ItsMoneyMark Newsletter #42

Let’s get in to it!

Palace Amusement Company (1921): Disclosure of the J$ 653 million Loan 

We are still “perplexed” about the lack of disclosure by Palace Amusement (JSE: PAL) regarding its massive cash windfall via the form of a loan of J$ 653 million. We alluded to this in a previous newsletter and our earnings report, that the only disclosure by PAL has been the subsequent event in its audited financial statements that were late to the JSE. Now that PAL have released their Q1 2021/ 2022, it is clear the influx of cash or the deal with VM Investments is not in the Q1 but must be forthcoming in the Q2 financials to come.  

The share price is presently trading at J$ 1,030, and the 52-week LO/ HI is J$ 600/ J$ 1,500 respectively. So, we are smack in the middle. PAL cash burn in the Q1 was approximately J$ 79 million, but the revenue finally rebounded. At a cash burn of J$ 79 million, annualized, they would burn through this “new cash” in approximately 2 years. However, we highly doubt that PAL would just wait and hope that revenue normalizes and hold on for life and death while waiting on normalized revenue. We assume PAL will seriously look at their costs so that this more than ample J$ 653 million debt injection lasts if we get a 4th wave of the Pandemic or if it prolongs into 2022 longer than expected.  

Overall, with such a material disclosure in the audited statements and the impact of this on the share price, we are surprised this has not been made as a separate disclosure to the Market.  

JMMB/ Sagicor: Financial Sector Investments of the Future? 2022-2031 

We spoke about in our earnings report an interesting ratio of total assets/ shareholders equity, comparing NCB Financial Group, Sagicor Group Jamaica, JMMB Group, Barita Investments, etc.  

We also looked at each company’s profitability of course.  

In looking at the future, let us assume the next 5-10 years, from the analysis, Sagicor Group Jamaica and JMMB Group, really emerged the winners in our opinion. Of course, it is important to note that JMMB Group owns an associate stake in Sagicor Financial Corp (International). This made it even more intriguing. The takeaway is that Sagicor Group Jamaica, shareholders equity is so robust, the company can grow significantly more from where it is today, whether by further acquisitions, deals and/or organically. Sagicor Group Jamaica has a good problem regarding this… JMMB Group on the other hand has an incredibly huge amount of total assets as compared to its size and shareholders’ equity. It just shows the power of the JMMB brand as the market knows, its client loyalty, and really shows that the market wants more JMMB, if they can figure out a way to get there banking arm to work better and overall push more shareholders equity into the Group…  

We have seen some interesting cycles in the financial sector over the past 2 decades; a decade or longer of Scotia Group, a decade or longer of NCB Financial Group, and we now may well see a decade or longer of Sagicor Group Jamaica or something new, a combo deal of Sagicor Group Jamaica & JMMB Group shining next… This may very well be where the returns are for 2022-2031. 

Market Moves: 

  • In a sudden, and with some saying shock Director resignation, well known business figure, Mr. John “Mitchie” Bell has resigned from the Board of TransJamaican Highway Limited (JSE: TJH), effective December 3, 2021. The release goes on to thank him for his contribution not only to the Board but also to the Audit committee. Mitchie, as he is fondly called is well known for his career as a previous PwC audit partner but also directorships, with KPREIT, PROVEN, etc. very well-known companies and boards. TJH’s board is still extremely well-composed and well-positioned, but given TJH’s financial underperformance since IPO – it hasn’t done awful, but it hasn’t done great or in line with market expectations… Result is, Mitchie’s sudden resignation is raising some Market eyebrows… The next quarterly results and few months will be the tell…  
  • Margaritaville, the Jimmy Buffet edition, not the Margaritaville Jamaica edition or the Margaritaville Turks Limited (JSE: MTL) is on fire! Jimmy Buffet’s Margaritaville, has been expanding the restaurants, hotels throughout the Caribbean and now comes “Margaritaville by Sea”.  

    MTL that is listed on the JSE should benefit by brand association, but this is a separate Company, so we are focusing here on the Jimmy Buffett side… We love the phrase or what they live by, and it is so easy to forget… Let’s remind you: “Margaritaville isn’t a place, but it is a state of mind… “ Big One! So, Margaritaville has pumped millions of US$ into the Bahamas Paradise cruise liner and will be re-branded to Margaritaville Paradise and will be 658 cabins with many restaurants with its maiden voyage planned for April 30th, 2022… It’s amazing to think that the Company that started with offering sea salt, cheeseburgers and all these pleasantries for guests in the Caribbean has expanded its offerings to all these different deals now… They are joining the “big boys” of the cruise liner industry, with being set to compete against Carnival Cruise Lines, & Royal Caribbean, by offering 2-night or 4-night cruises from West Palm Beach, Florida, USA.  

    The takeaway is, Margaritaville is integrating their brand across what guests want and capturing more of their clients/ touch points wallet share, with not only restaurants, hotels, but adding the cruise line component in 2022… 
  • Jetcon Corporation (JSE: JETCON) had some heart wrenching revisions posted to the Jamaica Stock Exchange (“JSE”) newsroom for their Q1 and Q2 2021 unaudited financial statements, deemed by the Board of Directors as some irregularities to their “cost of sales” that needed to be remedied… While some analysts have lit up social media with negative commentary on this or funny face signs, another way to look at this is the company was pro-active, transparent, and addressed this matter head on. So, while it may not be good that it happened, Jetcon has handled it well.  

    Jetcon has released its Q3 and 9 months (Year-to-Date) 2021 unaudited financial results. Are they where we want to see Jetcon or are they back to the peak or even near where Jetcon was? Nope… Jetcon is still far off, and their rebound is taking way longer than anticipated. With that said, just like their previous quarter, there are some positives that Jetcon continues to exemplify. Revenue for the 3rd quarter was up 28% year over year… Jetcon hasn’t shown this improvement in comparative revenue growth in some time. This is a plus. Jetcon has closed the quarter, September 30, 2021, with J$ 445 million of inventories. With the Company being one of the premier used car dealers in Jamaica, they have always carried large amounts of inventories. Based on 9 months revenue, and projected revenue for the Year, Jetcon, turns its inventory about 1.75x – 2x. In one of its prior best years on record, it has done > 2x inventory turn for sales. For the 9 months 2021 net profit improved to J$ 11.5 million. While it increased on a % basis significantly year over year, the 2020 base profit was low, and on an absolute basis, the 2021 outcome is not a large number at J$ 11.5 million. 

    Jetcon’s Chairman & Managing Director, Messrs. John Jackson & Andrew Jackson, make a very important point in the MD&A, that Jetcon enjoys a relatively strong market position. We agree with this, and the market is clearly competitive which is hampering Jetcon in recent times, as it is competing on, “price” & “financing”. Jetcon is not expensive in looking at some valuation metrics, but its earnings are still not back yet, to give broader market confidence. The key will be how Jetcon’s Board and Management figure out how to get their net margin levels back into the business or if they need to pivot and add a revenue stream based on how strong they perceive the goodwill of the Jetcon brand is…  
  • Paramount Trading (Jamaica) Limited (JSE: PTL) has declared a dividend of J$ 4 cents/ share. It will be paid on January 11, 2022. We recently spoke about Paramount Trading and what a rollercoaster it has been from the earnings standpoint, plus with the board changes, etc. While we have not been happy with PTL’s earnings recently and over the past 3 years, sometimes, when a share price gets battered, the dividend yield does improve. Now, this dividend is the same dividend PTL declared in December 2020. Therefore, PTL has not increased the absolute dividend in 2021 versus 2020.  

    If you bought at J$ 1/ share your dividend yield is 4% and at current levels of J$ 1.3/ share, not a bad 3% & change… So, there is some silver lining here more so for pensioners or institutional investors to look at some of the “beaten” up stocks that do declare dividends in these Pandemic times as a potential investment platform.  

    Overall, PTL, still needs time to get its earnings and share price growth going again.  
  • When in doubt, just invest/ buy shares in Apple Inc. (US: APPL). We wrote some time ago about the amount of doubt or spells of doubt investors had in Apple in 2008, and in many different cycles after that. One would recall that even Buffet would never touch the tech company, now arguably much more than a tech company, as Apple, is a brand, retail and much more, before Apple garnered significant positive cash flow and was hoarding cash. The building up of cash clearly changed Buffet’s opinion. Eventually, like everything, change is never easy received easily, but Apple became a staple in retail, pension, institutional U.S., and global portfolios, like the days of General Electric, Dow Chemical, etc and many other stalwarts… It just took time…  

    Apple just released its results and even in the Pandemic, year over year, for the quarter the numbers were up 70%… a phenomenal number despite Apple, having supply chain issues, chip storages, etc. By its favourite product numbers, the iPhones, despite everything is aiming to produce 230 million overall, and for all new & popular iPhone 13, about 83 – 85 million before the end of the year. Key takeaway is the earnings were up 70% and the Apple team reported that the supply chain issues could have caused up to 20% hit to their production… Picture that heading into the Q4 and the year-end figures 😊.  

    Plus, think ahead to 2022 for Apple! 

Happy December 🙂

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These opinions and thoughts are solely of ItsMoneyMark and does not constitute investment advice.
Ensure to always speak to a Licensed Financial Advisor.

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