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Welcome to our Special Holiday Newsletter!
The Dow Jones cranks above 35,000 points after a wacky week of a lot of chilly water on the market. It has been mostly tech coming to the save the U.S. market these days, in frequent times but the Mr. Traditional, came to the rescue within the past few days. Traditional bankers/ financiers/ investment banks came out shining despite the Pandemic, despite the concerns of surging oil/ energy costs, the doom and gloom of “inflation” and the financiers registered massive investment banking and trading profits, returning U.S. markets to a well needed “frenzy.” The markets needed that shot in the arm.
The risk of higher energy costs has not disappeared but at least it feels settled for the time being. Brent Oil has settled in the mid US$ 80s with WTI in the low US$ 80s. Oil may well head to US$ 100 or higher, but the US$ banking earnings are a positive distraction for the markets and the FED for now.
Additionally, with another sector finally showing life, after “tech” having to carry so much weight for quite some time throughout the Pandemic, it gives a good feeling and resonates well overall to see the financial services sector with these types of numbers, even if it is for 1 Quarter, the 3rd Quarter 2021. It sets a benchmark.
- Goldman Sachs: US$ 14.93/share, +63%, and beats analysts’ estimate of US$ 10.18/share. Profit of US$ 5.28 billion.
- JPMorgan: US$ 3.74/share, +28%, and beats analysts’ estimate of US$ 3/share. Profit of US$ 11.7 billion.
- Citibank: US$ 2.15/share, +48%, and beats analysts’ estimate of US$ 1.65/share. Profit of US$ 4.6 billion.
- Bank of America: US$ 85 cents/share, +58%, and beats analysts’ estimate of US$ 71 cents/share. Profit of US$ 7.7 billion.
Takeaways, JPMorgan, and the “Dimon Effect” even though releasing credit reserves that helped bolster the numbers: JP Morgan just huge, US$ 11.7 billion. Even with Wells Fargo catching up, and Morgan Stanley having a brilliant quarter, for comparative size, and absolute % increase, Goldman, Goldman, Goldman Sachs keeps their place as the benchmark.
Simply put, JPMorgan and Goldman Sachs continue to dominate in their own respective ways…
Market Moves:
- Caribbean Cream Limited (JSE: KREMI) – talk about taking Market Share! No Chairperson, CEO or team wants to be “bossy” or say the Pandemic has benefitted them, but let us tell you, KREMI is no longer just an ice cream Company in Jamaica, KREMI is Jamaica’s ice cream! For the past few years, the CEO of KREMI, now Chairman, Chris Clarke has been stating that they are doing focused things, and said the message repeatedly, (i) Increasing Plant, Factory & Capacity & (ii) Increasing Cold Storage. During the past few years, this was mentioned continuously in the MD&A (quarterly reports), annual report and clearly at the Company’s annual general meeting (“AGM”). During this period, earnings did falter, sometimes for a Quarter and in other periods for the whole 12 months or year. However, if you were in KREMI for the long-term, and listened to the message, KREMI gave up short-term earnings for long-term growth (“market share”). Upon review, it has paid off if you stuck with KREMI and from the latest financials, KREMI has not stopped its expansion plan. Seemingly, KREMI’s planincludes distribution domination as well across Jamaica. The latest earnings for the Quarter (second) and 6 months to August 31, 2021, speak about the Ocho Rios Depot (full year impact). By the Numbers, KREMI’s net profits faltered to J$ 7.2 million versus J$ 46.9 million in Q2 August 2021 versus Q2 August 2020. But do not be fooled by the Quarter, as we mentioned above, KREMI is swinging for the “market share” fences… Revenue for the 6 months, Boom, J$ 1.03 billion (not the year, the 6 months) and check out the Balance Sheet, focus on what happened to the Company’s, Inventories, P,P&E, Cash and Debt. Cash declined (still above J$ 100 million), some further Debt taken on (not much), and KREMI continues to stockpile inventories and added to P,P& E. As they say in the trade sometimes, KREMI has clearly built the relationships, the foundation, and in turn, that has grown its revenue and market share. With the emphasis on several depots before and now the Ocho Rios Depot, it seems clear that KREMI will be focusing with their increased capacity that leads to “unstoppable” inventories as compared to the competition in “distribution” in 2022, whether directly or with partners.
Interesting stakeholder/ shareholder queries could be in advance of the AGM or at it:
“What is the relationship between KREMI and Depots? How many are owned directly by KREMI? What is the model going forward in 2022 and beyond? How many more depots can KREMI forecast in the remainder of Jamaica; we assume where they do not have a strong presence, if anywhere remains?”
- Portland JSX Limited (JSE: PJX) – well we had mentioned after the 1st Quarter, they were flexing their MUSCLES, and now look at the YTD or 2nd Quarter… They say in “private equity,” 5 years in and 5 years to cash out or think about this “game” as a 10-year to 12-year Marriage. Interestingly in digesting footnote #1, Portland JSX incorporated and got rolling in the tail end of 2015 (October 1, 2021). So, we are past the 5-year mark, just celebrated the 6-year anniversary of their operations. Portland JSX recently stated that their portfolio is fully invested in companies. While they would not say, as it is not an exact science that they will cash out and make everyone money by 2025 or so, this is typically the thought process. Therefore, now that we are post 5 years, it is expected that once good investments were made that “fair value gains” are coming through. For the 2nd Quarter to August 31, 2021, where the bulk of the fair value gains on financial investment were recognized via the Profit & Loss, Portland JSX registered net profit of US$ 3.69 million… For the 6 months or half-year, the net profit hit, US$ 4.04 million. Although Portland JSX invests in another type of fund or fund structure per the footnotes, as per PJX’s Top 10 list, the shares are mostly held by pension funds or institutional investors. It would be nice to see a quarterly MD&A or write-up to add context for the Market.
- Wisynco Group Limited (JSE: WISYNCO) – they have been quiet for a while now, after doing a lot of deals and M&A post listing in December 2017. The deals have worked out well to date for Wisynco, inclusive of, Tru-Juice (Trade Winds Citrus), JP Snacks deal, Worthy Park Estate deal, etc. A lot was chewed off quickly and sometimes, you simmer that down and then push again. That is what it seems like Wisynco is doing. Of course, the Pandemic, Covid-19 did hit March 2020 to Present, probably when Wisynco could “push” again or was getting ready to, and therefore that could have halted things. With all of that said, it is good to continue to see the Company’s long term incentive plan enabled and happening. Recently, Wisynco announced a trade disclosure on the “buy side” of 180,000 shares that occurred on September 23rd, 2021. It is not a huge share size or J$ dollar size, but the takeaway is a part of Wisynco, focusing on its “people” and using more incentives as it should. Business continuity is important.Incentives do care, Incentives do count, to keep that talent intact and growing at a Company that is a “beast” in the size of Wisynco. We must recall, Wisynco is still incredibly young as compared to several comparative public companies that analysts’ compare them to, and as mentioned, Wisynco, is just approximately 4 years Public…
- Bit of Movements again on the JSE, Retirement at 1834 Investments (Director) and Resignation at Supreme Ventures Limited (JSE: SVL) Subsidiary – A legend, Mr. Morin Seymour retires from 1834 Investments… post 21 years… very rarely nowadays do you see a director at a private or a public company for 10 years. Of course, with the increase of corporate governance standards and term limits put into place at some companies, it is understood. But, in some cases, where that is not the case, you just do not see this tenure… When you think of Mr. Seymour and let us not forget the CD, you would associate or always see his name with comments, articles, and letters to do with Downtown, Kingston, Kingston restoration, etc. This is what comes to our mind when we read this retirement. Nicely done, by 1834 Investments, in that Mr. Seymour will continue to assist the Company & the Board ashe is appointed to a special project committee… Nice landing…
- The Party continues in the U.S. markets, whether one looks at the indices, a lead indicator of U.S. investment bank earnings and/or U.S. capital markets activity surpassing 2020 already in 2021, creating another record… Despite inflation concerns, regardless of FED language, liquidity is present like the roaring 1920’s repeating (hopefully not the ending…), and capital markets deals are getting funded… that’s the bottom line.
The U.S. Market fights another day/ week on the back of Financier Results! While U.S. IPOs are readying for the 4th Quarter to keep this “ship” moving with shareholders looking forward to Christmas.
Make the best of October and see you next week!
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Happy investing and Happy markets.
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