ItsMoneyMark Newsletter #44

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The Sagicor, Cornerstone Battle Royale, Debacle & Some 

Seems this was inevitable as the “kid” encroaches on the “parent.”  It was strange from Day 1, that Sagicor Investments a few years ago, became so involved whether via, arrangements of financing, underwriting, equity stakes, or other mechanisms. Whether true or false, as it was commentary, but the commentary in the financial markets or the analyst community was that Sagicor Investments was “backing or getting into bed” with a number or financial upstarts or takeovers to spread their wings. Essentially, this would help Sagicor Group, grows exponentially, to get to pole position number 1, and bounce NCB to the curb. In hindsight, it actually was working, worked, but now there is this lawsuit, filed by them against all the success and shareholder returns that Cornerstone, parent of Barita has demonstrated in 3 or so short years…  

Therefore, the analyst community thoughts were that Sagicor was getting involved with Sygnus, First Rock and Cornerstone (parent of Barita), for this very reason, it would help Sagicor see more deals and to dominate the Jamaican financial landscape. During this timeline, Sagicor never publicized to our re-collection if there it was an equity holder in any of these entities. However, they were racking up, pushing, or underwriting or best-efforts massive debt stacks or other financial mechanisms and Mr. Market was always asking why? Would it eventually be a conflict of interest? Would it catch up with Sagicor? Eventually, could a “kid” get so large that it may bother the “parent.” Would the “kid” take away deals from the “parent” and future fee income?  

We come back to the point about “equity.” If Sagicor holds or held 10% or less in any entity whether publicly traded company or private, its not a material stake, but it does trade in the same sector as them, the financial sector, and their stakeholders. Therefore, it raises several queries: 

  • Years ago, was there a plan for a master merger and this did not materialize? Reason being why keep these relationships so quiet and both parties operate in the same sector? 
  • Does Sagicor have other equity stakes in financial companies it raised funding for, in any form? 

The result, is we now have a quite conflicted in many ways, theories, battle royale on our hands between Sagicor Investments and Barita’s parent Cornerstone… With the filing in Barbados and avid retorts in Jamaica.  

To date, and in all reports, we still have not seen the right question being asked, as we think it is a simple 1st and only question: 

“Did Sagicor Investments have a non-dilution clause in its agreement when it structured its deal and received its 4.50%? That is always a non-dilution clause and future matters until (E.G.) an IPO, or full exit occurs at the Parent level.” 

To date, neither party has stated this or spoken to this.  

We assume for Sagicor Investments to carry such a landmark case; this must be their ammunition.  

As returns, are returns, and can be calculated on, (1) cash return, (2) paper return, (3) total return, and in different forms, but it will be interesting to see the legal principle in the matter at hand when that is disclosed and what the shareholder agreement spoke to and other agreements at hand.  

Market Moves: 

  • We recently wrote in depth about Tropical Battery Company Limited (JSE: TROPICAL). At the time of writing, the share price, was approximately J$ 1.32/ share and change. TROPICAL’s last share price trade is now around J$ 1.37/ share. One of the things we spoke to, was TROPICAL’s cheerful outlook and push towards “investor relations.” TROPICAL has continued their push this week with 2 further positive announcements and it is important to note the style of each announcement and how they are communicating with the Market.  

    TROPICAL has declared a dividend, of J$ 2 cents per share. Interestingly, in the release the Company ensures to state & remind the investing public & its stakeholders of what it declared in the prior year, J$ 1 cent per share. Most publicly traded companies do not do this, refer to the previous year dividend. We are not saying that TROPICAL is over-reaching, but they are trying to show their progress to their existing shareholders & potentially new shareholders. Admirable – going the extra mile.  

    TROPICAL has also added to its Senior Management Team, this past week with the announcement of, Mr. David Walton, being confirmed in the position of Director of Sales & Marketing. Additionally, he is on the TROPICAL Senior Management team per the release. The Company, which has prior to the IPO been for a long time only family run, or the faces of family, continues to post-IPO, add to its senior management whether at the Company level or Subsidiary level. We like to see this, and Mr. David Walton has a successful history of either turning around Companies or significantly growing Companies in Jamaica, via this department/ unit. Example in point, per the notice, Pure National Ice… This move, plus TROPICAL’s other recent moves, should get the top line to another milestone of J$ 2.5 billion or higher in 2022. Something TROPICAL does differently here as well, like the dividend is, they ensure to state in the release and the “headline,” the word “addition” as usually, when the Market is notified in a release of this nature, it tends to signal some negative business news. Overall, keep your eye on TROPICAL, as they are not only doing the right things, improving earnings, but leading specific corporate governance behaviours in their releases to the Market.  
  • JP Group Limited (JSE: JP) announces a director resignation, it is a surprise, but some things also run their course, and an amazing course… In this case, time flies, and wow to think, well-known financier, businessperson, and previous banker, of Sagicor fame, Mr. Donovan Perkins, had served for 14 years as a director of JP Group! It is not something that you see nowadays as tenures just do not last as long for assorted reasons, plus Board of Directors may have term limits, etc. However, some of the greatest performing companies, tend to have an identity, of sticking together for the long-term and carry the goodwill/ intangible value of working well together over the long-term.  
  • Will General Accident Insurance Company Jamaica Limited (JSE: GENAC) be going for a Big Time Fundraise soon?  

    Potentially, Corporate Bond, Preference Share, whether private placement or via JSE listing?  

    All these thoughts come up, given that GENAC has announced that they have received CariCRIS credit ratings status. The CEO, Sharon Donaldson, states that, “GENAC has successfully gone through this process.” GENAC received their credit ratings effective December 16th, 2021, as follows: 

    Assigned initial issuer/corporate credit ratings by Caribbean Information and Credit Rating Services Limited (CariCRIS). The ratings of jmA- (Foreign Currency Rating) and jmA (Local Currency Rating), on the CariCRIS Jamaica national rating scale, reflect GENAC’s good market position as a long-established player with strong brand equity in Jamaica’s general insurance industry. 

    GENAC’s share price, currently around J$ 6.70/ share, has done well in 2021, and their regional growth bodes well for shareholders even though, Jamaica is the dominant gross premium and profit contributor by leaps and bounds. Nonetheless, Trinidad & Barbados, add to the GENAC story, and eventually, the diversification will come into play.  

    With the CariCRIS in hand, and 
    GENAC’s strong financial situation, we wait to see if a big deal is to come, a merger, or an acquisition, or what is possibly at play for 2022…  
  • Honey Bun (1982) Limited (JSE: HONBUN) on the move!!! Director, & CEO of HONBUN, has sold 3 million shares as disclosed by the Company to the JSE, on December 14th, 2021. Although this is interesting, as the share price has been trading between J$ 9 – J$ 10/ share or so, with its 52-week high at J$ 12 & change, even more interesting is HONBUN’s change to its top 10 list.  

    Entering the Company’s top 10 list (as of September 30, 2021) is notable and well-known private company, Cal’s Manufacturing Limited, in the 6th spot, with 6,644,122 shares or the equivalent of 1.41% of the Company. This is also noteworthy for several reasons, as Cal’s has been viewed as an IPO aspirant for the JSE for a few years and continuing, and this investment could be to build Cal’s investment portfolio, plus it demonstrates Cal’s ability to generate surplus cash for investments. Exciting things to come not only for HONBUN as their recent earnings show, but Cal’s stepping into the investment game with this Buy! 
  • Sygnus Credit Investments (JSE: SYGNUS) makes a Big Time move into acquiring a deal in the Puerto Rican (“PR”) market. The trend is your friend and Sygnus is clearly jumping into this Mania, and it is a wise move… Sygnus is to acquire/ buy a private credit firm in PR, named Acrecent Financial Corporation; they will be acquiring a majority stake via a stock purchase agreement. When we speak about the “trend” is that only a few years ago, PR had and still has tremendous fiscal issues, but worse back then. Defaults on state matters, pension obligations, etc. Now, hedge funds, celebrities, businesses, are re-locating to PR in large numbers as a tax haven essentially. Possibly driven by all the “papers” and negative comments about, IBCs and other issues, and lack of privacy in the traditional jurisdictions, this has worked out for the U.S., as business, tourism, and many other facets in the PR improve, and the PR is a U.S. territory. Sygnus is being early to the Party and jumping in!  

    Well-known You Tuber and now Boxer, Jake Paul calls PR home as an example.  

    In doing so, Sygnus will be forming a subsidiary, SCI Puerto Rico Inc. The deal is subject to regulations, like all deals, hence the deal has not closed yet. Overall, and as SCI mentions, it aligns with their strategy of providing alternative financing to middle-market businesses across the Caribbean region. Sygnus’ earnings have been ramping up recently, some analysts describe their earnings as moving to the upside exponentially. With their pipeline, continued deal execution and this acquisition, SCI is continuing to be bullish, and this should continue the positive outlook for them. We wrote recently in a newsletter that, the companies you want to be in now, are the companies that are buying other companies, consolidating the smaller players, and overall doing M&A. These will be the winners and Sygnus is exemplifying this.  
  • CAC 2000 Limited (JSE: CAC), appoints Director, Customer Experience, 1st one ever, 1st of its kind at the Company! We like it & and this move by CAC 2000. Effective November 1, 2021, Mr. Colin Roberts jumps into the role… Not only is Colin Roberts an industry veteran, a director, and knows his stuff and CAC 2000 well, but since the changes at the Executive level, you will have noticeably seen, the Company taking shape under the recently appointed CEO, Gia Abraham.  

    We jog your memory, Mr. Colin Roberts, is his capacity, mentioned some strong, positive words at CAC 2000 last AGM in response to a shareholder query, regarding where does CAC 2000 stand in the marketplace or the competitive landscape. We had previously spoken about his answer, and it was a transparent one, that gave a lot of information on the Market, demonstrated his knowledge and, where CAC 2000 is clearly going as a Company.  

    As the famous saying goes, “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Walton 

    CAC 2000 has now invested in the role full-time, the job title and 100% in this adage.  

Merry Christmas from the team @ItsMoneyMark! 🙂

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