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Let’s get into it, yeah? Yeah.
The Vaccine debate continues ad-infinitum in Jamaica to the demise of the Economy and overall to getting things moving again to full normalcy. In a recent Newsletter, we mentioned that to our shock even the PSOJ mentioned they were confused at where the responsibility falls, and that Jamaica needs a national policy and position on the vaccine. It was added also that, a committee was formed on Covid-19 and vaccines with a Chairman and what was their exact role on vaccines?
The commentary and back and forth tends to continue in the public domain given the varying statistics as to the % of vaccinated Jamaicans, with some data now pointing to 15%, other metrics broadcasting 1 million doses administered (but what does that mean?) and other data stating a % of the adult population that understandably yields a higher %. Its funny as “data” doesn’t lie but like an earnings report, data can be construed in many ways without lying. As evidenced by above, that’s three different ways of conveying the potential data. It’s like a public company that has a bad YTD number but a huge quarter, and in the write-up, they highlight to the reader the quarter only.
Another shocker came on Nationwide News the other morning where a well-known doctor that the hosts had on (picture this is now approx. 19 months into the Pandemic in Jamaica) spoke to differences between anti-vax and vax-resistant, but the show was dominated by the topic and the guest’s answers surrounding, doctors feeling marginalized, not included by government, not involved whether in the feedback or the marketing, etc. This went on for some time, and you could hear the silence and the “shock” in the hosts questions as their tone changed a bit and/or their questions took longer than before to be asked during these comments.
Overall, the battle against the Pandemic with simply using the above and in some cases locally is in “silos” versus partnerships and it continues to delay normalization for everyone. Case in point, specific sectors remain closed, and curfews remain in place approaching 20 months later.
Confusion also continues as large private sector companies put in place optional/ mandatory vaccine mandates by placing costs of testing on employees over specified periods to remain in employment.
Just as the importance with JDX/ NDX and the recent traffic act timeliness and swiftness, an easy solution, that any PPP partnership would garner is to implement in tandem or before the private sector did this, “free PCR testing or the required testing Centres in every parish or zones to allow for this to be done smoothly and not at an employee’s cost or be viewed forceful without timely notice. In addition, what about laws and/or legislation?”
The U.S. has done it in a very systematic way with clear guidelines and timelines that have all originated from the public sector. The issue we have with returning to normalcy is that our private sector is leading the charge with the aforementioned.
Market Moves:
- If you are into absolute returns, and opportunistic opportunities don’t take your eyes off the following names for the next few days, weeks… $PTON, $ZG and $PENN. All got slammed for different reasons over the past week or so, in specific cases, losing 30% + of market cap.
Peloton missed its earnings forecast and even more staggering recast its revenue forecast by as much as US$1 Billion, sending its share price into free fall, down 39% over the past 5 days. Peloton has been a “hell of a brand” and a sweetheart of the Market. It’s a perfect mix of health, brand, tech, and a few other things… we can even add lifestyle as a buzz word. Interestingly it does only have a few million subscribers and in their recent targets is aiming for around 3.3-3.45 million subscribers by June 2022… gives an idea of size… What’s happening though? Well with the pandemic easing in the U.S., persons are heading back to gyms, etc. and buying pelotons slowed… Peloton even cut their price by 20% in August 2021, and it didn’t help. The Peloton Bike + hasn’t done as well as expected either. Therefore, the bet is on now with Peloton already cutting about 25% of jobs, and just under US$ 1 billion of cash, with the business model and brand they have, what do they do next? Focus, diversify, cut more costs or what? Overall, we think they will be here to stay, and if they get beaten up more this week, or more bad news, keep a watchful eye….
Zillow got crushed as well, down 36% over the past 5 days… They diversified but in a synergistic way by starting a home buying biz and it totally flopped after being a bright spark in December 2019, losing as much as US$ 422 million in the latest earnings sending Zillow to an overall huge loss… the takeaway, actually Zillow’s core business, the digital real estate company did very well for the quarter and was up double digits, and this “buying and flipping of real estate will be behind them soon.” Zillow wouldn’t disappear.
Penn Gaming has been all the rage since the deal with high flying and massively popular barstool sports. $PENN did have an earnings issue as well, earnings miss, and the stock shed about US$ 2.6 billion in market cap as a result last week. Over the past 5 days, not as bad as the other 2 stocks, but down 14%. In addition, allegations of misconduct against the face of barstool sports’ founder did not help as this happened at the same time as the earnings miss. Overall, “sin” stocks have been some of the best performing over the past year, gambling, alcohol, and tobacco. The issues surrounding PENN wouldn’t go away tomorrow and it could evolve/ escalate but $PENN is solid and it’s 52-week high was US$ 142 with current levels in the LO US$ 60s.
- Seprod Limited (JSE: SEP) had a nosedive in their earnings for the 3rd quarter, 9 months (YTD), but the MD&A or interim report by management makes it abundantly clear that if you exclude the one-off gains then, for the quarter, numbers are up year over year double digits (about 18%), however YTD, approx. flat. Interestingly, no mention of fire, the unfortunate incident recently at one of their warehouses regarding Facey, etc. so we takeaway that their recent release regarding investigation, insurance, etc. is still on-going and it is too early to quantify. In addition, the disclosure that the matter is fully insured should sit well with existing shareholders and the assumption at this time is that there is no ensuing “hit” or impact coming to the next quarterly or audited financials… By the numbers, Revenue hit J$ 31.15 billion versus J$ 28.66 billion for the 9 months YTD September 30, 2021, versus 2020, showing growth of + 8.7%. Net profit fell to J$ 1.7 billion for 2021 versus J$ 2.48 billion in 2020, but management highlights in 2020 there was a J$ 762 million gain on sale of property.
- Key Insurance Company Limited (JSE: KEY) continued to show improvement in their profit numbers but is it enough to justify and reward GraceKennedy’s significant investment and further capital injection… let’s go further into this while looking at their latest earnings numbers. In their interim report, Key Insurance highlights the importance of “investment income” and continuing to grow this going forward and that this quarter, the 3rd quarter September 30th, 2021, represents Key’s 5th consecutive quarter of profitability. Clearly from the interim report, Mr. Don Wehby, and team, with GraceKennedy Financial Group owning the majority of Key Insurance are showing & highlighting the positive turnaround and the “story” of taking over Key and the Rights Issue. By the numbers, Key Insurance injected J$ 668 million in January 2021 and this is reflected in the shareholders equity box under “share capital.” Despite this and the Company squeaking out some above break-even quarters, Key still carries approx. J$ 500 million of accumulated losses in the balance sheet. The biggest positive is that “Key” is re-growing its gross premiums written and registered J$ 1.43 billion for the 9 months 2021 period versus J$ 1.04 billion in 2020: growth of 37.5%. So, GraceKennedy’s influence, power and financial strength has clearly worked on the top line to date and the top line is growing again. To the bottom line, which we know wouldn’t happen overnight, it’s happening slower. For the same period, Key made net profit of J$ 12.75 million with the majority coming in the 3rd quarter. There are a few takeaways from the profit line, it’s a + J$ 371 million swing from the previous year… WOW!!! Big up to GraceKennedy oversight here and foresight to take the risk and then clean up the balance sheet & shop! However, in 2020, it was clear losses would happen, write-downs, etc. and Key needs to get that profit line to J$ 150-200 million to justify this… So, it’s all about the unaudited 4th Quarter and fiscal 2022 to see if this deal pays dollars for GK. We wait and see.
- The Dividend Season keeps coming on the JSE. Stationery & Office Supplies Limited (JSE: SOS) declared J$ 16 cents per share, payable December 7th, 2021. SOS recently appointed new Managing Director, Mr Allan McDaniel, and right after a nice dividend here… let’s see if this cash back to shareholders continues… Likewise, the real bellwether of dividend stocks on the JSE, “Carreras” (JSE: CAR) has their board meeting slated for November 11th, 2021, to consider an interim dividend to all shareholders. Now Carreras, has been a nice “balanced” play, giving income & growth to its shareholders. With its recent earnings report, the growth is back and in a good way.
- Barita Investments Limited (JSE: BIL) announces & makes some senior management changes…. We recently mentioned that Barita has been a bit quiet besides its successful APO which of course is enough & massive in its own right. However, when you start with such massive earnings immediately and so fast, the expectations of shareholders, and the market will continue and practically will be even more & higher… Especially when during the past 2-3 years, most or all competitors in the securities dealer/ investment banking sector, were reporting losses or significantly lower year over year earnings and are just getting some stability in earnings this fiscal year, 2021. We mentioned that we thought the key would be or potential stress for Barita “people” after their explosive 1st 3 year start out the gates like a racehorse galloping a 5 straight at Caymanas Park… Well, here we go… A promotion in a relatively short period of time as compared to the competitive market and Barita has utilized Mr. Small-Ferguson “face/personal brand” widely in their APOs, research, AGMs, announcements, etc. In addition, an interesting move whereby, head of product development and special projects Ms. Najair, moves to an affiliate to become VP, operations. As Barita expands, a plus is that the Group can use it as a training ground for what we assume the notice means regarding the transition to an affiliate. Given the legal definition of an affiliate, we wonder if this means that Barita is now enhancing/ growing Barita Finance Limited as a separate entity with mind, body and matter or exactly which affiliate.
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