ItsMoneyMark Newsletter #49

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Netflix Inc & Paypal Holdings Inc Opportunity – Keeping you up at Night?

Netflix Inc (NASDAQ: NFLX) down 32% Year-to-Date. 

Paypal Holdings Inc (NASDAQ: PYPL) down 36% Year-to-Date. 

Opportunity, opportunity, opportunity… Despite all the “blaze” about Lumber Depot, Fontana Limited, Spur Tree, and a few others in the past week, remember there are 8 billion people out there, and a lot, a lot of market cap globally. We mentioned to stay away from Peloton Interactive Inc. (NASDAQ: PTON) for right now, and watch it some more, but NFLX, has been somewhere between the “Blue Mountains” and the “Caribbean Sea” over the past month. Quite a stock chart ride, between US$ 359 – US$ 597, and as of yesterday, hoovering around US$ 406/ share. With a P/E of below 40x now, it seems enticing… PTON, just does not give you that feeling of a “moat” or a safety vibe, and it feels like it could truly disappear, while Netflix Inc still gives a vibe that it is here to stay… After all, it is keeping up too many, late at night. 

The Crime Monster, is it Really Preventing Growth?

The book “Tipping Point, by Malcolm Gladwell” speaks to how little things add up to make a significant difference. 

Over the past week, there was an interesting article online that spoke to the Jamaican Economy, the finance sector approximately 12 or more years ago. It spoke to a few critical points but not all the points that were happening in the financial macroeconomy back then. An additional perspective would be that, when our backs are up against the wall, and we have nowhere to turn, we work very quickly together and we solve financial, health, and security issues in record time. However, it is only when it is not just an urgent need, but a “crisis” need, defined as the Country could have shut down or end. 

This is where the financial sector was 12-14 years ago based on the pricing of GoJ debt and the several spin-off impacts that, that had as a result. We could write endlessly on the topic and dematerialization of securities, etc, that happened in record time, but the point here is crime, and some similarities now, but not enough yet to the financial sector 12-14 years ago. 

Crime is significant but not at a breaking point yet, where GoJ debt was back then with no bid, or 50 cents or below on the dollar. That is what led to it getting fixed and the speed of the fix. We had no other option. 

Recently, several business leaders were asked, from what we classify as, our private sector leadership groups, why do we need to fix “crime” if the fact is, all our private sector, and economic indicators are doing well, such as: 

  • Tourism rebounded, or back at pre-pandemic levels or better
  • January 2022, strong numbers/ indices for the JSE (Note, inverse of Crime statistics for period)
  • Interest rates, although increased recently, remain low
  • Construction sector, based on statistics released by KSAMC were huge and that does not include the entire Jamaica
  • Massy Holdings, now the 2nd largest market cap, just listed on the JSE (a large cap type company)
  • Spur Tree just listed gained, 200% + (a SME type company)
  • BPO sector increasing size/ numbers 
  • The list goes on & on

Based on the above information/ data sets, hell, this is a tricky question to answer for any business leader. We really did not receive a clear answer.

From the look of this, and this by no means is a deep analysis, put forward, but we come back to “Tipping Point”. 

And in no way are we simplifying the issue, but if economic data sets give the perception of business as usual, and crime is viewed as being isolated, it will not be fixed as did the Financial Sector issues in 2008-2010 wave and beyond. 

An approach may have to be realistically looked at such as, instead of the big picture, it may need to be granular, and the small things as per “Tipping Point”. 

Market Moves: 

  • Bentley Motors (NASDAQgs: BSY) entering the electric vehicle (“EV”) craze, the 102 year-old company. Bentley Motors is expecting to spend US$ 3.4 billion on electric vehicles over the next decade and expects to be a totally EV line-up by 2030… Their 1st EV car is expected to get off the production line in 2025.
  • Microsoft Corporation (NASDAQ: MSFT) beat earnings and revenue expectations but the stock is down 9.2% year-to-date as the tech sector gets beaten up in 2022… MSFT got pulled down with it… May provide some opportunity for investors with a longer-term outlook right now and the heart for the peaks and valleys in early 2022… The earnings beat was for fiscal Q2, revenue up 20%, year over year, and net income surged 21% to US$ 18.77 billion. MSFT was also bullish on their fiscal Q3 earnings forecast… BIG Deal news and takeaway from the earnings report were, MSFT to acquire “Call of Duty” publisher Activision Blizzard for US$ 68.7 billion and Azure Cloud & other MSFT Cloud services outperformed in Q2. 
  • Eppley Limited (JSE: EPPLEY) taking it to a whole other level in terms of succession planning/ business continuity planning (“BCP”). This is the topic or phrase that so many public and/ or private company Board of Directors, either forget to discuss or do not include in their annual checklists. The reality is, most companies just do not put it on their risk management committees, or risk boxes until it is way too late. Globally, we have seen the harm the lack of succession planning has done to some of the most recognized brands and largest companies. Case in point, you will read about a leader all the time, and that he/ she is the best leader ever, and that they provided the greatest share price appreciation, the best ROE & ROI during their tenure as the CEO/ Leader of the organization. This CEO is going to leave the greatest legacy for the company and has made the largest impact in the company’s history! When in fact, after all these wins, let us assume over a 15-year period and the share price gained 750%, upon departure, the company goes into the “worst” 5-year slump after and share price retreats, giving up 375% of those gains… What potentially happened here? Let us look at the exact cases, once legendary company General Electric and sports giant, Manchester United. The similarity, Jack Welch, and Alex Ferguson… Both great individual leaders, but after each departed, both entities went not only “flat” but fell into significant decline that continues even to today? 

    Another similarity is that during their tenure and even at the end of their tenure, we never heard about their heir apparent. So, it adds up. Quite the opposite, at Google, Apple, & Berkshire Hathaway, you have seen a build-up regarding succession planning, whereby, even 3 years in advance, the company puts out, potentially, 1-3 names that could succeed the leader. A vastly different approach than what General Electric and Manchester United did. 

    This takes us back to Eppley, which is still as compared to other JSE listed companies and in particular financial/ investment firms, a relatively young firm. At such an early stage in the company’s history, Eppley came out with a landmark announcement in January 2022 to kick off this year, with significant planning moves. Eppley members Mr. Nicholas Scott, moved up to be Vice-Chairman, Mr. Justin Nam, was promoted to lead the Executive Team and joined the Board. Additionally, Eppley announced 2 other Executive promotions in the real estate and infrastructure area and Group CFO area given the company’s growth in total assets and overall investment oversight. 

    Again, this is what creates long-term success and not over-investing in 1 leader over too long a period or waiting until the last minute, like what General Electric or Manchester United arguably did for their stakeholders. 
  • Caribbean Cement Limited (JSE: CCC) announces agreements with various subsidiaries of CEMEX, are a done deal, “argument done”. Although from the shareholder meeting, they could go as high as 4% but not exceed this number, for 2022, the rate/ charge will be 2% on net consolidated sales. 

    The advisory delves into the relationship structure between various subsidiaries of the “Parent” and “Kid”, CEMEX, and CCC, and CCC utilizing CEMEX’s special sauce essentially, that is, but not limited to, intellectual property, services, framework of doing business, their know how, etc. 

    The proof will be in the pudding for this one, once Carib Cement’s year end closes, and we check if revenue grew by more than expected or if the efficiencies claimed worked and expenses shrunk. In either way, to offset the 2% charge on net consolidated sales, to net off and generate more net profits, for minority shareholders. 

    Do not be surprised if Carib Cement declares a dividend to “tame” shareholder complaints if the Year-End numbers are not good, but then again, do not be surprised either, if Carib Cement after getting this 2% on net consolidated sales does not declare a dividend, LOL. 
  • PROVEN Investments Limited (JSE: PIL) has now closed on the deal/ purchase of a Class A Bank in Cayman. It is another prime deal, and a big deal Holyfield for PROVEN. One thing with PROVEN, they may not be all about the hype, or the bells and whistles, but they have amassed a lot of deals, assets quietly and surely during the Pandemic, Covid-19 times.

    Roberts Manufacturing in Barbados, the real asset entry point and play for PROVEN was one such one. Then here comes PROVEN’s core business, back to financial services, with the recent announcement of the 100% of the issued share capital of Fidelity Bank (Cayman) Limited, effective February 1, 2022. Of interest, PROVEN did this deal via PROVEN Bank Holding Limited, incorporated in the Cayman Islands, a wholly owned subsidiary of PIL.

    The deal was done for approximately US$ 31.83 million. 

    As the adage goes, all these EBITDA positive deals (we assume, as PROVEN is not known for buying loss-makers) may not be reflecting today in PROVEN’s market value, but for the “smart money” eventually they will and PROVEN’s market value will. 

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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