ItsMoneyMark Newsletter #46

Happy New Year!

Welcome to 2022!

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Chill: Bitcoin is still valued at a Market Value below Apple Inc. 

Bitcoin mania continues at a price of US$ 43-46k. 

The all-time high was US$ 69k (November 2021) where the market value was around Apple Inc now. Putting it into perspective, the market value of Bitcoin after 13 years is still not that much. As many analysts have stated, it is not easy to value, or get benchmarks for Bitcoin but you can look at market value and comparisons. Hey, why not? Of course, not “apples to apples” but gives some context. Sometimes, all you need is context.  

Some amazing things happened for Bitcoin in 2021, and they should not be overlooked. We highlight a few for the memory banks:  

– Surpassed US$ 1 trillion in market value in February 2021.  

– El Salavador adopted Bitcoin as legal tender, this was BIG and made financial headlines globally.  

– Morgan Stanley grasped the situation and offered Bitcoin exposure to private wealth clients.  

– In October 2021, the 1st approved U.S. ETF happened.  

For 2022, especially with Facebook announcing not only the “Metaverse” but with “The Zuck” changing his company’s name it tells you the alternative space is one that you must watch and ensure you have some exposure to. If you do not already, then add it to your “to do” list going forward.  

We now have, not only Bitcoin, but also, NFTs, the Metaverse, and the asset class of digital assets continues to grow. Case in point, baseball cards, football cards, sports cards generally were dead, and valuations declined rapidly over previous years. Well, just this week, even this changed, impacted by the digital space, reviving this age-old traditional paper card sports trading game of player cards… Sports e-commerce company “Fanatics” announced it acquired Topps for roughly US$ 500 million (per industry sources). Fanatics trading card entity most recent valuation? US$ 10 billion after its most recent fundraise. Fanatics overall valuation reached US$ 18 billion in 2021. Even includes historical names, like “Bazooka bubble gum”. One of the points is, that something that is viewed as legacy, historical, traditional, and maybe even worthless, if it had huge goodwill, or brand value at some point, just may have significant value again in these digital times.  

Market Moves: 

  • Seprod Limited (JSE: SEP) recent corporate actions makes for interesting reading. The company has always been an extremely stable one, with low executive/ management turnover but in recent months there have been several posts on the JSE newsroom alerting to some changes. Within the past 30 days, there have been 2 management changes and within the past 120 days, 3 management changes in total. These range from, the Group Marketing Manager, Group Financial Controller, and the General Manager of a Subsidiary (Jamaica Grain & Cereals Limited), well known maker of the “Gold Seal” flour brand on the market. Interestingly in the releases all previous SEP managers would have joined somewhere between 2015-2017, so they had a fair shelf life, career with SEP taking this into consideration as this is approximately 4-6 years across the board. Not bad at all in these times.  

    SEP is still doing very well, from an earnings standpoint and its balance sheet is strong. That is without question. It managed the recent fire well, communicated to the market well, and seemingly SEP always seems to be in expansion mood which is refreshing for a large cap company on the Jamaica Stock Exchange (“JSE”). With its “fearless leader,” and ever popular Pandohie at the helm as CEO, who had shaped and molded SEP into what it is presently, the query is, are these changes to drive more accountability and to take SEP to another level?  

    Or is the Board driving the need for earnings, EPS result down the ladder?  

    Either way, 2022 will be the telling year with the competition growing in the SEP space and the capital markets and investment banking companies seemingly focusing on real sector companies, evidenced by Barita Investments (JSE: BIL) even taking a “real” associate stake in Derrimon Trading Company Limited (JSE: DTL).  
  • EquityLine Group (JSE: ELMIC) has announced to the marketplace in Jamaica that it has grown one of its key metrics by 176% year over year. That is its Assets under Administration (“AUA”). It has spoken to this previously in its MD&A, and its annual report, that the importance to its prospects, earnings and so forth will be its “assets under administration.”  

    We have raised before in our newsletter and our earnings report, that it can be confusing to understand the exact relationship between “EquityLine Group” and “EquityLine Mortgage Corporation.” The latter, EquityLine Mortgage Corporation is the entity listed on the JSE, and therefore to the best of our knowledge this is the company that the market should be concerned with, and shareholders would want to understand how earnings are impacted by any announcement, change in asset or liability structure, and impact on the P&L.  

    The announcement headlined by the “Group” does hint at the relationship, but it does not make this clear, and it comes across quite technical even for our reading at ItsMoneyMark.  

    We do believe and continue to encourage that EquityLine the listed company on the JSE should endeavour to conduct some investor relations exercises regarding this.  
  • Big Trade days continue again in FESCO Limited, Future Energy Source Company (JSE: FESCO). The company has done something like this a few times now and we have carried this previously. It is an interesting strategy by the company as it almost acts as a share buyback but technically, we assume it is not. Let us look at the advisory below in closer detail:  

    Future Energy Source Company Limited (FESCO) has advised that a connected party sold 30,000,000 FESCO shares on December 31, 2021, as part of an incentive plan for FESCO service station dealers and employees” 

    We tend to have seen this trend per above a few times… whereby connected parties buy up large chunks in FESCO over a period, and it builds up to of course to a larger number of shares like this, and then we see an even larger block, e.g., 30 million being sold by a connected party to the incentive plan.  

    The reality is this is positive for all minority shareholders as it is reducing the supply of shares on the market to an extent. It is not technically a share buyback or treasury purchase whereby shares will be eliminated but it is like a quasi-buyback here. It is playing a role in FESCO’s massive share price appreciation haul for 2021. Feels a bit like Apple Inc but in a unique way.  

    We do not know the outlook for the connected parties & the incentive plan for 2022, but based on the history & the trend, we assume they will continue. As they say in financial markets, until we see this trend “break,” stick with the assumption it will continue.  
  • Spur Tree Spices Jamaica Limited (JSE: To Be Decided) closed super early and it closed “spicy” as the name suggests. The offer closed on a momentous day, which will be surely remembered, as it was New Year’s Eve! December 31, 2021, was the IPO closure date.  

    The deal closed successfully at the IPO price of J$ 1.00/ share for approximately 335.39 million shares and it was extremely well received by the Market.  

    The branding, marketing positioning of Spur Tree Spices was spectacular, one of the better ones we have seen in recent times.  

    Overall, the bar is set high now, and the expectations are even higher for Spur Tree in 2022 and going forward. A big takeaway besides the year-to-date growth seen in the Prospectus was, the Ackee factory acquisition and the increase in net profit after tax for 2021 – YTD (Prospectus) (versus 2020) and the media announcement regarding new products Spur Tree would be executing on. Both equally intriguing but the latter, for new product lines such as canned products, canned beans, frozen foods, etc, remarkably interesting as Spur Tree diversifies or positions itself as an even greater food player. They will do well.  

    It does take us to, the query in the Markets though, just why is Grace not a bit more aggressive here. Spur Tree looks great on paper and the unaudited results for 2021 are impressive. From the prospectus, it seems, GK will grab up 6.4% or maximum 8.8% via their investments arm. Why not go for more?  

    Based on a private shareholder selling such a large stake pre-IPO in Spur Tree with the asterisk highlighted in the Prospectus, below the share ownership before invitation, right before the IPO (December 6, 2021), why not take an associate stake or larger as GK? Carpe Diem.  

    These are some of the queries we find in the market especially considering the competition that continues to be acquisitive such as, Derrimon, Lasco, Seprod, Cal’s Manufacturing and a host of others.  

Have an amazing 2022, stay safe and don’t forget to invest!

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