ItsMoneyMark Newsletter #48

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Sauces & Bottled Water 

Like the real estate market since the early 2000s, if you listened to everyone who gave advice, you would have missed, Jamaica’s real estate boom that still has not stopped arguably. Sauces & bottled water are quite similar. There was a time when it was only Pickapeppa, and in time, Walkerswood emerged… Of course, at some interval there was the staple, GraceKennedy, Hot Pepper Sauce… If you asked anyone, they would immediately tell you, “Don’t venture into that business or sector,” or “terrible idea,” or “it is way too saturated, everyone is doing it.” The reality is, in hindsight there are so many winners who did venture into sauces, especially pepper sauces, and they have done extremely well. Over the past decade, food has been a winning sector and clearly consumption has increased. Sauces has been a winner. Even in the past 12 months you will see more brands on your average shelf… Spur Tree’s results and share price IPO “win” has been a testament to this, with the size of the company surprising some analysts based on its top line as well as with the share price at J$ 2.45/ share, an appreciation of 145%, telling us even more… As a reminder, there are many other smaller sauce companies out there doing between J$ 200 million – J$ 500 million, that are steadily gaining market share too…  

Bottled water, has had a similar phenomenon and experience, whereby, there are numerous new entrants to the market, and they have done well too. Similarly, most persons will tell you, its saturated and it is impossible to make money from it. To date, unlike above, we do not have a publicly traded bottled water company. At one stage Catherine’s Peak/ Peak Bottling was to have gone public, but GraceKennedy (JSE: GK) eventually got an equity stake in the Catherine’s Peak water brand (35%). So, we can draw a line through that and GK’s financials on the performance of Peak Bottling and the bottled water market.  

The overall thought here is, consumption continues to play a factor, and over the medium to long term, these two (2) categories, continue to have new market entrants and are used by consumers at a rapid rate. That will not stop in the future.  

JMMB Group & Sagicor Group Jamaica  

We mentioned before in a prior newsletter to keep these two (2) public financial players on your portfolio radar in 2022.  

  • We spoke to each decade, that it is a new financial player that emerges and with us being in 2021-2030, our thoughts are, it is the decade of Sagicor Group Jamaica, but unlike the previous two (2) decades, we will add into the mix another player, JMMB Group. 
  • Sagicor Group Jamaica just wrapped up Phase 1 of the NFE Clarendon deal for US$ 100 million (anchor investor) for an overall US$ 285 million bond, whereby they are the arranger. Not only does this show scope & size, but sounds awfully like what NCB Financial Group would perennially do before?  
  • JMMB Group, is always the quiet wonder. They do not make much noise, and you just never know when they are going to announce another deal, M&A or enter another Country. Sometimes when they are so quiet, market analysts opine its good, as another deal may be coming that will contribute to earnings. JMMB Group, is that tugboat that just keeps going and outperforms the bigger ships in the harbour until it eclipses them… 

 Market Moves:  

  • Netflix Inc (US: NFLX) raises prices by US$ 1, US$ 1.50 & US$ 2 across the board. For the steaming company, this announcement is coming ahead of earnings and considering slowing subscribers recently. Netflix’s 52-week High was US$ 700, and the current share price is around US$ 508/ share. The market & Netflix’s share price has responded favourably to the price increase with the share price rebounding mildly late last week… Over the past 1 month, Netflix has been trading down from US$ 617/ share and over the past 3 months, trading down from US$ 678/ share.  

    Although the price increase has added back a few % points to the share price retreat over the past week, this will boil down to Netflix’s earnings results due on January 20, 2022. NFLX’s price to earnings ratio is approximately 47x, so the market is looking for outsized year over year growth and quarter versus previous running quarter to keep the NFLX share price recovery happening… Well, the earnings hit the “street” yesterday and talk about earnings miss and slower than expected subscription growth… NFLX fell as much as 20% in after-hours trading, and it could be a choppy day today for NFLX. The company trading at a P/E around 45x, just does not have the space for this type of earnings miss…
  • Paramount Trading (Jamaica) Limited (JSE: PTL) got it right for their 2nd Quarter but we need to see 2-3 Quarters like this in a row for PTL, financially. Historically their financial numbers have been to cyclical to get over excited about this Quarter. With that said, it was a big one as PTL keeps recovering to get back to its Peak Performance.  

    The key line item that PTL rebounded on was net profit, making its comeback to J$ 28.5 million for the November 30, 2021, Quarter. PTL 6x net profit for the 2021 v. 2020 2nd Quarter, coming from J$ 4.5 million for November 30, 2020. Another strong rebound for PTL was seeing growth in revenue. Should foster future gains, profits as long at PTL can keep this “growth rate” of their too line for the 2nd half of the 2021/ 2022 fiscal year. Revenue registered J$ 401 million v. J$ 306.6 million, jumping 31% year over for the 2nd Quarter.  

    PTL’s balance sheet shows growth in receivables to J$ 346 million from last year’s number of J$ 250 million, which typically is a concern, but from its last audited financial statements May 31, 2021, to November 30, 2021, receivables are steady or grew by only J$ 24 million.  

    We had mentioned in a few Newsletters that it was just time until PTL would get back. Let us see PTL’s Q3 and Q4, it is all about consistency for PTL to build on these Quarterly results.  
  • Caribbean Cream Limited (JSE: KREMI), had a rough 3rd Quarter with a net loss of J$ 25 million. Regardless, they grew revenue at an above average rate and clearly are gaining more & more market share in the local ice cream market. KREMI seems poised to surpass J$ 2 billion in sales for the 2021/ 2022 Financial Year. It would mean another significant milestone for KREMI. In its last audited financial statements available, KREMI registered J$ 1.87 billion in revenue. For the year-to-date numbers, KREMI is already at approximately J$ 1.5 billion in sales for its 9 months results.  

    KREMI’s Chair spoke to the impact of “cost of operating revenue” that impacted the 3rd Quarter. KREMI has had these down quarters before and they always tend to rebound. In the past, it has been due to raw material prices, expanding cold storage, capacity, or other reasons. The Company has never slowed down despite a bad quarter to expand and gain market share. In the said MD&A – management discussion & analysis, KREMI speaks to the results of previously announced Ocho Rios depot, and they give tremendous insight into this. They state that the recently opened Ocho Rios depot contributed 8% to sales. That is a lot!  

    Makes you wonder how many depots are possible for KREMI after this one, with seeing how important and the positive financial contribution this depot is already making for shareholders.  
  • JP Morgan (US: JPM) and the “Dimon Effect” were in full force with their latest quarterly earnings results. A few other financial companies did not fare as well with their Quarterly numbers, in particular Citigroup had a down Quarter. JPM fared better due to, better than expected credit losses & JPM experienced loan book growth. Dimon, the CEO of JPM spoke to  

    JPM beat the streets estimates on the revenue and earnings sides. US$ 3.33/ share versus US$ 3.01/ share and revenue of US$ 30.35 billion versus US$ 29.9 billion. Year over year net income was down and it was JPM’s smallest earnings beat in recent memory.  

    Although, JPM beat earnings, due to it being by a small margin and the reserve loss release of some US$ 1.8 billion aided the number, without this, the EPS for JPM for the Quarter would have been below US$ 3/ share. Their CFO lowered guidance regarding outlook, and with this combined commentary, despite JPM’s price-to-earnings at 10x, JPM share price took a bit after the market digested this. JPM down almost 7% over the last week.  
  • If you ever need further confirmation about the Metaverse, if you did, seek no more as “Walmart” announce their entry to the Metaverse!  We keep saying, every week or every month there is more confirmation it seems regarding “Zuck’s decision to create parent company, Meta Platforms Inc, known as Meta.” 

    On examination, with all the references to the Metaverse by inexperienced players, with well-established players like Walmart entering the playing field, should bode well for Meta and create even more value for “the Zuck.” The Market & analysts view the big-box retailer, Walmart’s filing of several new trademarks (on December 30, 2021) as a sign of things to come, i.e., make and sell virtual goods. Analysts’ thoughts are that, additionally Walmart will be creating its own cryptocurrency & NFTs.  

    Ever since Facebook changed its name, the race is on to get into the “virtual world.” Seeing the Big Companies like Nike, Walmart now and others making their moves, says it all.  

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

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Happy investing and Happy markets.
Enjoy the It’s Money Experience until next week, bright and early at 7am!

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