Barita’ financials speak eloquently

Financial statements don’t lie; they provide a window into the stewardship of companies for good or bad. There are good management and not so good ones and the financial reports tend to separate the good from the bad. In this regard, investors need to be assured that both interim and audited results are informative and can be trusted.

Barita eyeing expansion

Unfortunately, the stock exchange relies on the ICAJ to set standards for companies to report, but these fall short of what investors need to make a proper assessment in investing. The matter of reporting on the performance of companies to show gross profits separately from pretax profit is an area that is inconsistently applied. Some companies show direct cost and gross profit so investors can see the level of contribution made before selling marketing and administrative cost.
This publication finds Barita’s financials quite up to acceptable levels with disclosures, so why are investors questioning management’s stewardship?
Directors of Barita Investments met on July 14 and are recommending raising additional capital by the Company to be voted on at an extraordinary meeting set for August 3.
The announcement coming after the third such capital raise, with the last being September last year that raised $13.54 billion. The announcement has set off a mini storm within the financial community, with questions raised about the company and what is happening there.

Jason Chambers

Some investors marvel at the approach the directors are taking to fund capital needs. Worse they are asking the question, where has the money raised in public offers gone?
Cornerstone acquired 75 percent of the company in 2019 and set an aggressive dividend policy of 80 percent of net distributable profits. Since they acquired control of the company, profit retained exceeded the total profit reported for the last few years under the former management. But those funds are inadequate to fund the company’s expansion needs, fueled by growth in some critical areas of the Jamaican economy and soon regionally.
In commenting on Barita’s investment activity over the period from its September 2020 Additional Public Offering (“APO”) to March 2021, Jason Chambers, Chief Investment Officer of Cornerstone, said that the Company has “focused on allocating capital across high conviction, value-oriented opportunities.” He cited the marked expansion in credit and investment assets, acquisition of a twenty percent stake in Derrimon Trading Company costing north of J$2 billion as examples of the results of Barita’s year to date investment activity. We have materially expanded capital to our Investment Banking business line. In line with previous guidance, we have also originated and/or acquired significant investment assets, which will eventually form the basis of the launch of new and innovative investment products and structures. We have commenced investing in our footprint expansion and technological overhaul, which we expect will require staged investments over the next several quarters”, Chambers stated.
He cited the doubling of Barita’s 6-month profits to March 2020 as being a by-product of the Company’s ability to deploy the capital it raised in the APO efficiently and profitably. We, therefore, see certain aspects of our business as appropriately funded by long term capital to reduce the risks presented by asset-liability mismatches. This has served us very well, particularly most recently during the height of the market fall-out related to the COVID-19 pandemic last year when Barita maintained healthy liquidity, said Chambers.
Barita Investments was a sleepy little conservatively run investment bank whose directors focused on maintaining the status quo rather than taking advantage of the vast opportunities in the market.

Shareholders at Barita Investments AGM.

The company has gone about raising equity capital, not debt capital, so they don’t have to worry about repayment. They can also vary the aggressive dividend policy, even though that could affect the share valuation.
The argument by investors is reminiscent of two cases. One is the pile of negative comments Access IPO received when going public, back in 2010, by persons who were not adequately informed to be commenting on the issue.  In late 2016, a leading brokerage house concluded their assessment of Barita Investments as follows, “we expect just a marginal increase in year on year net profit. Given this expectation, we estimate BIL shares to be valued at approximately $2.35 by applying the market average P/E to the estimated EPS. Therefore at a current market price of $3.10, we are recommending a SELL on BIL.” At that time, ICInsdier.com placed a BUY RATING on the stock and it occupied the number 2 spot on the main market BUY RATED list.
The rationale by ICInsoder.com, while reported profit was down to $207 million from $242 million in 2015, total comprehensive income, the better measure of profitability was $691 million or $1.55 per share, compared to $201 million, a huge increase. In 2017, traditional profit slipped to $172 million after an impairment on investments charge of $81 million, total comprehensive income ended at $492 or $1.10 per share. For 2018, reported profit jumped to $374 million and total comprehensive income moved to $736 million or $1.65 per share. The lesson, if investors look only at traditional profits, they could miss big gains.
Profit after tax rose from $509 million to $1.04 billion in the March quarter and from $1 billion in the half year ended March 2020 to $2.06 billion in 2021, helped by the improved equity base.
Revenues nearly doubled for the quarter to $2.05 billion from $1.13 billion in 2020 and from $2.26 billion last year to $4.05 billion in 2021.
Total assets are now $79 billion, up from $49 billion at the end of the year ago and $71 billion at the end of September last year. Shareholders’ equity climbed from $14.4 billion in March 2020 to $28.7 billion in 2021. When the majority shares were acquired, total assets were just $17 billion and shareholders’ equity a mere $3 billion. Pledged assets jumped from $21.5 billion in March 2020 to $47 billion in the latest quarter, while loan receivables increased from $1.1 billion to $7.3 billion.

First Citizens Bank closed at 52 weeks’ high on Wednesday.

The 2020 raise of $13.5 billion was invested in increased loans to third parties amounting to $6 billion, net investment instruments of 13 billion and a 20 percent stake in Derrimon Trading amounting to $2 billion and a reduction in amounts due for payables of $5 billion. When the company meets with its shareholders, what is planned for the new raise will undoubtedly be put on the table. In the early months of 2019, this publication pointed to sources suggesting that the first rights issue should bring in fresh capital that is primarily targeted to fund an acquisition that has Caribbean wide locations and will make a big impact on profitability when fully integrated into the existing structure if the deal goes through. ICInsider.com gathers that the deal which is yet to materialize may not be off the table but may be taking longer than originally thought possible. Any fresh raise could well bring such prospects to the fore in addition to funding normal operations.
When all is said and done, First Citizens Bank in Trinidad, a bank group with total assets of J$1,090 billion, bought shares in last year’s APO and added to it subsequently, a strong seal of approval for the strategy Barita is pursuing. With the financial muscle of First Citizens and the small size of Barita there are areas for cooperation, including partnering to acquire assets or businesses. First Citizens is in talks to acquire Scotia Bank assets in Guyana as the bank pushes its regional expansion plans. Will Barita play a major role in this?

Barita acquires 20% of Derrimon Trading

Barita Investments now owns 20% of the issued shares of Derrimon Trading Company following the closing of the Derrimon additional public offer of shares, Barita disclosed in a release to the Jamaica Stock Exchange.

Barita headquarters.

Commenting on the investment, Jason Chambers, Director of Barita and Chief Investment Officer of Barita’s parent company, Cornerstone, said: “The Board of Directors of Barita and the leadership team of Cornerstone are very satisfied with this investment as Derrimon embodies several of the characteristics we typically look for in assessing investment opportunities. DTL has built up an enviable track record of growth and value creation, and the management has demonstrated their ability to achieve scale both organically and through the successful integration of several accretive acquisitions. Barita has, over the course of the last two-plus years, established significant capacity to expand its portfolio of investments into sectors that are viable alternatives to traditional ones that are now fully priced in our view and therefore not likely to generate alpha for our shareholders in the medium to long term. This minority acquisition should be seen as a by-product of our increased investing capacity as we prudently seek to unearth both value and growth-oriented investment opportunities within the context of the current global investment landscape.”
Chambers continued, “We also note the diversification factor that this investment adds to our portfolio as it provides exposure to the real sector via a company which has recently begun an international expansion.

Mayberry tried trading 420m Derrimon Trading shares but the transaction was disqualified.

At Cornerstone and Barita, our goal is to positively impact the lives of our stakeholders through the tireless pursuit of opportunities that provide solid risk-adjusted returns throughout their investment horizons. We believe this investment is aligned with that ethos and we look forward to collaborating with the team at DTL to the mutual benefit of our collective stakeholder groups.”
Paula Barclay, General Manager of Barita, in commenting on the Company’s investment in Derrimon, stated: “At Barita, we continuously seek out unique strategic opportunities to build shareholder value while balancing the interests of our clients, team members, and other key stakeholders. We are confident that our association with a company like Derrimon will only contribute positively to our overall future performance. Consummating this investment took significant effort from the team at Barita and I would like to take this opportunity to extend my gratitude to them for their hard work.”
Barita Investments is a publicly-traded Securities Dealer listed on the Jamaica Stock Exchange and majority-owned by Cornerstone Financial Holdings.
Derrimon Trading is listed on the Junior Market of the Jamaica Stock Exchange and distributes dry and frozen bulk commodities. It also operates retail outlets and Supermarkets.
The shares of Barita are trading at $81.14 and Derimon at $2.56 on early Friday morning after the release.

$9.20 offered for 75% of Barita shares

Barita last traded on the JSE on Wednesday at $9.

The long awaited formal offer to acquire majority shares in Barita Investments has been released.
Cornerstone Investments Holdings is offering $9.20 per share for 334.4 million Barita shares to acquire no more and no less than 75 percent of the company. The intention is for the company to remain listed on the Jamaica Stock Exchange
The offer opens on July 26 will cost $3 billion. The company signed a lock up agreement with Rita Humphries-Lewin and Karl Lewin who have 77.5 percent of the shares to sell amounts to allow for the 75 percent acquisition as such the offer is all but done.
The company has 445.877 million shares issued contributing to shareholders’ equity of $2.86 billion or $6.40 per share.
For the March quarter comprehensive income was $165 million and $492 million for the half year or just over $1 per share and puts the purchase price at about 5 times earnings. But the acquisition is even more attractive to the buyers. Both Humphries will cease being executives that will result in cost savings. The new link up could see a more aggressive stance taken in increasing business and profit within a relatively short time frame from existing offerings as well as new ones. The Unit Trust business is a potential storehouse of huge income down the road while more can be eked out of the portfolio of investments. Investors who hold on to their shares will benefit from a promised 80 percent pay out of profit going forward.