Proven Investments defying gravity

Proven Mb siggnDr Omar Davies will have found that his investments in Proven ordinary shares is working far better than funds placed in Credit Union, the latter seems to be his preferred choice for the placing of funds it would appear, based on a response he gave a few years ago to a reporter.
Davies and his other political colleagues would have seen their investment in the company done exceedingly well with the stock now trading at 21 US cents, well above the low of 7.5 US cents it traded at in December 2012. With the stock at a PE around 48 times ongoing earnings and well above any other stocks on the exchange, are investors pricing the stock right?
What is value?|There of course is a fallacious argument that the value is what willing buyers and sellers are prepared to pay, that may well be so, but if it based on unrealistic assumptions, the buyer may find that they over paid. What are investors paying a heavy premium for? It is not growth, for the company has not grown from increased profits after paying dividends, it not growth in profits since there is no growth in ongoing earnings since 2012, and it is not consistency of earnings either. The net asset value has not grown in the 2015 fiscal year over 2014 with net value of $32 million before new issued shares is adjusted for. The amount is lower than the $33 million in 2012 and $35.78 million in 2013, while this year’s operating profit is down on that of 2013 at $4.16 million and $3.3 in 2012.
Proven just reported full year results showing a profit of US$5.9 million or 1.5 US cents per share, up on the earnings in 2014 of $3.78 million or 1.28 cents per share. On the surface, that seems great and would put the PE at 14, and based on the local market valuation, it’s a bit high but not extremely so, with stock prices having grown an average of 30 percent in value for 2015, raising the PE of most stocks.

Hugh Hart Chairman of Proven Investments

Hugh Hart Chairman of Proven Investments

Overvalued| It is still around 40 to 50 percent above the valuation of the vast majority of the stocks on the market. The real rub is that the earnings include a one off extraordinary item of US$4.2 million that should not form part of the earnings on which the value of the stock ought not to be based. Excluding this amount that swelled the reported profit, earnings per share would 0.48 US cents which gives a PE of 48 and not 14.
During the year, Proven enjoyed strong growth in revenues but cost jumped sharply as well, with net interest income more than doubling to $7.65 million from $3.2 million in 2014. Overall net income grew from $8.6 million to $11.38 million, operating expenses moved from $3.6 million to $8.28 million, including loan impairment that jumped to $442,000 from just $45,000 in 2014. Operating profit before preference dividend of $1.5 million (2014: $969,000) amounts to $3.1 million down form $5 million in 2014.
The acquisition of the First Global Financial’s portfolio and the Access shares, incurred cost of $169,313 which is expensed is unlikely to recur in 2015, unless there are other take overs in the works, as such the net operating profit from ongoing operations would have been somewhat higher than the figure mentioned above but still leave the stock seriously overvalued, for a company that is not growing operating profit on a consistent basis year to year.
Going forward, the acquisition of Access Financial Services contributed profit of US$1.2 million to the group’s profit and could end up around $4-5 million for the full year which would swell earnings considerably for the group for the year ending March next year. Proven raised US$30 million in fresh capital after the year end pushing the share capital to 551 million units, these funds will generate added income and profit and the group is looking at possible acquisitions, with shares in Guardian Holdings in Trinidad high on the list. Investors can look forward of profits hitting $7 million mark with earnings around 1.3 cents per share or somewhat more depending how the fresh capital is deployed. Regardless, earnings per share from ongoing operations would be up from the low level of 2015, but would still leave the value of the stock around 16 times earnings, more than 3 times that of National Commercial Bank.

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  1. […] cents. National Commercial Bank lost 3 cents with 388,750 shares changing hands, to close at $41, Proven Investments ordinary share traded 223,936 units and gained 2 US cents in closing at 22 US cents, Radio Jamaica […]

  2. […] Brokers 7.5% preference share traded 469,000 units at $2.10 after dropping back by 15 cents and Proven Investments preference share traded 48,900 units at […]

  3. […] Investments ordinary share traded 113,047 units at 22 US cents, down by 0.99 US cents on Friday and Proven Investments preference share traded 104,100 units at […]

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  5. […] while 4,400 shares traded. Supreme Ventures close at $3.60 with 210,487 units changing hands and Proven Investments ordinary share, had 1,239,499 units changing hands at 19.5 US cents, after shedding 0.25 […]

  6. […] in ending at $3.50, Proven Investments ordinary share traded 41,727 units at 19.9 US cents and Proven Investments preference share with 100,000 units traded closed at […]

  7. […] Proven Investments reports net profit attributable to shareholders of US$1.32 million or 0.24 US cents per share. In 2014 the company reported profit of US$2.25 million or 0.76 cents per share but included net extraordinary gains of US$1.36 million. Of note total comprehensive income is negative $300,000 after recording a loss $1.6 million in unrealized losses.Revenue for the three months period net of interest cost amounted to US$5.64 million, an increase of 84.45 percent over the three months ended June 2014 of US$3.06. The increased revenue is mainly from the consolidation of Access Financial Service results into the Group. For the three months ending June 2015, operating expenses increased by 63 percent to US$3.4 million from US$2.1 million in the prior year period as a result of increases in administrative and general expenses, from the inclusion of PWL Transition and AFS in the financials of the Group. Proven in the commentary accompanying the quarterly results states that earnings per share is 24 US cents but in the financials the company reports it as 0.33 US cents. There is no explanation for the difference and no indication in the report of the number of shares issued, a major omission. The company has 551,595,777 issued ordinary shares according to the Jamaica Stock Exchange which means that earnings is 0.2377 US cents per share or 0.95 US cents for the year. The stock at last traded price of 18.5 US cents is selling at 20 times earnings based on the first quarter results annualised in a market that has an average of 6.5 times this year’s earnings. […]

  8. […] the prospects of disappointing earnings that will justify the price either. One only has to look at Proven Investments shares, where investors gobbled up the stock at inflated prices as high as 22 US cents only to see […]

  9. […] to end at $12.40, Scotia Group struggles to recover with 36,944 shares closed unchanged at $23.15. Proven Investments ordinary share traded 51,000 units and declined 3 cents to 19 US cents, Jamaica Money Market Brokers […]

  10. […] $29.85, Supreme Ventures contributed 2,148,484 shares with the price falling 20 cents, to $3.50 and Proven Investments contributing 94,708 shares with the price closing unchanged at 22 US […]

  11. […] an hour of trading on the Jamaica Stock Exchange having elapsed, Proven InvestmentsInvestments traded 467,745 shares at 22 US cents, up from 21.05 US cents on Monday. National […]

  12. […] a large block. There is less than ten percent of the shares in public’s hands now. On May 18, Proven acquired an additional 1,249,608 shares in Access Investments, thereby increasing its interest to […]