ItsMoneyMark Newsletter #50

Let’s get into itfor this week!

Proven Bank, Proven Bank, Proven Bank… 

PROVEN Investments Limited (JSE: PIL) like many other listed “investment companies” share price struggles have been “real” as really, it is the psychology of understanding the business model or the company for the wider market. An institutional investor or retail investor prefers to purchase GraceKennedy, Derrimon, Wisynco, and the list goes on of not only something they can “feel” or even “eat” but something that they understand easily… Its all about understanding clearly what you invest in… 

QWI Investments Ltd, First Rock Capital Holdings, Sygnus Credit Investments, Sterling Investments Limited, have had similar complications whereby, is there net asset value or their intrinsic value really being shown in the share price or market value? In most cases, no. 

Interestingly to support this point, Eppley Limited has not had this issue. Why? Well, like the GraceKennedy, Derrimon, Wisynco, Lasco, etc. Eppley is a straightforward company, its clear what it does, and earnings are easy to read, so actually it is like one of them. 

The investment companies typically, have (a) holding companies, (b) fund companies, (c) 2/20 structures or some fee structure – management fees, (c) perhaps 2/3 companies with the same brand, and overall, the investor gets confused…

PROVEN’s share price has suffered from this too, except for when it books extraordinary gains, which is in fact in its ordinary course of business as its in the private equity business, under its “opportunistic” bucket…

Their CEO, Chris Williams, recently stated that to understand PIL, it is 3 buckets essentially, (1) Real Estate, (2) Banking & Wealth & (3) Opportunistic – Passive, e.g., Access Financial, Roberts Manufacturing, JMMB Group, etc. 

We will highlight this here that to really understand PIL and its potential, and yes of course it will boil to if they can bring their banking & wealth companies and units altogether in 2022/ 2023, but just take this into perspective, PIL owns: 

  1. 20% of JMMB Group
  2. 75% of Bank of Saint Lucia Limited 
  3. 100% of Fidelity Bank (Cayman) Limited 
  4. Just under 25% of Access Financial Services Limited (24.72%)

Just these holdings alone with the private companies at their historical cost and the publicly traded ones at their current market value make for interesting reading vis-à-vis PIL’s market value. 

JMMB still seems Cheap 

The CPJ food train, FESCO fuel engine, FONTANA container has sailed for now, and of course, they may trend upwards more, but the bottom is no longer there… 

When last we spoke about JMMB Group share price, it was in the mid-30s range, and heading to J$ 37/ share. Currently, the share price is closer to J$ 43/ share. Still seems fairly cheap, and in particular if you missed recent runaway events. 

Just as you may have missed CPJ for years when it was cheap or got battered in the Pandemic, or FESCO seemed too small on listing or post-IPO but suddenly seems enlightened given the size uptick in revenues/ net profits, and FONTANA seemed expensive to many at J$ 6 – J$ 8/ share… JMMB Group fits these related categories… Like all the earnings and fundamentals are there, it might just be missing the public relations, another deal, an announcement but it will come… Do not wait until such time, or you will fall into the above category when investing in stocks. 

  • Caribbean Producers Jamaica Limited signalled its comeback 2 quarters ago, 
  • Future Energy Source Company, announced its “force” with Mandela Highway and Beechwood Ave. gas stations and potentially more to come, 
  • Fontana Limited, signalled its quarter as well, but it boiled down to announcing its Portmore expansion

The stark similarities are glaring. 

We continue to repeat, get in where in this Market, companies are doing things, whether, acquiring, M&A, investing their cash in CAPEX, and overall meaningful announcements. 

This will continue to carry shareholder value and equity prices in 2022 despite inflation concerns. 

Market Moves:

  • Spirit Airlines Inc (NYSE: SAVE) & Frontier Group Holdings Inc (NASDAQ: ULCC), Deal. MBJ/ NMIA, more flights? 

    Well, this should be expected and more M&A and/or more deals like this on the horizon across markets… There are less assets out there, especially quality assets, there is a lot of liquidity given the lengthy period of low interest rates, the fight is on to fight inflation, and a ton of large, “quality,” “big” companies have a lot of cash on balance sheet… It supports “deal time,” more deals, and M&A continuing in 2022. 

    Here we go, not a huge deal, but a logical one, and a nice one between Spirit & Frontier the U.S. discount carriers, US$ 2.9 billion, share & cash deal, expected to close in the 2nd half of 2022. Frontier will own 51.5% of the combined entity. Merger is worth US$ 6.6 billion including assumption net debt and operating lease liabilities. 
  • Caribbean Producers (Jamaica) Limited (JSE: CPJ), back in a big way! It was just a matter of time right… It did take a long while, but when you look at where the share price is in this week’s markets compared to where it was, you have started to really do well, or especially as the share price escalated above J$ 7.50/ share.

    CPJ IPO was J$ 2/ share in 2011, and if you bought then and held to today, at around J$ 19/ share, not calculating for devaluation, simple math, you are averaging approx. +77% now. It has been a long ride, of many “peaks and valleys” but now the gains are being seen in the last 2 quarters. Of course, if you purchased in the last 12 -24 months or prior, then shucks, you are way ahead of the investor who bought and held from the IPO. 

    Analysts in reviewing the results have commented that a lot is to be attributable with simply, “tourism is back” and the passengers at MBJ reflect that its business is back to normal. That is not the full story. Do not forget, during the Pandemic, there were a few pointed corporation actions by CPJ such as management re-structuring, selling down inventories, re-positioning, cutting cost, and overall, clearly a more efficient business. They key is for CPJ to keep it this way as their customers come back in the long-term… this is evidenced by the growth in CPJ’s inventories and receivables during the Quarter and as of December 31, 2021, signalling the demand. As such, CPJ took on accordingly, short-term loans, that closed December 31, 2021, at US$ 6.7 million.

    By the numbers, Q2 2021/ 2022, net profit, US$ 3.74 million on revenue of US$ 33 million, one of the highest net margins we can recall for CPJ since its IPO in 2011. 
  • FESCO Limited (JSE: FESCO), almost feels like they added on a whole new business to the existing business in the last Quarter alone, LOL! It was that good, huge, and meaningful. FESCO like all gas station businesses is a high volume and low margin business, and therefore, it is critical to focus on the net margin and the absolute profit for the Quarter and year to date. But let us tell you, the revenue add-on (“market share”) was impressive. 

    FESCO added over the 9 months results, J$ 3.66 billion of revenue, growing top line to J$ 8 billion to December 31, 2021. Net profit registered J$ 170.7 million, hitting a net margin of 2.13%. 

    FESCO shareholders have benefitted immensely given this growth, and consistent quarter over quarter growth in earnings, not just year over year. We assume several shareholders have taken gains recently, and with the price above J$ 4/ share, and the 52-week high close to J$ 5/ share, FESCO will need to continue its expansion plan, whether new gas stations, and/or acquisitions to keep this growth rate flowing into 2022/ 2023. 
  • Mailpac Group Limited (JSE: MAILPAC) positioning for growth… It wasn’t an exciting year for them given the profit outcome for December 2021 as compared to a few other companies on the Junior market, but a takeaway is it seems they are re-positioning and gearing up for the future. We have written as a headliner in a few previous “ItsMoneyMark Newsletters” that this decade, is the decade of the courier, logistics, e-commerce space. We had mentioned that 2 decades ago it was the securities dealer, then the past decade micro-finance, and this one upon us, clearly feels the courier vibe. Let us face it in Jamaica, even if it is logistics, or e-commerce, Amazon type, we call everything “courier business.” We bring this up, as like renewable energy as of late, everyone one wants to be in the courier, e-commerce space, so MAILPAC has had a lot of competition enter the market prior to going public and practically, probably even more since. Also, once MAILPAC went public, if the competition was pouring in before, once the overall landscape saw MAILPAC’s margins, the floodgates of competition opened even more – taking us back to our point of, the decade of this sector. 

    MAILPAC came in at J$ 16 cents per share or J$ 400 million, for 2021 versus J$ 18 cents per share or J$ 443 million for 2020. The share price has been floating around J$ 3 dollars and change as of recent. In fairness, MAILPAC has still fared very well post-IPO. Investors and the markets just have a short memory.

    Additionally, from a cash & cash equivalents perspective, the company is carrying J$ 336 million on its balance sheet as of December 31, 2021. A big number. MAILPAC generates a lot of cash annually and its does pay “handsome dividends” to its shareholders.

    Many analysts including we, projected by now, MAILPAC would have been well above, J$ 5 per share, or even closer to J$ 6 per share. Admittedly, they have had a stumble on their roadmap, but we have seen some recent winners who were in the wilderness for years, become all the rage… Do not neglect MAILPAC here and they have not been in the wilderness at all like a CPJ, or NCB FG or a few others of mention. The share price has held up well despite the lack of earnings growth as expected by Mr. Market. 

    We anticipate MAILPAC will get some wheels soon.

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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