ItsMoneyMark Newsletter #14

Hey Guys – it’s Friyay! 

FESCO is back out! This is a good look for the stock market and capital markets after it came down swiftly to make some amendments. It was giving the market and investors the feeling of a double whammy (that old game show), as we had Alliance IPO suspended and then we had FESCO next. FESCO was not a suspension but given that it came right after, there was a vibe. As we mentioned, it was just to make some alterations it seems. 

So, the good news, FESCO is back in a big way as Frank Sinatra would say! It is a small raise though. It tells you something about BIG SALES BUT SMALL MARGINS.

Deal opens March 31st, and Closes April 9th, with lead broker NCB Capital Markets. It should be a cake walk again for NCB Capital as the prospectus states it a minimum raise of J$ 400 MM, and this is peanuts for NCB FG and NCB subs to broker and handle. 

On a side note, NCB Capital over the last few years has surprised and crushed the mid-size market almost snatching all the IPOs in the J$ 300 – 500 MM space from the preeminent brokers. They have really done an amazing job. 

They always had the big to mega cap market that no one could touch, because you really needed the NCB overall size balance sheet and that backing, but they have used their brand and overpowered the independent brokers and snatched pretty much most of the mid-sized deals and IPOs in the marketplace. FESCO is just another shining example…

Do not be surprised if you see them gaining and seizing market share in the APO space soon as well!

Back to the point, bottom line is, FESCO will get gobbled up, with continued liquidity on the side-lines looking for a home, and with liquidity growing in the institutional and pension fund bases… FESCO also has a large corporate governance board with NCB players on it, so expect an NCB potential position… 

Overall, some funds from the IPO go into the business and some funds go to the selling shareholders, the mix is approximately, 60% / 40% (the 40% of the deal being taken off the table by the shareholders). 
 

CONCERNS IN THE U.S. MARKET

The FED and Yellen have sent the 10-year US$ Treasury on a rollercoaster ride over the past few weeks. More so surging than heading lower though. Closing off yesterday at 1.63% versus where it was causing grace concern in U.S. markets at 1.7%+ and was creating a mini tech sell off before things cooled down and reverted. 

  • The overall big deal here though is the YTD move that we covered last week and implications and signals for markets for 2021 and that the FED continues to give as well. 

We get this Question a lot, and when we say a lot, almost daily into “ItsMoney” – ARE WE IN A BUBBLE? WHEN ARE WE POPPING?

  • We are not sure of when the pop will happen and we do not think anyone will call that exactly because many analysts have been calling for the “pop” for almost 3-5 years now or longer and the U.S. indices have simply exploded year over year, and over the past 12 months once again. 
  • So, although there are concerns, and the theme here is that yields, not rates yet have made a colossal bump on the 10-year (watch watch watch), money is still heading into “stocks” or “real estate”, just like Jamaica, as rates are still low, exceptionally low… the U.S. and Jamaica are remarkably similar for the first time in a long time regarding this phenomenon. 

JAMAICA MARKET PHENOMENON 

On that point what is the similarity exactly. Besides low rates and drawing our attention to that. 

There is a real reason why, many financial houses now are launching infrastructure funds, or alternative investments or have made pre-announcements. Let us go through this logically. 

Besides, pharma, logistics, food trading (manufacturing/ distribution), and a few others but mainly these, pretty much everyone else on the JSE are down year over year somewhere between 10% – 50% or more on an earnings basis. The stock prices are not reflecting a fall off, especially if it is a blue chip or even a mid-tier or mid-size firm. Unlike the U.S. where Carnival Corp, Boeing and we could name a host of others got hammered and large opportunities came up, we haven’t seen this happen on the JSE. 

Syncing these points, if you were a pension fund manager or a large institutional firm or manager and had J$ 100 – 200 MM tied up in anyone of those companies now, E.G. Access Financial, Main Event, Sagicor Group and we could name plenty more, you did not sell in the last 12 months… you held on and are still holding… more than likely you said to yourself if I sell, 

  • I cannot get better than 1-2% on short-term deposits, if as much, on US$/ J$, 
  • The bond market, with the 10-year US$ treasury and other signs, looks like the prices are going to smash me… and wow, Digicel and a few others that looked safe and other EMs just took me out! So, corporates do not seem safe, let me stay in equity, 
  • So, the only alternative is real estate, but I do not want to be an actual developer and the associated risks (but this is where the money is!), and the rental yields are only 4-5% above the 10-year US$ treasury so, again I am staying in equity, 

Resulting factor is the equity market stays strong, it has held up and has been quite firm. The sellers have not even come out for a Sunday stroll over the past 12 months…

Jamaica is a special place, and as one of the many sayings, sometimes it is always the inverse of the U.S. 

Sometimes… 


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Check out our new espiodes of ItsMoneyMark Experience with Managing Director Marlene Street Forrest of JAMSTOCKEX and our new Business Live Extra with Emma Subratie, CEO HEMA LUXE LIMITED!

Link – https://www.youtube.com/channel/UCWnDZKfBMJMU07oVN7Dv3bw


Happy investing and Happy markets.

Enjoy the It’s Money Experience until next week!

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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