ItsMoneyMark Newsletter #53

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The Market Sleepers: GraceKennedy & Carreras 

We can add another sleeper to the mix without over-doing it… Sagicor Select Funds, Manufacturing & Distribution (JSE: SELECTMD). Although we think from our investment cultural perspective because we are unique, the SELECT listings need a “face” as Jamaican investors are having difficulty differentiating between unit trust, collective investment schemes, and these listed quasi-ETFs (exchange traded funds). We still tend to prefer and understand, a straightforward company, which is easy to understand, sells a product or service that we consume, etc. Like the adage, we tend to invest in what we clearly understand. This has not changed over time, and more than likely will not. 

SELECTMD is intriguing because it had a particularly good 2021 and seems to be offering value to investors. The market price is on or around J$ 70 – J$ 72 cents per share, while the unaudited NAV has been on or around J$ 1.10 per share. Depending on how you look at it, a haircut of 36%. The similar phenomenon is being seen with other investment companies like this, QWI Investments, so it is not unique to SELECTMD. As a disclaimer, it will not be a fast mover as it is a quasi-ETF and as mentioned it functions just with a board it seems and so there really is not much marketing, branding, PR, or leadership around the listed entity. This impacts the market cap in our opinion. Nonetheless, there is some value here. 

Speaking of value, GraceKennedy (JSE: GK) and Carreras (JSE: CAR) continue to trade at lower P/Es to the market, significant lower range. Keep them on your radar or a watchful eye, prior to the next set of results. CAR remains below J$ 8.50/ share and GK remains below J$ 105/ share. Despite both producing extremely strong results, they do not carry the “buzz, the spunk, the vibe” that some of the darlings of the Junior Market carry. The growth rates for the last quarter were better than expected and we expect this growth to continue for 2022. 

The Lasco Company Updates 

The Lasco companies, which are all separate & distinct entities had a momentous year! 2021 was good to them, especially Manufacturing & Distributors, JSE: LASM & LASD. The Market has not been as kind to Lasco Financial Services (JSE: LASF) as they seem to still be finding their footing, but one could argue they have been finding their footing for too long now or several fiscal years. The loan book, micro-finance business has been challenging for them, with the loan book, growing rapidly, tightening rapidly, and flattening at times. LASF’s strategy around this seems to have been challenging for the company and the respective earnings per share. 

LASM performed the best, however its share price/ market cap really has not been rewarded post the earnings results. LASM share price is on or around J$ 4.36/ share, a far cry from its 52-week high of J$ 6/ share. 

We go back to one of our points on SELECTMD, the “face” of the enterprise, but additionally in this case, business continuity. Our feedback tells us, that the Market, Analysts, may not be rewarding the market cap, due to concern surrounding what is the clear future of the Lasco Companies, defined as a clearly articulated business succession plan to the Market. While this may be so, recall the case of Desnoes & Geddes, Red Stripe. For several years, our famed Red Stripe was written off by most of the Market. Their Earnings were either in decline or flat for several years. In their case, they did pay a good dividend. The Lasco brand, Lasco companies are prime for an acquisition especially in this environment, with a considerable number of companies having liquidity on their balance sheets. Perhaps the longer that Lasco holds back on releasing or implementing more market information on its long-term plans, corporate governance & succession planning, you never know what may happen.

At first, it may hurt the market cap, but upon deeper thought, it may create some value. 

Market Moves: 

  • Jamaica Producers Group (JSE: JP), we once said before in a previous issue of ItsMoneyMark Newsletter, that JP gives us that vibe/ feeling of the next coming of Lascelles deMercado or whenever persons ask, “what is going to be the next Lascelles, previously, LAS, defined by its ticker on the JSE”. Well, our gut at ItsMoneyMark tells us that JP seems to be and continues to be the potential one. They just need to become organised around demonstrating some level of consistency in earnings per share (“EPS”) year on year growth to become more attractive to retail investors across the market and to increase (i) their market cap, (ii) their P/E view. 

    After all, you invest for the long-term and to get growth in a company’s market capitalization. However, long-term this comes via that growth rate and consistent year over year growth rate in EPS. Jamaica Producers Group just reported its results for 2021 and earnings per share did in fact decrease year over year. This is JP’s main battle. How to get this remedied and get consistency around their EPS growth going and moving forward. They have remedied their branding, their social media is abuzz, their management team is extremely strong, their vision is noticeably clear now, subsidiaries/ associate stakes all headed in the right direction, etc. 

    For 2022, JP, needs to get EPS of above J$ 2/ share and get this consistently improving to get that upward trend like what Lascelles did. 
  • Future Energy Source Company Limited (JSE: FESCO), continues to live by one of our favourite phrases, “the trend is your friend, don’t bet against it until it reverses team.” With that said, here we go again! FESCO just reported a 38 million trade, and a connected party and executive director purchased the same number of shares on the market. The advisory goes on to state that it is an incentive for service station dealers & employees, which is something we see ever so frequently, e.g., quarterly, and we reiterate do not underestimate this impact on the supply eventually on FESCO shares in the market. 

    To add to this, FESCO added to its usual “trading in shares” punch with a Monster announcement to the Market. The CEO, Jeremy Barnes, had mentioned to the market a few times previously, about expansion plans, plus other initiatives at locations, such as adding Mr. Breakfast, refillable water services, etc. 

    Well, now comes the Monster announcement, the real deal Holyfield. FESCO has secured J$ 1 billion in corporate bond financing via NCB Capital Markets. Most important part of the announcement is the capex part and disclosures, to expand service stations and to get their endeavours in the LPG/ consumer cooking gas market going. FESCO trades at a well above company P/E to the market, and to justify that, its all about the growth rate. This deal and these funds should keep FESCO well fuelled for 2022 and with 2023 right around the corner. 
  • EduFocal Limited (JSE: LEARN), IPO was oversubscribed and closed within 1 minute, the Mayberry Market Style of IPOs… The basis of allotment was released and now EduFocal is listing super quickly, on March 15, 2022… Mayberry Investments Limited (JSE: MIL) has been super-efficient with this listing. 

    EduFocal is not a start-up as it has been around for approximately 10 years or so, however given its last audited financial statements it is a MSME/ SME. In 2009, Mayberry did exactly this or similar with a little-known company then, named Access Financial… The difference this time around was that (we have tremendous social media now), EduFocal, received extremely positive Public Relations & Reviews. Additionally, the IPO was overseen so quickly that there was little or no market analyst opinions from other brokerages. In 2009, when Access Financial listed, it received many negative reviews and even business journalism criticism. In hindsight, this deal really kicked off Mayberry’s strong run of outsized returns and significantly grew their capital base. We recall, they had made something like more than US$ 10 million from Access Financial in retrospect.

    As the parties discussed in Mayberry’s latest edition of their investor forum this past week, there is the question of how EduFocal will do given face to face back to school in full force. 

    What makes us see EduFocal as being interesting is the track record Mayberry had with Access Financial circa 2009. Our gut tells us, although different sectors, that MIL sees the same thing in EduFocal and Swaby as they did in Access Financial and James. 
  • Sagicor Group Jamaica (JSE: SJ) profit dominates the financial sector… SJ reported more than J$ 17 billion for 2021. When you really examine the past 2 fiscal years of SJ, they have been good. Especially once you back out, the investment/ financial impairments, Playa Hotel (deals) noise, and other noise, etc. We wrote in our last Newsletter and made mention before of how much we feel from a financial sector standpoint, as well as, from a long-term growth standpoint, this companies, Sagicor Group Jamaica and JMMB Group are and will be the “Winners” in the sector. 

    To put Sagicor Group Jamaica’s financial performance for 2021 into perspective, let us be exact and look at their numbers vis-a-vis Scotia Group Jamaica (JSE: SGJ), comparing the Profits. Sagicor Group Jamaica made a stunning J$ 17.6 billion for 2021. In 2020, they made J$ 4.8 billion despite approximately J$ 11.5 billion in extraordinary losses. Therefore, the 2021 outcome for Sagicor Group Jamaica should not be a surprise, as normalized, the earnings growth for 2021, would have been approximately 8% – 10%. This year 2022, will be the real deal to see the earnings growth rate for Sagicor Group Jamaica. 

    SJ’s current share price of J$ 58 & change, still a bit away from its 52-week high at J$ 68.00 despite record earnings. 
  • Mailpac Group Limited, (JSE: MAILPAC) continues to trade below J$ 3/ share. J$ 2.80 – J$ 2.93/ share, surprisingly to a few analysts but it is due to the last few quarters of relatively flat earnings that have created the fall-off and the present flat trading. 

    The Board of Directors of MAILPAC recently met and declared a decent dividend, especially if you are at the current price levels, J$ 3 and below. The dividend declared was J$ 9 cents, with a payment date of April 8, 2022, and a record date of March 25, 2022. 

    If you believe in the Capex story, the logistical changes, and the re-investment that MAILPAC has been doing over the past 12-18 months and that they have been speaking to very clearly in their MD&A – management, discussion & analysis for the past few quarters, then MAILPAC, with this pullback of 25% – 27% from its 52-week high, the turnaround in fortunes should be 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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