ItsMoneyMark Newsletter #54

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U.S. Market Opportunities – Potential Value Opening Up, despite the FED Rate Increase 

We have seen some wild swings in the U.S. Market this past week! With the Dow Jones Industrial Average (DJIA), above 34,000 points and below 33,000 points, creating some extreme short-term opportunities across the Market and in particular US$ blue-chip names. We saw 52-week lows or near this price level for well-known stock names, such as, Facebook Inc, now Meta, Zoom Video, American Airlines, Netflix Inc, Disney Inc, etc. Largely driven by several factors, including but not limited to dramatic increase in commodity prices, the Ukraine-Russia significant matter, and severe headline inflation. The latter, the inflation reality, driving the Federal Reserve (“FED”) to increase their benchmark rates by 0.25%, for the first time since December 2018, or in over 3 years. The FED has 6 more meetings to go for 2022, and the messaging from the FED is that rates will be increased at all these meetings accordingly. The messaging here is in line with analyst opinions from earlier this year, and in particular, notable investment bank, Goldman Sachs thoughts. For the time being, 0.25% is not much, with the outlook for rates to go much higher, albeit further down in 2022. For right now, it has not deterred the DJIA, with the FED messaging not stopping the DJIA index from rebounding well above 34,000 points. 

These US$ blue chips, or popular names, especially the tech names, have rebounded over the past few days, in some cases + 10% but year to date are still considerably down. At their 52-week lows and even now with an approximate 10% rebound, some of these stock names are at P/E ratios well below 20x as compared to stocks on the JSE. Some of the aforementioned names are at 14x -17x P/E ratios for listed U.S. stocks on the NYSE or NASDAQ

Clearly a bounce has happened, since that market low, when the Dow dipped below 33,000. We are not calling that the bottom at all, but whether you got in closer to 33,000 in some of the selective names, or we are in for much lower markets, there is some serious value in selective U.S. plays right now…

Market Moves:

  • Indies Pharma Jamaica Limited (JSE: INDIES) flat lined earnings for the quarter, 1st quarter with J$ 4 cents per share year over year, for the period ended January 31, 2022. Net profit was marginally higher at J$ 50.2 million versus J$ 47.5 million, year over year. Finance costs, given INDIES heavy amount of leverage, was J$ 15.08 million for the quarter. Revenue slid 5%, despite INDIES competitors that are Public in similar sector component, growing revenue strongly over said period; revenue decreased for the quarter to J$ 212.3 million. 

INDIES is trading presently 38% below its 52-week High at J$ 3.03/ share. The company has not yet reaped or seen the benefits as expected from the heavy leverage burden INDIES carries. INDIES maintains long-term loan of J$ 805 million. Its debt-to-equity ratio, using this line item for this (long-term loan / equity) is one of the highest on the JSE, at 70%, and this is after INDIES carried out a revaluation reserve in 2021. For this fiscal year and beyond, the dividends from their R&D objectives seem to be critical to get their earnings growth back on track

GK Investments Ltd, owns approximately 3% of INDIES.

  • TransJamaican Highway Limited (JSE: TJH) rebounded to much needed profitability for its Board of Directors, CEO, and ordinary shareholders. TJH registered net profit of approximately US$ 3.99 million for the audited period, December 31, 2021, after posting a net loss for year-end 2020. A further positive sign was the company’s revenue growth in 2021 versus 2020: US$ 52.7 million versus US$ 45.3 million, + 16%. TJH could spend more time alluding to and speaking to the Market about their growth story, but we anticipate that will come later this year and into 2023, like how Wigton Windfarm has been getting its act together as well with its newly appointed financial advisor. In TJH’s case, having financial advisors pretty much already with top 10 shareholders and NCB affiliated Directors, Patrick Hylton/ Steven Gooden, TJH should be able to get its earnings growth path moving smoothly upward.
  • The Limners & Bards Limited (JSE: LAB) have been unstoppable in terms of earnings growth over the past few fiscal years, just had it slowest quarter to memory, due to higher than expected administrative expenses (grew by + 43%), that crushed earnings for the Quarter to the downside for LAB. As a result, year over year, for Q1, LAB’s earnings per share, were J$ 7 cents versus J$ 7 cents. 

Net profit was J$ 66.2 million and on the positive side of the quarterly earnings report by the LAB, revenue did continue to grow to J$ 443.4 million, by 24.5%. Additionally, cash & cash equivalents was “no joke” for this size company, with it closing the period, at approximately J$ 400 million. Putting this line item into perspective, it is, 52% of current assets and 43% of total assets. 

The LAB continues to be and is one the most understated companies on the JSE market, but at the same time, it is one of the most cash-rich and one with a stronger balance sheet. 

  • GraceKennedy Limited (JSE: GK) is “not playing around with matters in 2022”. We have said it before and will say it again. Master stroke in business succession planning by the Maestro, and CEO of GK, Mr. Don Wehby continues with the newly minted announced of Mr. Steven Whittingham as Deputy CEO, of GK Financial Group (“GKFG”) effective April 1, 2022. It is a forward-looking appointment, but give or take, only 2 weeks away in the scheme of things. 

GK has been shaking and baking over the past few years under several themes, in particular: leadership planning/ changes/ succession planning/ moving talent around/ getting the leadership puzzle right (however you want to theme it), M&A – deals to finally get the EPS growth shareholders have been asking for, & more effective branding overall (think GK 100 and recently)

GK is known for being, slow, steady, risk-averse & conservative, but with all these positive tweaks, they have been taking their time and changing that. Now, GK100 is on, and the next race is on, in a positive way, with business succession planning being so actively discussed and broadcast by GK, the query is, who will be the next CEO of GK? By all the releases, positioning and performance: it seems we have a 5 Straight race at Caymanas Park coming up between, safe, shoe-in, Frank James, private equity, strategic, Steven Whittingham, the turnaround queen, business guru, Andrea Coy and there could always be a fly in the ointment? Of course, no rush here, but GK has made it known the importance of planning… Let’s see. 

  • Lumber Depot Limited (JSE: LUMBER) threw in a clinker or a clunker with their latest quarterly results after having the market a lit with the previous numbers as well as the large equity stake and associated PR announcements around that by Stony Hill Capital (gobbling up approximately 16% of LUMBER). 

LUMBER currently at J$ 3.28/ share and pulled back to on or around J$ 3/ share due to the disappointing results for the 3rd Quarter, January 31, 2022. The Market had high expectations for LUMBER essentially. 3rd Quarter earnings per share came in flat at J$ 5 cents, same as the year before and net profit registered was J$ 35.7 million. Revenue hit J$ 400 million for the quarter, increasing year over year from J$ 353 million. Overall, it just wasn’t the quarter and numbers the Market was looking for. The 9 months or year to date, were good cumulatively, with earnings per share at J$ 20 cents versus J$ 14 cents. 

LUMBER has mentioned several initiatives, the new website (perhaps it will include e-commerce, not sure if of major benefit to this sector), and possibly another location, the latter sounds interesting. One thing for sure, with the 2 lead shareholders, both at a material 16%, LUMBER should be interesting in time. 

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