ItsMoneyMark Newsletter #39

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Potential Similarities between General Electric & GraceKennedy 

With the big announcement of the once sweetheart of the U.S. Market, and even potentially global, General Electric (NYSE: GE), we are going to focus this week on our very own sweetheart, GraceKennedy (JSE: GK).The timing is right, as GraceKennedy pops this week with stellar earnings and a continued dividend punch. But can GraceKennedy do more? With a market capitalization of J$ 99 billion or approximately US$ 639 million, is this enough?  

Just this week, Grace declared a dividend of J$ 55 cents per share, to be paid on December 16th, 2021. Psychologically, getting a dividend before Christmas is always a nice feeling and a bonus. Grace’s recent trading range is around J$ 95 –        J$ 100 per share. Conservatively let us put the 12-month dividend yield around 2.05%. BoJ, our central bank’s benchmark rate is 1.5% and based on our inflation as well as U.S. inflation presently and outlook, we could easily be heading to 2.00% – 3.00% benchmark rates. So, at a 2% dividend yield, if you are in it for that, benchmark rates will soon be above you, and you can always switch into Carreras if you need a J$ yield or a few others, to get more than 2 points…  

General Electric (US: GE), this past week really refreshed our memories about the potential issues/ lack of value that the conglomerate OG companies carry. They are in fact legacy businesses competing against the Amazon’s, Alphabet’s (Google), Apple’s, Facebook’s (now Meta), Tesla, and the list goes on and on, with newbies fighting and jumping in monthly in the capital markets in the U.S. All during this time, or over the past 2 decades, GE dominated the headlines, especially after Jack Welch departed GE in 2001. GE dominated the headlines about trying to replace Jack, what is the GE culture, what would be next for GE, should they grow as a Group or break up the Company, etc. During this time, all the big techs grew, grew, grew, and GE slowly but surely lost tremendous value. Flash Forward to 2008 (of course the financial crisis), and a bit beyond, and masses of debt, and GE after accumulating masses of debt of its own would go on to sell its great businesses, including its finance arms, and sell off US$ 75 billion of assets to paydown leverage, etc. Flash Forward again, and GE is finally dismantled, exactly 2 decades later after Jack Welch, the manager of the century. Now GE, will be over a period, 3 companies, aviation, power and healthcare, spin-offs. We will see how it does, but extremely late to the party.  

Now, back to our sweetheart, GraceKennedy. The GE spin-offs will be 3. Different circumstances, but familiar to LASCO? Look how long ago LASCO did this…  

During the past decade in Jamaica or longer, like Big Techs in the U.S. and what some may say has also plagued GE, how have Derrimon, Lasco Manufacturing, Lasco Distributors, Wisynco Group, CPJ, and a few notable supersize privates as well grown to be so big in Jamaica with Grace around? Some debate, that Jamaica has grown, consumption has grown and therefore the market and market share has grown… Or is it a case that GraceKennedy, like General Electric, allowed several players to not only enter the market, but grow, take market share, and do M&A aggressively over the past 2 decades in Jamaica? To our surprise we have not seen a study or business article to date that covers the comparative size of these Companies versus GraceKennedy or All of these Companies comparable to GraceKennedy.  

During the Derrimon APO, popular brokerage and investment banking outfit, Mayberry Investments had circulated an analysis report that compared relatively Derrimon versus GraceKennedy, which was well put together, but this has not been seen often, against the industry per above or other comparable.  

Another argument is the value of the pieces of GraceKennedy, that one must carefully go through their audited financial statements to go over most or all. You will not get that level of disclosure in their quarterly financials or in an investor briefing. Like what GE has recently announced, is GraceKennedy better off breaking up the pieces or the “kids” for them to be run by a stand-alone board of directors with sector experts and CEOs versus having a centralized group?  

Analysts in the past have at times quoted the fair value of a break-up value in quite a wide range, prices of J$ 200 – J$ 300/ share that would calculate to a market cap of US$ 1.2 billion – US$ 1.8 billion, if we round up, given some experts wide quotations, US$ 2 billion.  

Next week, we will take a greater look at Grace’s “kids” or potential inner value.  

Market Moves: 

  • Wisynco Group (JSE: WISYNCO), the Innovators had a few down and then flat quarters (“slow times”), but as we mentioned, it was just a matter of time for them to bounce back. Well, here we go. In reviewing a few comparative results, it almost feels like, Wisynco is becoming a stock that does the opposite of its sector or the market at times. When the Lasco foodies were cruising and having good times, as well as Seprod, Wisynco was having slow times… Now that the Lasco foodies and Seprod just reported earnings and have slowed, Wisynco comes with a nice quarter… We acknowledge the product mixes/ SKUs are different, but if this holds, as this is only a quarter, Wisynco may well carry even more importance to one’s portfolio and pension portfolios in challenging times… Let us see as let us not forget Wisynco even though they are a “beast” on the stock market and a massive company with a lot of cash holdings, they are still just a few years listed on the Jamaica Stock Market. By the numbers, giving WISYNCO a boost, is this 1st quarter, with J$ 9.2 billion in operating revenue versus J$ 8.06 billion in the previous year’s comparative quarter. The Chair & the CEO go on to state, that this is the highest quarterly revenue achievement in the history of the Wisynco Group. They also note, that Wisynco has made a major achievement in securing their Northern distribution hub (Northwest distribution centre), and that this will be in Hague, Trelawny. Operations there are expected to commence in the 3rd quarter, which is sometime between January 1 – March 31, 2022. It should bode well for Wisynco Group and make them an even stronger powerhouse along the northern corridor of Jamaica. It makes you wonder, if they will be attempting to make an even greater dent into the lucrative tourism market as it recovers faster than expected as we get into the tail-end of the Pandemic. Overall, Wisynco’s net profit was J$ 967 million or EPS of J$ 26 cents per share, demonstrating an increase of 13%. More than commendable numbers, given that the Pandemic continues, and Wisynco numbers did not pop before like the balance of the sector… Wisynco had some work to do, and they got the machinery moving in the right direction… We just want to see a strong Q2 now and want to see Wisynco perform with a Fiscal 12 months, for 2021/2022, with EPS of J$ 1/ share or higher.  
  • Team BIDEN and the U.S. Administration helped to push the Dow Jones to another record earlier this week, to well above 36,000 points after a record close last week Friday, on November 5th, 2021. Biden, is quickly racking up the wins in a brief time despite the Pandemic, and is getting a chart of quantitative wins to add beside his name, that he, his team, and the media can repeat… When you listen to several public speakers or motivational speakers, you always hear them either speak about principles or with bullet numbers to get their message across. Then as they give their speeches to different audiences across the country they are in or globally depending on their popularity, they re-hash the same speech repeatedly… Hence by using principles/ numbered points, it is quite effective and easy to remember not only for the “Speaker” but also for the audiences as they grow and compound. BIDEN has passed (house of representatives) over the past weekend a US$ 1 trillion-dollar bill for infrastructure. When you now add this new “win” and the resulting impact to the stock market, to the last few wins, of (i) % of Americans vaccinated, upcoming big business mandatory vaccination, (ii) rebound in U.S. airline stocks, rebound in cruise line stocks, (iii) minimum wage increase, (iv) new taxes coming, even if taken mixed, (v) improvement in unemployment numbers, etc. BIDEN clearly has a considerable number of “wins” or “lead points” to utilize and he is not even 1 year in office yet, as he shortly approaches the completion of his 10th month in office. January 20th, 2022, marks BIDEN’s 1 year anniversary of being U.S. President.  
  • The euphoria and brand presence of Tesla Inc (NASDAQ: TSLA), continues to dominate headlines, with the charisma and ever presence of its CEO and owner, Elon Musk. From the recent Hertz headlines, to now Headlines on, Pepsi’s order for 100 semi Tesla trucks being fulfilled after a few years with 1st delivery in the 4th quarter to Musk dominating the “power of twitter” with his poll of whether or not to sell 10% of his Tesla holding (he has sold about US$ 5 billion so far already, 3% of his stake)… Musk’s social presence is so powerful (not even influential anymore, but really dominating), which we already knew, that with the “majority” voting yes, it caused TSLA share price to slide earlier this week… What is simply amazing is that, whether there are SEC rules about social media usage or not, which we are sure there are, the SEC just cannot keep up with Musk on topics of this nature… The market cap difference that a “Musk” tweet can create in Tesla’s share price is phenomenal, and as regulators would say, “significant.” During this phase, earlier this week Tesla fell below US$ 1,050 and even touched US$ 1,008 per share after trading in the US$ 1,240 range last week.  
  • Supreme Ventures Limited (JSE: SVL) been a bit quiet lately, and we have mentioned this before. It is honestly, hard to keep up the corporate pace they were putting in and displaying over the medium to long-term with corporate action after corporate action, deal after deal, positive change after positive change… Nonetheless, the share price has reacted positively as is hoovering around J$ 17 – J$ 18/ share, almost in the middle of its 52-week range. SVL’s 52-week HI was around J$ 22/ share. They did an incredibly excellent job in conveying “their message” in their last quarterly results, in terms of explaining what caused the significant fall-off in net profits, which was the non-movement days, etc. If an earnings report is well articulated, and with the strong public relations and marketing of SVL, and presence of the executive chair, Gary Peart, the market received all this well. Of note, are some recently reported trades by SVL to the Jamaica Stock Exchange (“JSE”), not huge but still material… 2 connected parties sold approx. 7.134 million shares on November 4th, 2021, and in turn “a connected party” purchased 7.0 million shares on said date. The takeaway from this, is that some SVL insiders were selling, and the shares did not even get to the open market but got gobbled up by another SVL insider. While we cannot overread into it, it is a good look.  
  • Caribbean Producers (Jamaica) Limited (JSE: CPJ) produces a booming 1st quarter, or 3 months, September 30, 2021. Although most analysts’ commentary is that tourism is back = CPJ is back, there is more to the underlying financial results than just the “macro” picture… CPJ has worked significantly during the Pandemic to make its balance sheet stronger, adjusted its debt scenario, more efficient operations and so on… The goodwill factor that is not in the balance sheet, is that for many years, CPJ kept hiring managing directors/ CEOs and driving towards full corporate governance and that made good sense, but in every year, practically except for maybe a little, CPJ financial results were just nasty during this very independent phase… They were not good… GO FIGURE! The guys who built the business, of course they know the business, during the Pandemic crisis, inject themselves back into the business, and the Executive Chairman, takes over Interim CEO. Mr. Mark Hart & Team. Boom! The outcome, one of the best quarters on record for CPJ in recent times, a substantial number, US$ 1.66 million in net profit and we are not even in the Christmas quarter yet or the peak of tourism quarter. It would be even more interesting if CPJ commenced segmenting their local sales (wholesale or whichever word they utilize, as they have built this channel over the past 18 months) versus tourism sales, which would be fun to see… Additionally, revenue hit US$ 25 million for the quarter. Based on recent changes to management, changes they announced over the past 12 months in their operations, and no more long stories about “efficiencies, technology and other things saving the day like a few years ago”, CPJ is living by the adage, “less is more” and letting these results do the talking. CPJ has mentioned a rights issue potentially or going back to the market, given these results, and if they could show a clear ROI for use of proceeds higher than the debt, a clear one, or pay down the debt which has weighed heavily on them, it would be a clear win. 
  • FESCO Limited, growth in net profit of 122% for the quarter, year over year… WOW! Did this just happen? Well clearly, now we know why the share price is sitting at J$ 2.90 and a 52-week high of J$ 3.45. The market has priced in “super growth” for FESCO with heavy expectations for, organic growth, efficiencies from the IPO, new locations coming on stream regarding Mandela Highway & Beechwood Avenue, and possibly we assume even more. While FESCO is a heavy top line and low net margin business, we do feel in time, FESCO will get more of their top line to the bottom line, whether via improved C-Stores and/or strategic locations that they will open in the future. In 2020, Q2, their net margin was 1.6%, in 2021, Q2, they have improved this to 2.35%. For this quarter under review, FESCO hit, J$ 2.42 billion in revenue, an increase of 51% year over year, and net profit of J$ 57.2 million, versus J$ 25.86 million in the previous year. At J$ 2.90/ share, FESCO may seem rich, but with so many good things happening around FESCO, the FESCO “Wave” has been continuing. The brand has been gaining significant strength, the board is large but also strong with a few NCB team members on the Board (recall, NCB Cap did the IPO), brand new locations back-to-back happening – 2 very highly trafficked locations, and this 122% earnings growth quarter. A full year end projected P/E (2021/2022) of 29x is “rich” with the market around 20x, but looking forward the projected P/E, may well be 15x, if FESCO continues its revenue growth rate and improves its net margin for full fiscal 2022/2023. 
  • General Electric (NYSE: GE) finally pulls the plug and after a decade prolonged battle with analysts’ and investment bankers breaks up the conglomerate… a big win for investors and the market in our mind… GE splits into 3 companies in due course, which will focus on healthcare, power & aviation. It really jogs our memory back to the days of GE finance and potentially what could have been GE Financial or if this happened pre-2010, would GE have had a chance, in big tech, fintech, finance and could that have exploded for shareholders? So many what ifs… As eventually GE sold GE Financial/ Capital in 2015. You can tell when the market likes a decision as earlier this week, based on the decision, the share price was up, 15% + in the pre-market with the early reaction before pulling back to the pre-announcement price levels. GE will have to build trust and demonstrate greater profitability growth moving forward for its shareholders and investment bankers.  

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