ItsMoneyMark Newsletter #21

Happy Friday Guys! Back with another one!

The buzzworthy question of the past few weeks and continuing was, “how is the real estate market” and “will it continue”. We got a lot of feedback recently on our thoughts, regarding – the massive amount of liquidity in Jamaica, real estate being the sole secure asset class now and interest rates being at all-time lows. 

Another popular question, and applicable to the latest earnings reports especially from most financial institutions and more so, investment type companies, that has been coming into, “ItsMoney” is, “what are these line items in the income statements of realized and unrealized gains” and “are they sustainable”?  

If we go by the “GREAT ONE” – Mr. Buffet (Warren), he will say at every annual general meeting of Berkshire, NO.  

He will make it clear that “unrealized gains” are just paper, and paper, like rock, scissors, and paper, you can cut it up, or shred it. Therefore, it goes up, or comes down, or hence the phrase “paper profits” – it can just disappear. In recent times, IFRS allowed for these entries to be carried in companies (listed) profit & loss statements, hence it raised these discussions to the forefront again. If IFRS did not do this, this query would not be happening as much. As usual, who is to blame for this, LOL.  

It not only applies to unrealized gains on securities or marketable instruments, i.e., stocks/ shares but also, fair value gains on real estate. These are some of the favourite questions into “ItsMoney” recently. If we buy property or commence developments, during the 1st year of purchase or the development or even before we finish, we can re-value these properties and they are just worth more instantly? Or they just go up?  

So, IFRS has brought up earnings creativity or earnings pressure – we are not sure yet, but one of the two or a mix. Time will tell for global markets and the JSE.  

Our thoughts here are, there are a few who over a tested period, are actually “marketable securities companies at their CORE” and therefore there earnings year in and year out are “realized and unrealized” gains. That is, as IFRS lumps all the income into one line item in the profit & loss, you must check the footnote. In doing so, you will see the more important line item regarding realized gains.  

Ensure you stick to the Companies that over the years have demonstrated actual “exits” and therefore booked realized gains. Realized gains means they have received “cash”. Cash comes into the Company’s balance sheet. They are not playing the game of just booking unrealized gains or fair value gains repeatedly.  

Market Moves: 

1. Fontana Limited delivering the “bacon” here for shareholders… Now these are the results that many were expecting from Fontana about 12-18 months ago when they delivered a few rough quarterly results or clinkers to the market. Good to see. We like this.  

  • By the numbers, on minimal revenue growth for the 3rd quarter, of 4%, Fontana achieved surging, and incredible earnings growth of 200%!  
  • Net profit hit J$ 72.9 million for Q3, with earnings per share (“EPS”) hitting J$ 6 cents versus J$ 2 cents in March 2020 – Big Time from Team Fontana. 
  • Stock is trading around J$ 6/ share, and the 9 months EPS stands at J$ 29 cents per share. Not a bad price to earnings (P/E) as compared to the market given this quarterly and year over year growth being displayed.  

2. Mailpac Group is at J$ 4/ share. We have been “bullish” on them for the past few quarters, more specifically, two (2) or so. We are going to give them a “bly” for this Quarter – results that are flat. We think most analysts will as well. Revenues continue to grow nicely, but as they had warned approximately a Quarter or so go, the costs of doing business had commenced soaring and continued. This is reflected in the numbers.  

  • We were calling for J$ 5 – 6 per share. We still think you will see J$ 6. The price has pulled back to J$ 3.85 – 4/ share. If the price pulls further back on a “flat” article or any rhetoric, e.g., J$ 3 – 3.50/ share, may well be a good buyside opportunity.  
  • They should be able to fix this cost side issue.  
  • Mailpac delivered its continued strong top line growth with revenues + 28.5% coming in at J$ 470 million for 1st Quarter, March 31, 2021.  
  • Mailpac’s EPS was flat at J$ 4 cents per share year over year for Q1, with higher costs. The MD&A speaks to higher staff expenses and advertising expenses.  
  • Per our initial assessment, the revenue growth, while not equaling profits now, speaks to better things to come in future quarters; remember, not many listed JSE companies are showing this type of “revenue growth” in the pandemic much less, even 10%, Mailpac Group just reflected 28% +.  

3. Sagicor Group Jamaica, can I get a WOW!  

  • Out of the pack from nowhere, Cinderella Story here… 
  • Sagicor Group Jamaica blind siding the market, brokers, analysts, most and sundry with these blistering quarterly financial results. 
  • These are the First Quarter (Q1) numbers by Sagicor. Yes, they are largely aided by the settling of the financial markets and a strong rebound in the markets. Realised and Unrealised gains on investments line item rebounded to J$ 1.2 billion (positive territory) versus – J$ 5.06 billion in 2020. Positive swing year over year, of a whopping J$ 6.2 billion.  
  • Bottom line is, Sagicor Group Jamaica after their earnings hits, a few PR sagas regarding Playa, and Sagicor Investments changes, seem back and has even a few new marketing campaigns gaining momentum! Are they back in a BIG WAY? 
  • We may need another quarter or two, but this is a big help for Sagicor Group Jamaica.  
  • EPS hits J$ 75 cents per share versus J$ 48 cents per share, sending the headline, earnings up, 56%.  

3. Keep watching Peloton, Inc. Stock has gotten beaten up quite a bit PR wise, which can be a good thing if you are on the potential buyside or overall – like the business.  

  • Highs of recently US$ 160, and Lows of recently US$ 80, the stock is back around US$ 90.  
  • The point is Peloton Inc, from its High, Peloton is ½ of that presently (50% lower). 
  • While the company may still have some “Wars” to face, we do not think Peloton is disappearing anytime soon… it is growing, fixing its vertical issues, and is becoming a part of culture like what a lot of tech companies did and do.  
  • Keep an “eye” on them. 

4. Coinbase, that we recently wrote about released its earnings numbers and they even beat our expectations.  

  • Crazy numbers, mind boggling numbers. 
  • COIN, pretty much tripled (3x) revenue from the last quarter to this one, raking in US$ 1.8 billion from US$ 585 million. 
  • COIN’s net profit for the quarter was US$ 771 million, even more crazy, as the quarter before was only US$ 177 million, so 4x or more. 
  • We recall, before COIN listed or was listed just like Google, Facebook, even Twitter stock falling huge in the early days, everyone was negative, well here you go! Here comes COIN now…  
  • Yes, the quarter has had Musk’s twitter account lit, and many other factors and some say a “bull market” for crypto, so it may be a bad gauge to use for crypto stocks (the Quarter). 
  • The bottom line is, if it is possible, which we do not know, it seems the only thing that can stop COIN, and whatever else COIN goes into will be “regulation”
  • The adaptability and market user rate seems to be increasing so fast that we are not even sure if that is possible, but let us see…  

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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.

Thank you for reading!

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