cost rose in the quarter, to $3.6 million from $812,000 in 2017 and from $2.5 million to $6.8 million for the half year.

Consolidated Bakeries Miss Birdie Easter bun.

Gross cash flow brought in $38 million but growth in receivables, inventories, addition to fixed assets of $35 million offset by loan inflows and increased payables position ended at a negative $3 million. At the end of June, shareholders’ equity stood at $736 million with borrowings at just $115 million. Net current assets ended the period at $100 million inclusive of trade and other receivables of $96 million, cash and bank balances of $99 million. Current liabilities ended the period at $140 million.
The stock traded at $2.17 on the Junior Market of the Jamaica Stock Exchange with a PE ratio of 12 times 2018 earnings. Net asset value is $3.31 with the stock selling at just 66 percent of book value. The company is the only Junior Market stock to be selling at a discount to net asset value. This means management has a lot of work to do to break even and much more to reach the average of the market of a premium of more 400 percent.

4 new additions to IC TOP 10

The bullishness continued on Jamaica Stock Market during the past week with the main market reaching new record level on Thursday and the Junior Market closing at the highest level since November 3, last year.
Several companies released results during the week, some showed strong gains and others were in line with the prior year’s period or slightly below and some were in line with expectations, investors reacted accordingly. The chronic shortage of many of the stocks continue to put upward pressure on prices. Following the release of results some companies profit forecast were adjusted. This resulted in Radio Jamaica and Palace Amusement falling from the TOP 10. Palace forecast for 2019 fiscal year is now placed at $100 per share up from earnings of $96 for 2018 including gain on sale of property. Key Insurance reported another quarter of losses and full year’s earnings were revised downwards putting it outside the top listing. Indies Pharma, the other Junior Market stock to jump ship, rose to $2.36 after listing earlier in the week and is up 57 percent from the IPO price of $1.50.
Paramount Trading fell to $2.10 on low volume to jump into the list and Lasco Distributors fell to $3.85 climbed in as well. Paramount is now in a new fiscal year and is expected to record much improved results over the outturn for the year to May as the company enjoys the benefits of increased revenues and profit from the two new ventures started earlier this year in chlorine, bleach and manufacturing of lubricants. Lasco reported improved results of the year to March with the first quarter to June this year recording improvement over 2017 an indication for increased sales and profit in 2019.
Existing TOP 10 stock, Caribbean Cement continues to undergo wild swings in prices and traded as high as $56 during the past week but closed the week at $47.50, on Friday as supply has virtually dried up, not surprising with the company cutting finance cost and reports of several projects slated to come on stream later this year. Berger Paints moved down from $21 to $18 during the past week as direct cost rose sharply by 46 percent in the June quarter to negate a 35 percent rise in revenues but profit after tax rose 13 percent over 2017.
Salada Foods was recently in the Top 10 but moved out based on increased price, reenters with a fall in price to $17 and benefits from improved nine months’ results suggesting earnings of $2 per share. Management expressed concerns as to the impact that the imposition of a cess on coffee could have on sales. Sygnus Credit Investment is a new entrance to the main market and enters as the price fell sharply during the week to $10, but closed with the bid at $10.50.
The PE ratio for Junior Market Top stocks averages 7.9 compared to an average PE for the overall market of 12.5, based on 2018 estimated earnings and the main market PE stands at 8 for the top stocks, compared to a market average of 13, a good indicator of the level of undervaluation of these stocks, currently. Work done by IC Insider.com suggest that the PE ratio is likely to end around 16 or 17 times earnings by year end, as investors continue to gradually upgrade the multiple they are prepared to pay for stocks, which would lift prices sharply over the next several months from current levels. In addition, the latest Treasury bill offer, saw rates dropping to 1.7 percent on the 91 days instrument and 1.88 percent on the 182 days instrument. These rates suggest more funds will be going into stocks as liquidity remains high.
The TOP 10 stocks now trade at an average discount of 37 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 and main market stocks traded at a discount of 39 percent to the 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 Lasco Financial

Lasco Financial connected parties recently purchased 15 million shares.

When persons connected with the management of a listed company trade shares in the company other investors are well advised to take note.
In some cases it means nothing, but in others it can be a telltale sign of things to come. One such trade that could be telling is embodied in a release to the Jamaica Stock Exchange by Lasco Financial Services that advised that eight connected parties purchased a total of 15.05 million shares in the company on August 9. The average price of the stock on the day the block traded, was $5.29, placing a value on the block of more than $75 million, that is no small change and is more likely than not to be a vote of confidence in the future fortunes of the company.
The purchase takes place after generating revenues of $555 million, $235 million or 74 percent more than the corresponding period in 2017 and importantly, grew $55 million over the $500 million generated in March quarter and may be suggesting the possibility of quarterly growth going forward for a while. Profit before taxation, jumped 62 percent to $132 million from $81 million in 2017. Profit after tax ended the quarter 50 percent higher than the year before at $101 million and could end up around $500 million for the full year for earnings per share around 40 cents.
The strong increase in revenues and profit comes from continued growth from the original business lines and was boosted by the acquisition of CrediScotia business in late 2017.
Profit before loan Interest more than doubled from $83 million to $172 million but funds borrowed to purchase the CrediScotia portfolio pushed interest cost to $41 million up from just $2 million in 2017.
At the end of the quarter, loans and receivables was at $1.8 billion with the majority being loans and the company borrowed $1.5 billion to help fund the acquisition and provide working capital. Shareholders’ equity was $1.47 billion.
This one is worth watching keenly as a long term buy with the large profit margin in lending.

All Jamaica just below 350,000 points

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The main market of the Jamaica Stock Exchange hit new record high with the all Jamaica composite Index sitting just below the 350,000 points level with 3 hours of trading elapsing.
The All Jamaican Composite Index jumped sharply by 5,035.03 points to 349,774.63 and the JSE Index surged 4,5687.48 points to end at a record 318,684.18 while the Junior Market index jumped 32.26 points to 3,194.15.
Indies Pharma traded 3,185,194 shares up to $2.25 up 75 cents from the IPO price of $1.50 while Everything Fresh climbed to $2.20 following six months results. Subsequently, Indies traded 21.19 million units with the last traded price being $2.24.

Profit results could ignite market

There is little doubt that the summer rally is on for Jamaica stocks and is being helped by some good results for a number of the companies. Release of results over the next two days could be a huge catalyst for the market in the days ahead.
Last week a number of stocks traded at 52 weeks’ highs or historical highs. Profit results are expected to flood the market over the next two days and could have a big impact on prices.
Last week a number of on the Watch list traded at record high levels and more of that is expected this week.
Stocks with scarce supplies and could spring surprises include Grace Kennedy, NCB Financial, Berger Paints, Caribbean Cement, Kingston Wharves, PanJam Investment, Sagicor Group, Salada Foods, Seprod and Scotia Group. The main market is not the only segment with limited supplies. The Junior Market supplies continue to be limited for many of the listings. The list includes, Blue Power, Caribbean Flavours, Cargo Handlers, Caribbean Producers, Derrimon Trading, Express Catering, General Accident,Caribbean Cream, Medical Disposables and Stationery and Office Supplies.
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 index and the Junior Market that is at a 9 months’ high, is being steered by an upward rising long-term support line and the start of a golden cross. The golden cross is a very bullish long-term signal.

Medical Disposables out AMG in TOP 10

The main market of Jamaica Stock Market indices chalked up more records last and closed the week at another record high on Friday and the Junior Market closed at a 9 months’ high as the markets continue the usual summer bounce.
A number of positive results and chronic shortage of many of the stocks are helping in putting upward pressure on prices resulting in three changes to the IC TOP 10 at the end of the week.
Medical Disposables rose to $6.40 at the end of the week and was the sole stock moving out of the TOP 10 and AMG Packaging returned to the TOP 10. Caribbean Cement traded as high as $50 on Friday as supply has virtually dried up, not surprising with the company cutting finance cost and reports of several projects slated to come on stream later this year. Berger Paints also moved higher to $21 on Friday and remains scarce. Iron Rock jumped to a new high of $4.07 on Friday as the company shows promise of making a profit sooner than later.
The coming days will see a flood of quarterly results be released and could impact the prices of stocks.
The PE ratio for Junior Market Top stocks averages 7.9 compared to an average PE for the overall market of 12, based on 2018 estimated earnings and the main market PE stands at 8.2 for the top stocks, compared to a market average of 13, a good indicator of the level of undervaluation of these stocks. Work done by IC Insider.com suggest that the PE ratio is likely to end around 16 times earnings by year as investors continue to gradually upgrade the multiple they are prepared to pay for stocks, which would lift prices sharply over the next several months from current levels.
The TOP 10 stocks now trade at an average discount of 34 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 and main market stocks traded at a discount of 39 percent to the 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.

JSE PE ratios heading higher

The stock market combined index climbed from 82,934.95 points at the end of 2013 to 324,801.52 on Friday, for increase of 292 percent but the average PE ratio has moved from 7.3 by just under 100 percent to peak at an average of 14.5 times last year December.
During the same period, Treasury bill rates tumbled 75 percent from just over 8 percent to 2 percent or were 300 percent more than they are now. While the fall in interest rate would appear to be close to the rise in the market index, the much slower increase in the PE ratio indicates that the major part of the rise is due to increased profits.
Based on the trends in interest rates and PE ratios, coupled with the serious shortage of supply of several stocks, currently, the PE ratio of the market will rise from the current level of 12.5, first to the high of 14.5 reached at the end of December last year and should move on to around 17 to 18 by the end of the year or early 2019.
A look at the chart, indicates that investors are more cautious in moving stock valuation higher. The PE ratio seems to be moving higher each year since the sharp jump in 2015, suggesting that the increase in PE is not yet over. The other factor is that interest rates have fallen faster in 2018 than for some time, investors seem to need more time to digest the rapid change in rates and determine how long it likely to remain at very low levels.
The big question to come will be, when will interest rates start to reverse? If the PE hits 17 by year end, it would represent an approximate 35 percent increase from current levels. Quite a number of stocks are selling above the average of 12.5 presently. A total of 24 stocks in both markets trade above 12.5 and 7 each in the main market and Junior Market selling above 16 times current year’s earnings.

Honey Bun profit up modestly in Q3

Sales for the three months ended June 2018, rose 15 percent to $332 million over the 2017 out turn of $289 million at Honey Bun, but profit before tax was just $9 million, 5 percent higher than the $8.6 million earned in the corresponding prior year period.
Profit after tax rose to $9.7 million up from $7.55 million as a provision of $1 million in taxes in 2017 turned into $695,000 in 2018. Management stated in their release to shareholders that “this has been as a result of continued investment in production capacity and restructuring of distribution.”
Year to date, sales for the nine months, were $1 billion up 4 percent over the corresponding 2017 period’s income of $969 million, leading to profit before tax of $80 million, 17 percent lower than in the previous year. After taxation of $8.3 million for the nine months, profit declined to $72 million from $84.7 million in 2017, after taxation for $12 million.
Earnings per share for the quarter amounts to just 2 cents and for the nine months period year to date amounted to 15 cents. Honey Bun’s last quarter is not the most robust for the fiscal year so not much improvement is expected when the year ends in September.
Even as the net profit was disappointing, there were some good signs. Gross margin increased to 44.1 percent from 42.4 percent in 2017 for the June quarter and from 43.2 percent to 45.2 percent for the nine months. Gross profit rose 19 percent to $146 million for the quarter but was up 8 percent for the year to date period to $455 million.
Marketing and Distribution cost rose 32 percent in the quarter to $61 million and 37 percent to $164 million while Administrative Expenses rose 14 percent for the quarter to $63 million and was flat at $166 million for the nine months. Depreciation moved up by 9 percent to $12.3 million for the quarter and 11 percent to $36 million for the year to date.
“The Company’s asset base has grown as a result of the investment in the expanded facilities. This investment will allow the company to take advantage of the strong market demand for our products.

One Honey Bun’s Products.

In April of this year Honey Bun launched its new Buccaneer Jamaica pocket size rum cakes in 3 flavors at the Jamaica Expo. We have entered two new markets with further interest from other buyers in existing markets,” Michelle Chong Chief Executive Officer, informed shareholders.
Operations brought in $113 million in cash for the nine months of which $93 million was used as payment for fixed assets and $18.6 million in dividends resulting in $84 million in cash at the end of the period.
Shareholders’ Equity grew to $600 million at the end of June, current assets fell to $212 million and current liabilities fell to $84 million from $117 million in 2017. Fixed assets rose to $441 million from $368 million in 2017 and borrowed funds stood at just $31 million.

Grace set to make big price leap

Grace Kennedy traded at a 52 weeks’ high on JSE on Friday..

The Jamaica stock market is at an interesting stage, with supply of many stocks offered for sale, getting more scarce by the day, while interest rates are at their lowest levels in Jamaica’s history but are most are valued  at levels when interest rates were in the teens.
The main market has gained 8,387.30 points in July, and is now a record high as of Friday with gains of 9,486.57 since the start of July, thus mirroring the start of the usual summer rally on the Jamaica Stock Exchange, while the Junior Market continues to bounce and is now at a 9 months’ high.
Liquidity is very high and forcing interest rates lower as investors try to place funds on hands. As liquidity rise in the market supply of stocks is on the decline. Some of stock with scarce supplies include Grace Kennedy that has just one offer priced at $80 when the market closed on Friday, NCB Financial that is now trading over $100 is not far behind with limited offers. It has been years that the supply of Grace stock has been this low and suggest a big upward price move.

The All Jamaica Composite index now braking out of a narrow upward sloping channel going back to November 2017.

Berger Paints, Caribbean Cement, JMMB Group, Kingston Wharves, PanJam Investment, Sagicor Group, Seprod and Scotia Group with only 362,000 units on offer are amongst some that have very limited supplies being offered for sale on the market. But the main market is not the only segment with limited supplies.Over in the Junior market where demand is not as great as in 2017, supplies are limited for many of the listings. The list includes, Blue Power, Caribbean Flavours, Cargo Handlers, Derrimon Trading, Express Catering, Caribbean Cream, Medical Disposables and Stationery and Office Supplies. Caribbean Producers closed trading at $5.80 at the end of the previous week and ended this past week at $6.22 and may well go higher this coming week as it closed with a bid at $6.20. A number of these stocks could lead the break out of the markets in a big way when investors on a whole come to the realization that with interest rates now below 2 percent,

Medical Disposables profit jumps 49 percent before foreign exchange loss in Q1.

that the old accepted PE ratio of 10 being reasonable to value stocks, is no longer accepted and that ratios of 20 to 30 will become the norm going forward. Investors only need to look at stocks in in Trinidad and Tobago where PEs have been in the 20 level for years to understand where we will be heading in the not too distant future.
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 index and the Junior Market that is at a 9 month high, is being steered by an upward rising long term support line and the start of a golden cross.

Medical Disposables back in IC TOP 10

Medical Disposables back in IC TOP 10

The main market of Jamaica Stock Exchange ended at a record close on Friday and the Junior Market closed at a 9 months’ high as the markets keep moving higher resulting changes to the IC TOP 10.
At the close on Friday, Proven Investments ended at 19 US cents and fell out of the top list and is replaced by Victoria Mutual Investments. Jetcon Corporation and Paramount Trading dropped out of the top flight, to be replaced by Fosrich Group and Medical Disposables. IC insider.com lowered profit forecast for Paramount with the company showing only a small profit of less than a million dollars in the fourth quarter compared to nearly $11 million in 2017 after gross profit rose 29 percent or $28 million. Jetcon squeezed out by price changes, elsewhere Medical Disposables rose to $5.80 but made it back in the list with strong profit out turn for the first quarter to June and an upgrade of earnings for the full year, of 65 cents per share from 60 cents.
The PE ratio for Junior Market Top stocks averages 7.4 compared to an average PE for the overall market of 12, based on 2018 estimated earnings and the main market PE stands at 8 for the top stocks, compared to a market average of 13, a good indicator of the level of undervaluation of these stocks.
The TOP 10 stocks now trade at an average discount of 38 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 and main market stocks traded at a discount of 40 percent to the 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.