Investors shun Junior stocks for the oldsters

Black Panther mash up Palace bottom-line with a huge increase in profit that pushed to stock to no 1 for 2018 in the main market.

Investors shunned Junior Market stocks in 2018 for the older more established Main market stocks. At least that is what the data from the exchange is showing.
According to the Jamaica Stock Exchange report of trading to the end of July, volume and value on the main market is up while that on the junior market is well down on 2017 figures, even as the gains in the overall market shows juniors up 14 percent for the year to the end of July and 9 percent for the main market.
Junior Market volume is down year to July by a stunning 69 percent to 571 million units while the value fell 64 percent to $2.69 billion, less than half of the $6.6 billion traded for all of 2017. In contrast main market stocks traded 1.57 billion units, up 28.5 percent over 2017, for a total value of $32 billion, a strong 79.4 percent increase over 2017 and just shy of the $35.7 million traded for all of 2017.
The big winners for the year to July are, Palace with an increase of 154 percent, that was helped by the huge success of the Black Panther film that ran for several months, Pulse Investments up 67 percent, Kingston Wharves 60 percent, Jamaica Broilers 45 percent and Salada Foods 41 percent, as investors responded to improved profit. In the Junior Market, C2W Music and Derrimon Trading beat all others by huge margins, rising 233 percent after it announced a 10 to 1 stock split and 197 percent respectively. Express Catering climbed 86 percent, Stationery and Office Supplies up 65 percent and CAC 2000 up 51 percent.
The big losers in the main market are, Ciboney, having sold off the property it owned and paid out most of the proceeds as a dividend is down 68 percent, 138 Student Living fell 35 percent, Kingston Properties 31 percent, Wisynco Group 24 percent, Portland JSX 20 percent and in the Junior Market, GWEST Corporation down 36 percent, AMG Packaging 33 percent, tTech 23 percent, Knutsford Express 23 percent and Eppley 17 percent.

SOS writing book manufacturing starts May

Stationary and Office Supplies – Montego Bay offices.

Stationery and Office Supplies (SOS) purchase of equipment used to manufacture various types of writing books as well as the brand name SEEK.
“This purchase will allow SOS to enter the manufacturing industry in Jamaica starting with books and a plan to continue to manufacture other stationery products in the future”, SOS states.
Machinery purchased includes the following: Ruling machines, Guillotines, Gluing Machines, Stapling Machines and Book Presses.
The total value of the purchase is $60 million and is being financed through a bond with Jamaica National amounting to $80 million at an interest rate of 8 percent, and a duration for repayment of 7 years. The company expects that the total investment including machinery, raw materials and renovations will exceed $80 million. The Company said with this expansion, SOS initially be employing an additional 25 persons with production expected to start during the first week of May 2018. Prior to the acquisition a compliment of 40 persons were employed with a mixture of full time and part timers.  Revenues expected in the first twelve months is estimated at $130 million but could rise beyond this, as the business maintains most of the customers for books and SOS leverage their existing customers base and others for  more business. According to Allan McDaniel, Deputy Managing Director & Director of Warehousing and Logistics, the previous owner operated for about six months per year, but SOS will be able to operate full time and at less cost. The operation will be housed in the adjoining building they acquired last year and effectively fills out the space with their expanded inventories occupying about half. Profit margin is attractive and will almost ensure that the company will profit from it, this year, with growth estimated by them to likely be in the 30 percent region coming from both local and export sales. The new operation could deliver around $40 million to profit in 2018 and around $70 million in 2019, IC Insider.com estimates.  Speaking about SOS operations, McDaniel would only say they are happy with the first quarter, that was helped by an increased inventory, now around $170 million compared to $117 million in March last year, just ahead of the public share offer. McDaniel said that while some of the fellow businesspersons are talking about a weak first quarter, SOS expects to report continued growth.

The company’s stock ended at a record close of $6 on the Junior Market of the Jamaica Stock Exchange on Tuesday gaining 200 percent since it was listed in August last year.

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Some impressive profit results

The latest set of listed companies to report financials show an array of impressive profits for a number of them, turn around situation in one and flat results for a few.

C&W reported a small loss of $138M for 2017 before tax.

Cable and Wireless reported a very small loss for 2017 down sharply from a billion loss in 2016 and is about to break out into a highly profitable period starting in 2018. The company that has chalked up accumulated losses of more than $48 billion reported losses of only $138 million before tax for 2017, and just $383 million after tax, flowing from a 9 percent rise in revenues to $27 billion with a big rise in mobile revenues by 54 percent to $15 billion while interest cost at $5.2 billion the company lost the year, down from a loss of $1.4 billion in 2016. With the sharp fall in interest rates locally interest cost should drop by around $2 billion in 2018 and plunge the company into an excellent profit position with continued growth in revenues. Unfortunately, the parent company wants to take over the company at a low price, after local shareholders have suffered losses for many years at just the stage when good times seem to be returning.
Newly listed FosRich Group posted an 81 percent increase in profit to $55 million and earnings per share of 14 cents from revenues that fell 9.5 percent to $1.05 billion, but helped by other income of $42 million comprising mostly interest and foreign exchange gains.
Jamaica Producers enjoyed strong gains in operating profits with an increase of 77 percent to $662 million after adjusting the 2016 results for non-recurring gains of $3.7 billion. Operating income for the year was up an impressive 34 percent resulting in gross profit rising from $3.24 billion to $5.14 billion. Earnings per share came in at 59 cents.
Stationery and Office Supplies that listed in August last year enjoyed a 29 percent bounce in revenues for the full year and 37 percent rise in the December quarter to record full year revenues of $906 million and a 78 percent rise in profits to $83 or earnings per share of 38 cents.
Kingston Wharves profit climbed 18 percent from $1.29 billion to $1.63 billion for 2018 from revenues that moved from $5.41 billion to $6.37 billion for a rise of 28 percent and ended with earnings per share of $1.14.
Grace Kennedy continues to struggle to increase profits ended 2018 with flat results of $4.15 billion versus $4.12 billion in 2016. The 2016 figures and one off gains that makes the 2018 better that it appears on the surface. Revenues rose from $88.3 billion to $92 billion in 2018 and other revenues slipped from $2.38 billion to $2.1 billion. The group reports $4.15 in earnings per share.

FosRich profit rose 77% for 2017.

Supreme Ventures reports earnings per share at $44 cents from profits that are virtually flat with 2016 results coming from a 25 percent rise in revenues to $56.2 billion. Profit for the year ended at $1.197 billion from $1.178 billion. The 29017 suffered from write off of assets and impairment amounting to $484 million while repairs and maintenance rose by $110 million.
The 2017 listed Victoria Mutual Investments reports a 9 percent rise in profits to $346 million from a 19 percent rise in net income of $966 million and produced earnings per share of 29 cents.

Solid buy – Stationery and Office Supplies

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Stationary and Office Supplies – Montego Bay offices.

Stationery and Office Supplies stock is under pressure, having traded around the $5 level for some time, dropped to $4 in trading during last week with minimal demand for the stock currently.
But investors should probably be taking a different approach to the stock and piling into it for a big rally down the road as the fundamentals are strong and getting better.
Revenues climbed 23.7 percent in the June quarter to $212 million and 22 percent to $432 million for the half year, by the September quarter the growth climbed to 37 percent to $233 million, pushing revenues for the year to September to an increase of 27 percent to $665 million. Based on the bounce in revenues that some companies received after listing, the strong growth in revenues seen in the third quarter is said to have continued for the December quarter. Full year results are expected, by the first week in March and should be in the range of $100 million based on IC Insider.com projections. Reports are that the full year results for 2017 exceeded expectations which was around $70 million at the time the IPO was offered and adjusted internally upwards based on third quarter results. At the end of September profit before tax reached $69 million well ahead of the $48 million recorded at the same time in 2016 and vastly more than the $53 million reported for all of 2016. The 2017 results are not likely to show any weakness as occurred in 2016.
SOS had acquired a building which was converted to a warehouse to allow for expansion of It’s offerings, this is now in use with some 6,000 square feet occupied. According to reports there are “lots of plans and expectations going forward for good business growth”. IC Indsider.com gathers that the December quarter that is normally the worse quarter for them due to the holidays, but the 2017 last quarter was the best quarter in the company’s history.
IC Insider.com projects earnings before tax at 50 cents per share for 2017 based on the average number of shares issued for the year, up from 40 cents when the shares were offered for sale and 75 cents for 2018 based on projection for continued strong growth in revenues.
At a last traded price of $4.50 on the Junior Market of the Jamaica Stock Exchange, the stock remains a buy as it will benefit from strong growth in 2017 and future growth in 2018 and beyond. Investors should take advantage of the current softness in the stock price and wait for the inevitable strong gains ahead.

3 new junior stocks in 2017 best 10

The Junior Market ended 2017 with 3 new listings in the Top 10 best performing stocks in 2017. The 3 are, Express Catering up 167 percent, Main Event with a rise of 164 percent and Stationery and Office Supplies with a gain of 148 percent.
Knutsford Express with an increase of 275 percent, is the winning Junior Market stock for 2017, after ending at ninth position on the Junior Market in 2016, with a rise of 108 percent in 2016. Jetcon Corporation, the no 6 best performing stock in 2016 gained 199 percent in 2017 to land the number 2 spot. Eppley gained 145 percent for 2017 to hold down spot number 6 spot, number 7, is Blue Power rising 104 percent, followed by C2W Music after gaining 104 percent, with the number 9 spot being held down by Access Financial with gains of 76 percent and KLE Group rising 67 percent at 10.
Investor’s Choice research covering more than 30 years’ data shows that only an average of 2 stocks out of the top 10 performers each year repeat that performance in the following year, with the rest falling outside the top 10.
IC Insider.com data is showing that only Access and Stationery and Office Supplies are likely to end in the TOP 15 Junior Stocks in 2018.

GWest IPO is here

The initial Public Offer (IPO) of shares in the Montego Bay based GWest Corporation is now out with 169.7 million shares offered for sale at $2.50 each. The offer opens on December 7 and is scheduled to close on December 21.
With FosRich and Wisynco opening next week as well it could result in record of 4 IPOs being opened within the same week on the Jamaica Stock Exchange. During July, Express Catering opening on July 12, Stationery and Office Supplies that opened on July 19, Proven Investments with a rights issue opened on July 3, Productivity Business Solutions with an ordinary share issue and a preference share issue that opened on July 5.
GWest offer includes 36,000,000 Shares reserved for the lead broker, JMMB Securities or its clients, 64,000,000 Shares reserved for Jamaica Money Market Brokers’ Pension and Client Funds Investment Management Unit. 19,400,000 Shares are for GWest clients and suppliers and 600,000 Shares for independent directors, the Mentor and employees of the Company. This leaves 69.7 million shares for applications by the general public. If any of the Reserved Shares in any category are not subscribed by the persons entitled to them, they will be made available for subscription by the general public.

Dr. Konrad Kirlew, chairman of GWest.

If the Invitation is successful in raising at least J$250,000,000 and the Shares will be admitted to trade on the Junior Market of the JSE.
The primary purpose of the Company is to provide integrated medical health care services and facilities. The Company established 5 medical businesses under the common “GWest Medical” brand. GWest Corporation owns the GWest Centre, a 4-storey multipurpose commercial complex catering primarily to medical professionals and medical services and in which its owned services will be located. The GWest concept is to provide a wide range of complementary international quality best practice medical services in one location,
The Company will be providing the following medical services to complement those offered by owners and lessees in the GWest Centre:
1. General Practitioner and Specialist Suite (operational since June 2017)
2. A 2,200 square feet Urgent Care Centre (operational since November 2017)
3. Medical Laboratory (to be opened by January 2018)
4. A 5,000 square feet 8-Bed Inpatient Unit (to be opened by September 2018)
5. In addition, its 100% subsidiary company GWest Surgery Centre Limited will own and operate an 8,500 square feet Outpatient Surgery Centre (to be opened September 2018), including two modern operating theatres and two procedure rooms.
The Company has approximately 18,111 square feet of space leased to tenants for periods of 3 to 10 years with lease rates denominated in United States currency, ranging from US$20 to US$22 per square feet. The lease payments are subject to annual increases at a rate of up to 0.5% per annum.

GWest complex in Montego Bay,

Directors include Dr. Konrad Kirlew, chairman, Dr. Leyford Doonquah, Dennis Samuels businessman Denise Crichton-Samuels managing director of Cornwall Medical and Dental Supplies, Peter Pearson, former partner PriceWaterhouseCoopers. Elva Williams-Richard, Chartered Accountant, Wayne Gentles, Accountant, and Mark Hart Businessman and Wayne Wray who is the mentor and director.
The shares are really based of forecast which are vastly different than the historical results. For the year to March 2017 profit reported was $181 million but it includes a large gain on revaluation of the unsold property, amounting to $205 million. The profit was mainly based on income of sale of property. A loss of $29 million was made in the six months to September and for the full year to March 2018 a loss of $111 million is projected, swinging sharply to a profit of $166 million in 2019 and $388 million in 2020 as revenues rise from an estimated $158 million in 2018 to $803 million in 2019 to $1.2 billion in 2020.
Net book value is just $287 million, representing 324,848,485 shares, with net book value of just 88 cents per share, the stock is priced at 3 times book value which can be considered high for a company yet to start showing profit from ongoing operations. The stock is also priced at a high PE of nearly 7.5 times projected 2019 earnings which is way above most other stocks in the market, with a renowned operating track record.

FosRich could surprise

FosRich initial public offer of shares opens next week Monday but is getting mixed views in the financial market, partly with similar type reception Access Financial got when it went public in 2010. Access confounded the skeptics and went on to be one of the best performers on the market.
While one does not expect FosRich to perform close to what Access did overtime, it could nevertheless surprise many on the upside in 2018, with not many shares being sold to the general public.
Some seasoned investors are letting this one pass them by. Questions are being asked about an array of issues reflected in the financials.
Why are inventories so high? growth in revenues is inconsistent with a drop in sales on the cards for 2017 and questions about the true quality of receivables. The company made a $20 million provision for doubtful receivables in 2014 of which $10 million was recovered in 2015. For some, the inventories of $580 million at September is the most concerning, with the view that there could be another big a write off as occurred in 2014 when provision was made for $109 million. There is a question as to the rationale for three outlets outside Kingston with two in Montego Bay.
Management seems fully conversant with the issues that need addressing and from all indications are at work to deal with them.
Apart from the raising of long term equity capital by way of the public share issue, that will provide badly needed working capital management is to roll out of the industrial products line later in 2017 and the directors anticipate a profitable end to the fiscal year, unlike the loss in the final quarter of 2016.
FosRich increased gross profit margin for the year to date to 45.2% from 42% in 2016, the Directors are hopeful of maintaining or increasing that level towards the end of the current year, 2017. According to Cecil Foster, Managing director, they are aiming for 50 percent with a focus on the 150 fastest moving items. Their partnership with Phillips, Siemens for electrical equipment and parts and Nexans Brasil for distribution of cables will allow them to source products directly from factories rather than through middlemen.
Addressing the issue of excess inventories, Foster stated that they are aware of the issue but admitted that software issues resulted in an increase beyond the norm. Cash flow issues has forced management to take step to reduce the amounts tied up in stock. At September this year the amount in inventories of $580 million is down from $625 million in 2016. According to Foster within 8-9 months it should be in the rage of 6 months of cost of sales, if achieved it would release more than $200 million in cash. Different strategies are being employed to push sales of the slower moving items and include special deals at reduced prices, targeting large projects and possibly longer credit terms. According to Foster, this area is one for attention a regular at their monthly board meeting.
Debt financing has been high with Interest cost at $47 million in 2016 on loans of $335 million. Rates on leases were at 13.5-15 percent. After the issue closes Stocks and Securities will be going to market to raise $200-300 million in bonds to retire the bank debt and fund expansion.
Foster confirms Mathew Williams of SSL comments “that the target is to double sales within two years” and indicated that the target for 2018 is 30 percent. Cost should be under control in 2018 as the company focuses on this area as well.
There are some observations that investors ought to note. A number of companies enjoyed big sales bounced shortly after listing as name and product recognition increases. Example of these are Jetcon Corporation, Stationery and Office Supplies, the rigor that monthly board meetings will provide additional governance rigor to get more out of the existing operation. Peter Knibbs the director of Finance formerly of the Pan Jam Investment group, with years of financial experience has been playing a major role in getting the company to focus on some critical areas in order to right a drifting ship.

Big run for Jamaican stocks coming

JSE Main market showing next major resistance around the 360,000 point level on the al Jamaica Index

The current state of the Jamaican stock market in one of contrast with the main market hitting 5 days of record close and with gains of 40 percent for the year to date and Junior Market that was up 31 percent in May is now up just 14 percent.
With stability present in the forex market for the Jamaican dollar, lower interest rates being paid on money market funds and with business confidence at record high levels, funds are now moving into the main market stocks with less interest being shown in the Junior Market.
Prices in the US dollar market have come off, after the index was up 63 percent at 268.73 points in February, up from 164.50 at the start of the year, but it is only up 12 percent now with the index at 184.86 points at the close of trading on Friday.

Jamaica Main market stocks itching to break out of channel that stretches back to 2014

The Junior Market was driven up by excessive buying that drove a number of the stocks to excessive valuations which the market has been correcting for, resulting in the sharp pull back from the all-time high, even then there are some that are still overvalued based on the average valuation of other stocks. The market still has several undervalued stocks but the focus on the bigger and more liquid main market is sucking some energy from the junior ones.
Based on estimated 2017 earnings, the average PE of the junior and main markets are just over 13 times earnings. The main market has more than half of the market trading below this level. Included in the list are Berger Paints with a PE of just 5, Caribbean Cement at 6, Jamaica Broilers 7, JMMB Group at 8, Grace Kennedy, NCB Financial and Sagicor Group at 10. The market has Jamaica Producers selling at 32 times 2017 earnings and Kingston Wharves at 27 times earnings with Kingston Properties at a rich 36 times and are clearly overvalued currently. Jamaica Stock Exchange and 138 Student Living at 22 are well ahead of the market average.

Junior Market under pressure, testing support around 2,900 points.

In the Junior Market Medical Disposables is priced at 6 times earnings, General Accident 6, Caribbean Producers 7, Stationery and Office Supplies, Caribbean Cream and Main Event at 10. Just under half of Junior Market stocks are trading blow the market average with about 25 percent well above the average.
Technical reading| The main market broke through major resistance for the second time since September at 290,000 points, that has its genesis in 1992 and connecting in 2005. The market faces some short term resistance around 300,000 points which should be broken through before long ahead of moving to the next sort term resistance around 360,000 points with 505,000 on the all Jamaica Index, the next big stop. The market has been trading in a distinct upward sloping channel from mid-2014 until now and seems set to break out and move higher.
The Junior Market chart is a big contrast to that of the main market.

Wigton Wind farm should list on the JSE main market in early 2017 with a large capitalization

While the latter is clearly heading higher with new highs being created, the Junior Market index is flashing negative signals. The market has formed a head and shoulder pattern which is a negative signal and the short term 45 days moving average has broken through both the medium term 200 days moving average and longer term moving averages. The market has broken through the channel that it has been trading in since late 2015. There appear to be support around the 2,900 points level but it could go down to 2,800 points where the next support is and it will left to be seen 2,900 points will be the floor ahead of third quarter results that could change the course of the movement.
With just over 2 months for the year to end investors should start to have an eye open for major factors that could make big differences to earnings in 2018 when making investment assessment now. Some of these are, more reduction in interest rates, continued strong foreign exchange growth, low inflation, increased construction activity, increased activity in the tourism sector and of course the potential for several new listings to come to market between now and then. IC Insider.com is aware of 8 such potential listings. The list include, Wigton Wind Farm, Jamaica Public Service as a result of Government of Jamaica’s planned sale of its 20 percent share in the company, Neveast Stationery, KIW International, a relatively new business in Montego Bay and a large manufacturing business, operating out of St Catherine.

Keep an eye on Scotia Group

With cut in Bank of Jamaica benchmark interest rate by 25 basis points in the last week of August and fall in the August Treasury bill rates, new life was brought to the main market last week with a number of days of record high.
The entire main market is on IC Insider.com’s watch list as the all Jamaica Composite Index could move to the 300,000 points mark before long.
The most noted move in the Jamaica Stock Exchange last week was Scotia Group racing to a record high of $52 but ending the week without any stock being offered for sale. This stock has to head the stocks to watch list this week.
Others on the list are Barita Investments and Berger Paints two stocks that are subject of takeover offers, both stocks fell back sharply during the week, moves that appear unwarranted. Others on the list are, JMMB Group, NCB Financial Group with just 47,000 units on offer between $90 and $100, Sagicor Group and Supreme Ventures with a 41 percent rise in half year profit.
In the Junior Market, Caribbean Producers with improved 2017 results over 2016 with profit doubling, Jetcon Corporation that came under some selling pressure last week and fell to $4.50 and Stationery & Office Supplies complete the watch list.

JMMB could continue higher

JMMB Group traded at a 52 weeks’ closing high od $21.45.

Based on the trading activity for the past few days there seems to be increased interest in JMMB Group shares with a sharply declining supply being offered after the company released its first quarter results and announced that they have commenced commercial banking operations in Jamaica.
On Friday the price closed at $21.50 with 782,460 shares traded, after it traded at $23 in the morning session as supply totally dried up at one stage when only a small volume was on offer at $29, the first this has happened in a long time. At the close less than 240,000 units were offered for sales, with most quoted at $22.50. The group reported pretax profit rising to $995 million from $857 million in 2016 but profit after tax just inched up to $613 million from $590 in 2016.
Cable and Wireless came in for buying but sellers were just as interest in selling, in the end supply on the market has been shrinking. The stock could well see side-ways movement during the week, don’t be surprised if the price moves up as supplies around last week’s closing price recedes. NCB Financial Group has seen the price in Trinidad coming close to the Jamaican price on Friday, with demand still strong in that market and no stock on offer. The closing bid in TTSE suggests upward price movement can be expected. Supply in Jamaica is not great, it’s just that buyers are taking their time to acquire and could well be trying to hold out until close to the release of the full year’s results in early November. There was spirited buying of Barita Investments on Thursday gone, with 163,100 units being snapped up aggressively. There was no follow through of such aggression on Friday. It is anyone’s guess where this one will go, in the days ahead, but it is worth watching. Berger Paints pulled back to $14 during the week, with no announcement from its new parent company about the minority holdings. Ansa McAl announced that they would be making a submission about the 20 percent minority holdings in the Trinidad sister company, with no comments about the operations in Jamaica.

Consolidated Bakeries (Purity) stock could fall during coming week.

There is a fair bit of swing in the price of Stationery and Office Supplies with selling coming in during the week, but with buying more subdued than before. Investors can probably expect the price to swing between $4 and $5 for a while. The price could even falling into the $3 to $4 range depending on how fast sellers want to exit. At least that is what the bids and offers suggest, unless there are some increased buying in the week ahead.
Jamaican Teas after reporting nine months results with increased earnings per share over 2016, traded as high as $5.30 during the day but closed at $5 as increased interest was visible for the stock, suggesting that the price could rise further. Jetcon Corporation continues to attract buying interest after posting doubling of profits for the first six months of 2017 and traded as high as $5.70 before pulling back to $5.50 at the close on Friday, with bids to buy in line with the closing price. Paramount Trading came in for some buying with the price recovering from its fall to $2.50 recently after the company stated that they were I the process of constructing the Lubricant plant with operations to commence later this year. Currently supply below $4 is scanty.
Consolidated Bakeries reported a loss in its June quarter leading to a fall in the stock price. Selling continues with more than 660,000 units on offer at $2.15 and weak bids. Further decline is to be expected.