NROCC

Trans Jamaica & Wigton can’t compute EPS

This is proving to be very embarrassing; accountants unable to compute earnings per share (EPS) properly for companies issuing additional shares. A number of listed companies have been releasing quarterly and audited results with the wrong calculations for earnings per share.
Trans Jamaica, the latest company, to be divested by the Government of Jamaica, reported a profit for the quarter to March of US$2.27 million but only the application of a tax credit of US$3.77 million saved it from a loss for the quarter. Revenues for the quarter were $12.96 million, up from $12.79 million in 2019, but after incurring $5.6 million in interest cost they ended with a pretax loss of US$1.5 million. In the 2019 March quarter, they barely eked out a profit of $1.58 million but that was only after crediting US$1.234 million in shareholders’ grant that ended at the end of 2019. The company’s reported EPS are all wrong.
Interestingly, Trans Jamaica’s top 10 shareholdings, make for interesting reading. Others are NROCC with 2.5 billion shares and JMMB Group with 763 million units, NCB Group and connected entities dominate the top 10. Interestingly, the National Investment Fund, which acquired a large portion of Wigton Windfarm shares, is nowhere on the top 100 listings for Trans Jamaica shareholders.
For the December quarter, Wigton Windfarm reported the earnings per share for the December 2018 quarter as $56,701. That, of course, is completely incorrect.

Wigton posted a loss in the December 2019 quarter.

The company stated in the quarterly, “the average number of shares was 10,000 units”, and at the same time, they stated that 10,999,990,000 shares were added, in May 2019. In reality, no shares were added as the existing stocks were split to become 11 billion units. This is what the prospectus stated, “in anticipation of this Offer for Sale PCJ as sole shareholder adopted the following resolution in writing on April 3, 2019, with respect to the Company; namely (a) sub-dividing the Company’s 10,000 ordinary shares into 11,000,000,000 ordinary shares.” That change required that 2018 and all prior years’ earnings, must use 11 billion shares to compute the company’s earnings per share. Wigton’s June to December quarterly reports published for 2019 are all incorrect and require revisions, as the incorrect information is still on the Jamaica Stock Exchange’s website.
The latest company to run foul-up this rule is Trans Jamaica Highway. The company, in its first report to the Jamaica Stock Exchange, reported EPS of 0.02 US cents for the March quarter, 5.8 US cents for the 2019 quarter and 30.7 cents for the year to December last year— all of which are incorrect. A note accompanying the share capital of the quarterly to March states. “On January 22, 2020, an extraordinary shareholders’ meeting passed a resolution to restructure the authorized share capital pursuant to section 65(1)(d) of the Companies Act, 2004, in anticipation of NROCC completing an initial public offering on the main market of the Jamaica Stock Exchange. Pursuant to this resolution, the Company’s share capital was restructured by dividing each of the 27 million existing ordinary shares to create 12.5 billion ordinary shares.”
As is the case for Wigton, the total number of shares now issued must be used to properly compute EPS for all three periods included in the quarterly report.
Limners and Bards, in releasing their audited accounts, made the same mistake that was quickly corrected after IC Insider.com brought the matter to the public.

Transjamaican Highway IPO highly overvalued

After suffering US$11.5 million in losses in 2014, with more losses in 2015 and 2016, Transjamaican Highway (TJH) turned a profit in 2017 of US$1.75 million, with an increase to US$6.5 million in 2018. The company seemed on track for another profitable year in 2019, before costs associated with restructuring debt financing pushed profit off the highway.
IC.Insider.com projects 2020 earnings to be around US$5 million or 6 Jamaican cents per share, from total revenues of US$57 million with a gross profit of $21 million. Finance cost is projected at $15 million, inclusive of preference share dividend with a high, 8 percent coupon rate. The PE ratio is a rich 25 times 2020 earnings, but that should fall to 19 in 2021. The IPO price works out at 1.3 times book value. Shareholders’ equity amounts to $95 million, with borrowings at $245 million inclusive of nearly US$20 million in preference shares, putting the debt to equity ratio at a high 2.6.
National Road Operating and Constructing Company (NROCC), the selling party, currently owns all the existing 12.5 billion ordinary shares, is inviting investors to purchase up to 8 billion ordinary shares of TJH, at $1.41 each. The company reserves the right to upsize the offer by an additional 2 billion shares in the event of oversubscription on the terms and conditions set out in this Prospectus. NROCC estimates that after the issue, new shareholders will own between 64 percent and 80 percent of the issued ordinary shares offer is upsized or not.
Just under 80 percent of 8 billion shares offered for sale is underwritten by NCB Capital Markets, Underwriting of a portion of the offer will ensure the listing of the shares will on the Main Market of the Jamaica Stock Exchange.
A total of 5.36 billion shares are reserved for a select group of applicants and just under 2.64 billion are available for the general public.
Highway 2000 East-West was the first toll road built and operated in Jamaica and connects May Pen and Portmore to Kingston and is operated under a concession agreement.
The concession is for a period of 35 years, with 17 years remaining, with an option to renew for a further 35 years, subject to payment of a renewal concession fee to be determined. The company has the right of first refusal to secure a similar concession to maintain, operate or own, when complete, the leg of Highway 2000 that will extend from May Pen to Williamsfield that will extend the length of the Toll Road by approximately 50 percent.
The Portmore leg of the highway accounts for 56 percent of traffic and 51 percent of revenue in 2019 and Vineyards accounts for 19 percent of traffic and 36 percent of revenue, with Vineyards having higher tolls than any other toll plaza due to more class 2 and 3 vehicles using it.
Traffic on the highway is exceeding the forecasts since 2015 onwards, the prospectus states and is expected to grow at a steady pace, with 4.5 percent in 2020. In 2021, the growth rate rises to 5.6 percent and 6.3 percent in 2022. For the nine months to September last year, the Company had revenue from ordinary operations of US$39.26 million, reflecting an increase of US$240,000, on the US$39 million generated for the same period in 2018. This miniscule rise was primarily due to an increase in the annual toll rates starting in July 2019 following the toll rate increases allowed under the Concession Agreement. Revenue was also affected by decreased traffic since March 2019, primarily at the Portmore leg, due to the near completion of construction works of the Nelson Mandela Highway. The reduced traffic at Portmore has, however, been offset by increased traffic at the Spanish Town toll plaza as more users divert to the Nelson Mandela Highway.
There are other opportunities for the company to take advantage of, with expansion locally and overseas. As such, the growth prospects could be very positive going forward.
The stock seems suited for investors with a long-term time horizon. The stock at the offering price is well ahead of the average of 16 for the market based on 2020 earnings. Investors in the IPO are taking on a considerable risk of a pullback in the value of the stock when things settle sometime after listing.