ItsMoneyMark Newsletter #52

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Better late than never, so let’s wrap up February’s earnings!

Scotia Group Jamaica, Annual Earnings and 10-Year Earnings per Share

Scotia Group Jamaica (JSE: SGJ) released their annual report for 2021. The report reminds the market of when Scotia commenced in Jamaica, 1889. It outlines and demonstrates as Scotia Group Jamaica always does, their financial strength, credit risk management, capital base, etc. 

In every annual report, Scotia Group Jamaica provides a transparent 10-year financial & statistical review of the company. In this report, and in recent times, given the uptick, growth in profits of rival financial entities/ banks, Sagicor Group Jamaica (Sagicor Bank) & JMMB Group (JMMB Bank), it brings even more attention to Scotia’s 10-year earnings per share (“EPS”) line item upon review. 

Over the 10 years, interestingly, even though Scotia Group Jamaica, is viewed as a bellwether stock, like Carreras (this may be changing over time), as it is practical that analysts may soon replace Scotia as a bellwether given its lack of EPS growth. Upon review, over the 10 years, SGJ has registered a high of J$ 4.24 in EPS in 2019, to a point to point of EPS from 10 years ago to 2021 of J$ 3.19 to J$ 2.70. Over the 10-year period that is a point-to-point decrease of 15.4%. For SGJ shareholders, who perennially hold the shares due to the rich return of cashflows or dividends in their mind, we feel that they forget about either the annual devaluation or to account for the devaluation of the JMD$ over their holding period to properly account for their real dividend/ dividend yield. 

While SGJ’s share price consistently has bidders, has a strong shareholder base of institutional investors, and most importantly, it is still viewed as one of the most secure & safe equities to own on the JSE market, the question remains, in time, will institutional investors, eventually transition, re-position holdings into listed Financial Entities that are providing EPS growth and can hedge against inflation for their stakeholders

U.S. Stocks and Re-Focusing on Shares with the Growth Rate Right Now

When the Dow Jones, broke below 34,000 points, it led to several panic comments in the marketplace, such as would the Dow Jones head to 30,000 points or lower? Especially investors with a large concentration in US$ equities became wary of the markets, if they entered U.S. equities at recent price levels despite FED rate increases in the U.S. to attempt to tame inflation. 

Our thoughts are its going to be rocky… The Ukraine-Russia issues seem to be only intensifying and it could be long… Typically, an advisor is going to tell you 90% or more of the time to hold and battle this one out. It is easier for them and for their job to tell you that answer. It is like being at a restaurant, you ask the waiter “what’s great on the menu?” Similarly, but a different principle, 90% or more of the time, the waiter will reply, with 1 of the top 3 most expensive items on the menu or the special… “We have a great ribeye today…” Just wait for the bill.

We raise this as the fall-off in the Dow Jones, depending on where your historical/ cost prices are, may be a suitable time to adjust your portfolio on the “dip.” Think about optimizing at its best. In the event, you are under water, in the red, and in hindsight, feel that you were over-diversified because you went in thinking “bullish times” and everything will keep heading north, well, a new event happened right? Ukraine-Russia… When you were building your portfolio or being advised, that was not on the cards. Time to re-evaluate…

You do not need to panic and run away from the markets, as equities in our thoughts will still function as one of the better safeguards against inflation. However, focus on growth-oriented stocks, which have the potential to provide double-digit growth rates, and far superior rates to annual inflation or point-to-point inflation. Additionally, focus and focus your efforts on a limited number of stocks that achieve this to beat inflation. 

Looking at local markets with a similar theme, two sectors, that we think on the JSE that will meet these objectives and outperform are, (a) Food Manufacturing, Food Distribution, Food Services & (b) Financial Services. 

Historically, food keeps up given the prices passed on to consumers and when interest rates commence becoming volatile, or moving +/ – quite a bit, it creates interest rate spreads in the market, the financial services firms, tend to benefit from this from a profit standpoint. 

Market Moves:

  • Supreme Ventures Limited (JSE: SVL), making moves again… They clearly took a timeout, as we had mentioned in coverage of them, that SVL had not announced a meaningful or significant “corporate action” on the Jamaica Stock Exchange (“JSE”) in some time. The fact is, there was a time whereby every 2-4 weeks, SVL was blazing, and announcing major happenings or deals so often. Of course, at some point, like every corporate they would plateau and this slow down. It did during 2021, but, SVL just announced, on February 23, 2022, that they acquired more shares in their subsidiary, Supreme Route Limited (“SRL”). This further acquisition of shares now brings SVL’s stake to 80% in Supreme Route Limited, as SVL acquired a further 29%. 

Supreme Route Limited is formerly Bingo Investments Limited and are gaming operations licensed by the BGLC. SVL is currently trading in the J$ 18 – J$ 19 share price range, just above the mid-point of its 52-week high/ low. 

  • Moderna Inc (NASDAQ: MRNA) registered record 4th Quarter results despite investor fears that with Pandemic, Covid-19 easing, it would impact the run that the Company has had. Moderna Inc, is still significantly off from its all-time high and 52-week high of US$ 497.49/ share. Therefore investors, have priced in this fear already, is what is on several analyst minds. MRNA just below US$ 154/ share and year to date, down 34.6%. With Moderna hitting to the upside with these quarterly results, it may not be a bad idea to re-assess their share price, their R&D pipeline, and their earnings outlook for the remainder of 2022 and 2023. 

Some of the announcements, disclosures Moderna made were: US$ 11.29 in earnings per share and revenue of US$ 7.2 billion for the 4th quarter. US$ 4.9 billion in net income for the 4th quarter. MRNA also raised covid vaccine sales guidance by US$ 2 billion for 2022.

  • Main Event Entertainment Group (JSE: MEEG) even though they are having a delay with their Annual Report, watch this one closely for 2022 and heading into 2023. We saw what happened with the “tourism plays” once the tourism market rebounded in Jamaica. Based on their former market prices, and where the bid prices were in 2020/ 2021, the market had largely written off several of them. The prominent ones that come to mind are: Caribbean Producers Jamaica Limited (JSE: CPJ), and Dolphin Cove Limited (JSE: DCOVE).  The point here is that, now, the directives are clear that Entertainment is finally coming back. Definitively.  It occurred in stages over the past few weeks based on (i) the “argument done” announcement, (ii) the curfew moved to 12am, (iii) the end of the JAMCOVID era effective March 1, 2022, & most telling (iv) a tremendous number of future dates, for summer or in the coming months, for parties and events being advertised heavily on social media. These are all positives and tell-tale signs of what is to potentially come for MEEG in 2022 and fully in 2023. MEEG’s share price has held up well despite the lack of earnings and the Pandemic, currently being steady at J$ 5/ share plus, now closer to J$ 6/ share. MEEG, has not had the rapid fall-off like a CPJ or DCOVE during the peak of the Pandemic, but, with MEEG being somewhat steady, and still trading between its 52-week low and high, MEEG could get serious legs after the summer big ticket events and entertainment re-opens fully
  • JFP Limited, we assume, the JSE ticker will be JFP! Let us see…For the first time in some time, there were mixed market signals on an Initial Public Offering (“IPO”) for a JSE issue, whether Junior Market or Main Market. A few brokerage houses came out with a market underweight or do not buy opinion on the issuance.   Despite the market opinions and the general analyst sentiment to the IPO, JFP Limited, closed successfully and swiftly, raising more than the required J$ 280 million, over-subscribed. The final basis of the allotment has been released and the most important pool the public pool, states, that you will receive up to the first 12,500 shares and thereinafter approximately 22.8% of your application in excess of the 12,500 shares. It depends on the number of subscribers, but an approximate over-subscription may be 3-4 times depending on how all the allocations were handled. 
  • Oil moves above US$ 100/ barrel (bbl), not getting any resistance there but crushing through the milestone price. A few refreshers and price points to keep top of mind, as we close out last week and kick off this week, but given the continued escalation, we will now call it out full out matter between Ukraine-Russia

Mindset: Not too long ago, Big Oil was at US$ 0 and hit negative prices, April 2020, approximately 2 years ago

Mindset: At US$ 100/ 105 price levels, Big Oil, still a far cry from its all-time high of US$ 147, some 14 years ago, as this matter escalates daily 

The principle here, is Big Oil was cheap as an asset class and eventually for several factors has come rallying even stronger within 2 years… Keep a watchful investor eye out for the asset class that over-sells during these tensions between Ukraine-Russia, to full out matter between Ukraine-Russia

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