The sad state of the capital market

Investors are not protected even as money is taken from them to funds protection. We recently pointed out the problem investors in Wigton face with revenues and profit set to nosedive starting April this year.

Wigton closed at anew high of $1

Wigton traded at 63 cents on Friday.

This publication did not endorse the Wigton issue as we saw no growth in revenue for a prolonged period, others were not so inclined. We also of the view that Transjamaican Highway was highly overpriced. National Insurance Fund (NIF) was not only happy with the initial 50 cents price for Wigton they went into the market at higher prices and challenged ICInsider’s article written after the release of the first quarter report to June 2019. That report indicated the following:
The capital market got a huge body blow with the release of Wigton Windfarm quarterly results for the first quarter to June, which suggests a bright future outcome but the reality is vastly different.
Analysis of the results and historical data show clearly that investors have been unwittingly, duped into believing that the earnings of the company had blasted off sharply from 5.5 cents reported for the 2019 fiscal year, but nothing could be further from the truth. The directors’ report accompanying the quarterly results is just inadequate, as it does not clearly communicate what investors can expect for the rest of the year. There is just very limited historical information to go by to help.
The problem is that the situation with inadequate reporting by the company continues into 2021. With a member of the board who is also a director of the Financial Services Commission, the big question; will investors who need protection in this matter ever get it?
The company’s stock has been trading around 65 cents region for some time, recently it closed at 63 cents, trading as low as 60 cents. At the close on Friday, there was only one decent bid to buy 4,847,000 shares at 60 cents each, with just six other bids to buy 872,000 shares from 50 cents to 59 cents with the bulk at 50 cents.  Selling offers start at 63 cents with 204,000 units and climb to over six million at 65 cents. With the stock having no serious bids but the 4.85 million units at 60 cents sellers may not want to press selling as there will be little support to buy their shares as such the selloff may be prolonged.
The company’s directors have spoken about the fall in revenues for the number 2 turbine but nothing is said to the investing public as to the immediate future and what sort of profit investors can look to with the revenue fall out. What assurance can investors now have that there may not be more shocking information to come re revenues or costs? The deck needs clearing.
In the meantime, NIF the third largest shareholder in the company is going to take a shellacking on the investment of 706.8 million shares, for some time to come. This development cannot be pleasing to the managers of the NIF who were very bullish on the investment and then think about the NIS beneficiaries who will be out of pocket for a poor investment decision.
The other government divestment that is of questionable nature is TransJamaican Highway (TJH). The stock came to market around 22 times earnings last year when the average PE ratio for the market was no more than 15, but experts suddenly came up with all sorts of formulas and reasoning to justify the high pricing. While a large number of local stocks have gone on to record gains since last year, TJH is currently selling lower than the IPO price of $1.41. Unlike Wigton, the NIF name is nowhere to be found in the top 100 list of THJ, word is persons at NIF considered the stock to be highly overpriced as such the fund did not participate in the issue.
THJ last sold at $1.26 and the stock is trending negatively with the price seeming set to fall lower as selling pressure hits it while the company grapples with recovering revenues and profitability. For these two government stocks, it looks like a long hot summer for investors in them. But then unlike Wigton, there is now a top 10 shareholder who has been growing its holdings in the company from being outside the top 10 with less than 177.3 million shares at the end of March last year to 614 million at the end of December, with an increase at the of March this year to 665 million shares to be the fourth largest shareholder with five percent of the total number of shares.
The stock exchange should request Wigton to make full disclosure to the public as to the impact that the revenue cut will have on income, profit and earnings per share. They should also be required to stage categorically if there are any contracts that the company signed that will negatively affect profits and there are actions that the FSC needs to take as well.

Wigton erroneous EPS

Last year, IC Insider.com forecasted earnings for Wigton Windfarms at six cents per share after the posted excellent first-quarter numbers that initially suggested a significant surge in profits for the year. The latest report from the Company indicates that earnings will fall well short of this forecast.

Wigton closed at anew high of $1

Wigton posted a loss in the December 2019 quarter.

IC Insider.com stated that the Company’s earnings are seasonal and investors should be informed of it, in compliance, with general accounting policy, relating to interim results. The forecasted earning was criticized by some when we reported on the first-quarter results in 2019 and stated that earnings were seasonal and as such the quarterly revenues would be less for the rest of the year and by extension profits.
The latest report to December has made it clear that there is significant seasonality in revenues and earnings.  Information on the seasonality of revenues is not in the current interim report. In addition, although notes accompanying the financial report states that it is prepared in accordance with International accounting standards relating to interim financial statements, it does not, in totality. Apart from the lack of reporting on the seasonality of operations, the earnings per share computations are wrong.
The company wrongly reports the earning per share in 2018 at $27,096 for the quarter and $56,701 for the nine months. That is incorrect. The company, in anticipation of the public sale of the existing shares, adopted a resolution on April 3, 2019, to sub-divide the Company’s 10,000 ordinary shares into 11 billion ordinary shares.
The effect of the increased share capital is that all previous periods’ earnings per share must use the increase shares. Accordingly, the comparison for the 0.2 cents loss in the December 2019 quarter is 0.25 cents and for the nine months to 2018, the earnings per share work out 5.15 cents. Year to date profit of $526 million works out at 4.78 cents and not 6 cents per share, this is a significant overstatement.
Wigton generated revenues of $363 million in the December quarter, compared with $465 million in 2018. For the nine months, revenues declined from $1.95 billion to $1.82 billion. Gross revenues fell from $279 million in the quarter to December 2018, to $159 million in 2019. In the 2019 nine months period, gross profit slipped to $1.24 billion from $1.4 billion. Other income fell from $290 million to $115 million for the quarter and the nine months, to $234 million from $465 million. While general expenses were steady at $85 million, in the latest quarter and slightly up to $266 million, year to date, finance cost rose to $210 million from $128 million in the quarter. It declined from $881 million to $512 million. The December 2019 quarter, recorded a loss of $16 million, compared to $271 million in the 2018 December quarter and $526 million in 2019, year to date versus $567 million.
IC insider.com full year’s original forecast called for earnings per share of 6 cents, but the latest numbers suggest that it is unlikely to exceed 5 cents.  The stock price pulled back from $1 per share in Novembers and 97 cents towards the end of January to 80 cents at the close of trading on the Main Market of the Jamaica Stock Exchange on Tuesday for a PE ratio of 16.

JSE wants to double share ownership

The JCSD now has 154,500 shareholders on its registry with the near 12,000 new ones this month.

There are nearly 155 thousand investors listed as shareholders in the Jamaica Central Security Deposit but the Jamaican Stock Exchange (JSE) is planning to double that number in five years.
The number of local share ownership got a big boost from the 11,772 new investors who applied for shares in Jamaica’s recent IPO, Wigton Windfarms recently.
The addition of new investors pulled in by the new stock offer, brings the total to 5.5 percent of the country’s population. According to Marlene Street Forrest, Managing Director of the JSE, “the number based on the adult population is 12 percent. The aim is to get to 20 to 25 percent of the adult population in five years.” The numbers may not sound great deal but Jamaica ranks pretty high globally.
Data gleaned by IC Insider.com shows that just 12.3 percent of UK overall population own shares in public listed companies, stock ownership in India is not more than 2.5-3 percent of the total population. In 2011, Austria had 7 percent rate and Germany was around that of Jamaica at 5.6 percent while France was at 14.5 percent. The data is clearly saying that the world have not done a good job of educating the population about stock ownership.

NCB pulled in more shareholders in 1987 than any other listing on the JSE

The JSE will be using a variety of means to get the numbers up in Jamaica. Government’s divestments have the most telling impact in increasing the numbers of new investors. The major reason is the need for aggressive marketing of IPOs, of government entities, to get full take up of the shares.
According to an article written by Emma Simon of the British Telegraph newspaper, in April 2013,
“One of the lasting legacies of Margaret Thatcher’s administration was to enable and encourage millions of ordinary people to invest in the stock market. In 1979 just 3 million people owned shares, 7pc of the adult population. By the end of the Eighties one in four people – 12 million adults – owned shares. The boom was fuelled by a wave of privatisations in which many state-owned industries were sold to private investors.” The situation was similar in Jamaica, where the number of shareholders, estimated at around 10,000, but National Commercial Bank, Now known as NCB Financial Group, the first government divestment attracted more than 32,000 investors, more than tripling the number of shareholders.

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