ItsMoneyMark Newsletter #26

So this week we discussing ALOT – More lockdowns again!

Sometimes it is the “sleepers” in the market that as an investor you really want to focus on and not just the “winners” or the shares that have already started to sail northerly. Now, don’t get us wrong, there is another saying that we tend to live by, that is once a share price is sailing north then don’t bet against it. So, these are two (2) different things, and we are going to spend some time today looking at potential sleepers on the Jamaica Stock Exchange (“JSE”).
What are some interesting stocks/ plays in the local market right now, if we use this thought process, and the many versions of the adage, buy when there is fear and sell when there is greed. We like to be practical, and in our opinion, neither of these are happening with the Jamaica Stock Exchange (“JSE”) or even the popular global indices that the world’s larger market capitalizations are listed on. Reason being, as we have mentioned many a time in our weekly segment, interest rates remain low, steady and the outlook firm – all supportive of equity markets. In addition, as this continues and our Central Bank/ BoJ re-affirms same, and so does the U.S. FED – respective companies’ earnings have been growing, catching up and/or surpassing analyst expectations. All in all, continuing favourable outlook for equity markets.
The BoJ re-affirmed 0.50% at the last meeting on the 19th August 2021 and the next meeting is scheduled for 30th September 2021. The U.S. FED’s most recent statements made U.S. markets recently improve by 3% – 4%.
Radio Jamaica Limited (JSE: RJR), recently demonstrated this, where it popped and then really popped after blistering earnings. Several analysts went into their descriptions and opinions on RJR being neglected, along with a few other points. One could summarize though that RJR was plagued by weak or poor earnings for a long time. On the other hand, an investor may never want to buy a stock that is plagued by weak earnings to then see one blistering quarter, a bounce and feel like a winner. With that said, let’s look at a few over-looked stocks right now, as this theme seems to be making the rounds:

  • Wisynco Group Limited (JSE: Wisynco): During the Pandemic, much to the dismay of many brokerages and analysts, Wisynco has underperformed either their share price projections, assumptions or thought process. The resulting impact since March 2020, is that competitors such as, GraceKennedy and Lasco Companies (Manufacturing & Distribution) have taken pole position and the limelight. Seprod was right there but had a hiccup in earnings over the past 1-2 Quarters. The only formula, the market has seemed to derive of why Wisynco Group is not getting that old growth or the growth that Grace and Lasco have seen in the past 18 months is because Wisynco products/ brands that they sell are more premium brands? On the face of it, there is some credibility to this, but it is hard to decipher if that is reasonable judgment from the quarterly numbers or the audited financials. Here is what we know: The share price has really been stuck and hoovering around J$ 15.00 – J$ 15.50 per share for some time now. Not a bad thing if you are looking to invest in a stock when it’s stuck by the way. By the numbers: Revenue was down by a few hundred million J$, that was strange to view as compared to Grace or Lasco results, but Wisynco year over year for the year end June 2021, increased net profits by approximately 10%. That is still good. Earnings per Share of J$ 82 cents or J$ 3.07 billion. In summary, Wisynco, still very profitable, growth not what we want, but up 10% regarding earnings, and the Chairman & CEO interestingly highlight and feature the following quite a lot in the MD&A, (i) Current Ratio and (ii) Return on Average Equity – interesting. Besides these, the most important takeaway is, even thoughpayables grew for the “as at Balance Sheet” date, cash, short term deposits and investment securities total a whopping J$ 8.0-8.1 billion. This is approximately US$ 53 million for Wisynco. Currently Wisynco is at about 18.9x price to earnings, with a 10% EPS growth rate, all being said, historical growth rate. Our gut feeling is that, if Wisynco gets it act together, it really doesn’t take much for Wisynco to move the needle to J$ 6 billion in net profit and it’s just a matter of time regardless of how conservative Wisynco has become since IPOing. Eventually they will use this “cash hoard” for something big again. Wisynco could be a sleeper.
  • Tropical Battery Company Limited (JSE: Tropical): Tropical just has not “boomed” in comparison toFESCO. Does that mean Tropical is doing bad or the return has been poor since the Company listed? No, not at all, but it is not up 200% – 300% like FESCO. The two (2) companies are different in nature but there are some similarities. Both companies listed within approximately six (6) months of each other, with Tropical listing in October 2020 and FESCO in April 2021. Tropical is a battery distributor (for cars, etc.) and a few other products while FESCO is a fuel company with gas station distribution and a few other products as well. Interestingly, for a long time, a few analysts have felt that Tropical’s brand is underutilized and should be used a lot more and the Directors and Management team should be more aggressive with it. After all, it is a household name in Jamaica. A lot of Companies marketing managers or marketing departments claim their brand is a household name, but really that may not be. Tropical is one and is huge, and the brand loyalty and recognition amongst the customer base is massive. Our analysis, and commentary tells us that some may even feel that Tropical should have their brand on “gas canopies” / “gas stations” and use their competitive brand advantage!The share price this week has been around J$ 1.25 – J$ 1.35/ share and the IPO price was J$ 1.00 per share. Tropical’s recent earnings report for the 3rd quarter June 30th, 2021, posted 9 months earnings per share of J$ 6.8 cents versus J$ 2.7 cents – increase of 152% year over year for the period. Tropical is showing growth now, and the 4th Quarter could be similar or even more special. Drawing a line between FESCO performance and Tropical performance may not be the exactly right thing to do but it tells an analytical story. Tropical could be a sleeper.
  • Jetcon Corporation Limited (JSE: Jetcon): Sometimes you just stick with the “Oracle of Omaha” comments and his knowledge and apply it to your situation. You just “dumb it down.” Now in every situation it doesn’t apply, but we are going to shoot for gold with some of his comments here this week. Buffet even at 91 years old, gave some recent comments on the most popular economic topic globally and very applicable to Jamaica – “inflation.” He mentioned, look at “food companies” and “used cars”. Well, Jetcon is very tightly held by the majority shareholder and the top 10 list – making shares or liquidity hard to get (86.5% held by top 10 list). Here are some interesting headline numbers: 52-week range is wide, sometimes a good sign, J$ 56 cents to J$ 1.90 per share, this week’s trading is between approximately J$ 90 cents to J$ 1.15 per share, inventories on the balance sheet (and Jetcon is not highly levered) is approximately J$ 400 million: Jetcon’s market capitalization this week is approximately 1.40x its inventories. As a reminder, this is just using Jetcon’s inventories as a metric. Jetcon in its most recent Quarter to the JSE, finally turned the corner and made some profits, about J$ 6 million – could be a sign of brighter days ahead. Perhaps, Jetcon, like new car dealerships may have to look at some financing innovation partnership or in-house financing to be more aggressive with its rebound and/or other ways to utilize its Jetcon brand in the marketplace for growth, but overall, Jetcon could be a sleeper.
  • NCB Financial Group Limited (JSE: NCB FG):We spoke about NCB Financial Group recently and compared them to Carreras as a Company and a stock that always rallies eventually and comes back to the Party. Historically,it’s just a matter of time for the Big Guy of the Market – The Big Mover of the JSE Index. NCB FG traded this week around J$ 125 – J$ 135 per share. A far cry from the all-time high. NCB FG may still take some time as compared to some of our other sleepers as they are still going through the motions. They are getting all their recent massive deals, efficient and working first and foremost, Guardian Holdings, etc. It seems they have received some credit hits from COVID-19 (that is we assume allowances for credit losses, a bit worse than banking competitors, etc.). While they will take some more time to rebound than the other “sleepers” mentioned, keep a watchful eye on them, solid and blue chip, tends to prevail in these challenging times.

Market Moves

  • Zoom Video Communications (NASDAQ: ZM):Analysts &traders roughing up ZM. The Company reported US$ revenue at US$ 1 billion or higher for the first time for a Quarter, but with slowing growth on all fronts compared to a Quarter or more ago, the stock price trend has not only reversed but got crushed this week. The general criticism to put it best, was Zoom going from Hyper-growth to just Growth. The funny thing is, “Growth” is still usually pretty good. By the numbers and what is happening with the slowdown. Revenue growth up 54% for the Quarter year over year, but way lower than before (no longer those 100% or more growth rates year over year). For Companies that spend US$ 100k or more with Zoom, interestingly the growth was up 131%, but slowed from being up more than 160% previously. The resulting factor was Zoom’s share price during the week traded back below US$ 300/ share.
  • Sygnus Credit Investments (JSE: SCI):The portfolio growth seen year over year and in Sygnus’ audited accounts simply put is incredible. Sygnus is performing way above expectations in our mind but is differentiating themselves from the rest of the pack of financial start-ups around the same time or who all started in recent years. Market analysts tend to compare a number of them in the same bucket as Sygnus, but there are a number of wins now that Sygnus is clearly demonstrating: (i) Governance and additional governance via advisory committees in their latest IPO offer to the market, (ii) Continued winning track record in raising funds to add-on to their listed companies and/or new companies, (iii) Financial Performance, (iv) Beating what they say they are going to do for Shareholders. By the numbers Net Profit jumped to US$ 5.02 million from US$ 1.97 million, an increase of 155% year over year. An even more impressive number is the “investments” growth – with the Portfolio hitting US$ 82.79 million from US$ 53.95 million year over year – growing by 53%. In reviewing the portfolio, Sygnus had further balanced/ diversified the sector breakdown and the geographic breakdown – looking good. The % growth during these challenging Pandemic times is impressive. Sygnus ends with a huge comment, their objective to get the private credit portfolio to US$ 100 million – clearly it will get there sooner than was anticipated, and they will beat that expectation as well.
  • Late Financial Results: A few companies have recently advised that their financials will be tardy into the Jamaica Stock Exchange (“JSE”). This is in reference to their audited financial statements. The tardiness does make it harder to analyse the specific Companies on-time, but the understanding being craved is the difficulties that the Pandemic (COVID-19) is causing to deliver timely audits. In addition, the Companies are keenly watched by the market and/or shareholders really want to see the latest results timely. Caribbean Producers (Jamaica) Limited for their June 30th, 2021, period, has advised the JSE that they will submit their audited financials on or before September 30th, 2021. Fontana Limited popularly known as Fontana Pharmacy in the markets, has also advised that they will submit their audited financials on or before October 13th, 2021.

That’s it folks! Stay safe!

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These opinions and thoughts are solely of ItsMoneyMark and does not constitute investment advice.
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