ItsMoneyMark Newsletter #29

What are we discussing today? Hmmm..

Barita Investments has seemingly pulled it off again! While we await the basis of allotment and the final allotment that should be released in a matter of business days to the Jamaica Stock Exchange (“JSE”) by Barita, the hints were avid, and the message well crafted in the Company’s APO Notice of Closure to the JSE re: September 21, 2021.  

Barita received quite a bit of “press” and “noise” leading up to and during the APO. There tends to be two (2) types of public relations strategies: (i) deal with it head on and address it, (ii) let sleeping dogs lie, and 9-day wonder syndrome. Clearly, Barita made the right choice, as most PR studs or legends always tell you, “Deal with It” as at the end of the day, its your reputation.  

There is no better way in life then to deal with “noise” than “success”.  

With J$ 10 billion or more in response, and it could be way more, that is a huge success.  

Based on Barita’s announcement to the JSE, it is now expected that Barita will shortly have somewhere in the region of approximately 60-70% the equity base of JMMB Group, dependent on the upsize clause by Barita.  

Therefore, in a relatively short period of time, 3 to 3.5 years, Barita has become quite an unbeatable force in the financial markets but also the relationship-based investment banking market. As most learned professionals say, the latter is where the real money is, in the continued low interest rate environment. With this size capital base, Barita, has clearly already commenced taking market share from the Commercial banks and this should continue the corporate bond/ debt standpoint for them. This continued raising of capital will assist Barita in doing this. Another benefit is that the Commercial banks currently have been battered over the past 18 months with tourism credits and a few other issues, from the Pandemic, while Barita more than likely has a significantly cleaner and starting from almost “zero exposure” balance sheet. Meaning, that Barita is a lot less distracted and can focus on growing smartly during the Pandemic, while the Commercial banks in a lot of cases are savings credits and outing fires.  

It is more than likely that Barita will get significant attention from NCBFG and Sagicor Group in 2022, as its capital base, places it in a unique market position in the financial sector.  

Market Moves: 

Not much happened on the local market over the past week in terms of action or earning reports besides The Limners & Bards, fondly known as “The Lab”. The Company keeps growing on a quarterly running basis and on an annual earnings basis consistently and appointed a CFO. Good moves by them.  

  • The Limners & Bards Limited (JSE: LAB) reported their 3rd Quarter & 9 Months results, and they were stellar. In hindsight, LAB, is just not a “hot stock” or a well watched stock in the market, but it keeps beating the market time and time again. It seems, market analysts and potential investors, in particular retail investors who are still on the “watch” have a hard time understanding how LAB generates, increasing revenues and profits with its business model and exactly what is its business model. Local analysts, have tended to understand traditional sectors over the past decade, and even in recent years, such as, financial services, manufacturing, distribution, tourism, etc. A business that is outside of these norms, that is blowing out expectations seemingly, is giving analysts, investors, and a few brokerages a conundrum. By the “tail of the tape”, 9 Months or Year-to-Date revenue hit J$ 942 million versus J$ 686 million a year earlier. An increase of 37%. Even more impressive, net profit, rallied to J$ 142 million for the Year-to-Date period from J$ 107.8 million. An increase of 32%. All in all, LAB ends July 31, 2021, period with cash holdings of J$ 448 million: significantly more cash than most Junior companies on the JSE. One to continue to watch.  

    A vote of confidence and an area to observe and play continued close attention to is The LAB’s top 10 shareholder list. Even if retail investors may be on the side, and prefer other traditional or “hot” stocks, a few notable institutional investors have accumulated shares in the Company’s top 10. Most notable are, ATL Pension Fund owning 1.69% and Barita Unit Trust Capital Growth owning 0.85% – respectively of the issued share capital of the LAB.  

    To add to further moves by the LAB, is their recent corporate action announcement that should complement above and further strengthen the business, as that is typically the objective of adding a CFO. The LAB, recently announced, that effective September 27th, 2021, Ms. Marlene McIntosh will be joining as the Company’s CFO.  
  • Lots of continued insider purchasing in IronRock Insurance and a few others over the past week. Connected party purchased 61,529 shares between September 14, 2021, to September 20, 2021, in IronRock. Interestingly, surprising to see some insider selling in Jetcon Corporation, as well as Jamaican Teas, connected parties to Directors in the latter. Director in Jetcon Corporation sold a total of 201,750 shares between September 14, 2021, to September 17, 2021. While we cannot frown on the “sell side” trades, as we do not know all the details or the circumstances, it is never well received seeing the share price depressed or near its low and seeing “insiders” sell. In more developed financial markets, particularly the U.S. markets, this is more closely monitored by analysts and heavily broadcasted and frowned upon.  
  • Costco Wholesale Corp (NASDAQ: COST) the big box retailer reported well and exceeded expectations for the 4th Quarter. Revenue of US$ 61.44 billion and Net income of US$ 1.67 billion. Revenue was up 17.5%, year over year. Costco now operates, 817 warehouses globally, with 565 (69%) in the U.S. & Puerto Rico. Costco’s 1 year share price is up 30%.  
  • Intuit Inc. (NASDAQ: INTU) under its newish CEO, made another purchase with the earth-shattering purchase of well-known Mailchimp (email marketing firm) for US$ 12 billion. This brings the spending on deals since Goodarzi (President & CEO) took charge of Intuit, January 2019, to a whopping US$ 20 billion. Previously, within the past 12 months, Intuit struck a deal for Credit Karma for approximately US$ 8.1 billion. The significance of this, is that Intuit in its former 4 decades only did 1 prior deal for approximately US$ 1 billion. Overall, the markets tell you, this rapid change of circumstances in any business, could mean it could go either way. On one hand, and under this style of leadership and existing culture at Intuit, the Company could take off, and earnings explode. On the other hand, it could be too much, too fast, and too heavy deals in a short period of time: Let’s see what happens here with Intuit. Regardless, it’s a massive change in the Company’s culture and balance sheet since 2019/ 2020. So far, the shareholders are in favour, as over the past 1 year, the share price is up 87%.  
  • Darden Restaurants (NYSE: DRI) the parent company of Olive Garden and LongHorn Steakhouse blew out revenue and earnings expectations with their results this week, demonstrating that U.S. dining is back in a big way and U.S. consumer spending. What was interesting with the numbers, was that LongHorn Steakhouse even performed better than Olive Garden as sister restaurants in terms of comparative growth year over year. Steak is just on fire, as U.S. spending and clearly the feeling of getting out and back outside hits euphoria in 2021! For the 1st Quarter, Darden registered revenue of US$ 2.31 billion, up 51% over last year. Net income was even more impressive and skyrocketed to US$ 230.9 million or almost 6x or more the previous year from US$ 36.1 million.  

See ya next week!

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