ItsMoneyMark Newsletter #55

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WATBY above 6% and Escalating Local Rates

They call interest rates the silent creeper and the soul killer… especially if you are a business owner, and have some leverage or took on some leverage, for a variety of reasons. You could have made an honest business mistake, a bad business judgement, over-extended your business, decided to go into a non-productive asset, a distressed matter occurred, a super charged growth capital opportunity presented itself or some of all the above. 

When rates start to move, you may not realize until its too late. Rates are vastly different than the FX rate, as typically you require FX in your business or personal life more frequently, so you get an idea of what is happening. Interest rates tend to trend, and trend quickly with no warning. 

Then whether it is your personal or business finances, when you seek to re-finance or new arrangements, you get the surprise of your life and its just too late. Each percentage (%) point, depending on your situation, and your leverage can represent a lot of $$$. You must break it down. 

Let us look at what happened with our local rates recently, our auctions, and WATBY… Rates have not been a priority in so long, that most we will put out there that they have probably forgotten WATBY! It is the weighted average treasury bill yield. Some perspective as we prepare for calendar Q2 2022:

  • Policy Rate: 4.00%; Next Meeting is tomorrow, March 29, 2022
  • Recent 30-day CD: 6.41% Average Yield 
  • 90-Day T-Bill: 6.12% Average Yield; Next auction April 12, 2022
  • 180-Day T-Bill: 6.36% Average Yield; Next auction April 12, 2022

Market Moves:

  • We have seen it before, and we are seeing it again. NCB Financial Group (JSE: NCB FG), pulled back to J$ 91/ share level on devastatingly low volumes, and it was really based on the negative public relations the company received from the notice of it closing the 5 branches versus NCB FG’s core earnings. That notice and ensuing articles, basically caused NCB FG to lose its bid side, and a few sellers went to town on the share price. Fast forwarding a few trading days post that debacle, and sound minded investing has returned, and NCB FG has rallied to J$ 110 – J$ 115 price level with bids solidly returning to the market for the company. 

From a fundamental earnings standpoint, NCB FG admittedly has not performed as well as we are accustomed to or up to the expectations that the market knows NCB FG for. We know NCB FG for every quarter is a different quarter and to always expect earnings growth, like the APPLE of Jamaica’s financial sector. However, this does happen to every company at some stage, and you would recall, more than a decade ago, NCBJ at the time went through a similar phase. NCBJ was booming, hit an all-time high around the mid-J$20s to the low-J$ 30s and the share price was + a few hundred % points. During this phase, on or around the U.S. financial crisis 2008, plus Jamaica’s debt exchanges, NCB FG price tumbled: falling back to around J$ 9 – J$ 12 range, pulling back approximately 1/3 of its high at the time. It was doom and gloom in the brokerage sector by analysts on the stock… Sound similar? While we cannot say how low NCB FG will go this time, the % jumps and decreases are similar after NCB FG touching as high as J$ 249/ 250 share price range. 

If we go by history, one-third (1/3) of the all-time high level for NCB FG places NCB FG at around, J$ 82.50/ share. It seems, at that level, or anything within 33% band seems like a bargain. Pegging NCB FG at J$ 82.50 – J$ 110/ share, with some fuzzy but prudent math. 

  • PROVEN Investments Limited (JSE: PROVEN) has announced 2 USD-indexed bonds totalling approximately J$ 3 billion or USD$ 20 million. The interest rates seem to be lower than market rates and incredibly attractive from a PROVEN standpoint. The 2 tranches are broken up, principally, as USD$ 16 million (maturing March 2024) and USD$ 4 million (maturing March 2025). The interest rates or coupon rates advertised on their social media platform for the tranches are 5.25% and 5.35% p.a. respectively. The type of deal, and interest rates, goes to show you something about PROVEN’s overall strategy and the potential influence of its balance sheet. 

As a reminder, PROVEN has purchased a few financial assets, mainly banks as well as financial planning firms, in jurisdictions outside of Jamaica, where interest rates are lower principally, and where clients are accustomed and receive lower rates. Case in point, Grand Cayman. PROVEN also owns BOSLIL in St. Lucia.

Execution may eat Strategy, but PROVEN’s strategy here seems smart given raising rates at a fast “clip” in Jamaica. 

  • The JSE/ JMEA recent Memorandum of Understanding (“MOU”) and signing is a Big One! It signals collaboration & partnership, something that is needed versus competition… Takeaway from the day’s activities last week, the JSE will get access to JMEA’s members and the JSE opines that in short order, and in the future, the positiveness of this for the Junior Market, could lead to more than 100 listings for the Junior Market. 
  • First Rock Capital Holdings Limited (JSE: FIRSTROCK) is on the move as of late. Two (2) deals announced within weeks or less. FIRSTROCK has announced, the acquisition of a 3-acre property in Kingston 6, for US$ 5 million. This equates to US$ 1.67 million per acre. On a square foot basis for the land, works out to approximately J$ 5,700 per sq. ft. for the land before building. 

Right after this deal, FIRSTROCK has announced a large JV – joint venture, out in Eastern Jamaica, St. Thomas, on the back of new interest there, based on the impending highway, and potentially other factors. In the announcement to the JSE, FIRSTROCK states, it has entered into a Development Agreement under this JV for the development of luxury villas. Both purchases/ deals, seem to strategically be positioned in terms of the company’s timeline and the advanced stage that its current developments would be at it, example Bamboo Avenue, as the market awaits, the realized gains and the ensuing profit and loss results from this development. 

  • Wigton Windfarm Limited (JSE: WIG) since the announcement of two (2) critical items that we covered in our Earnings Report Audio have sent WIG’s share price flying in 2022! Although the fundamentals of WIG would not change this fast, that is the immediate earnings, the quarterly earnings; market perception and market action do drive share prices, and market valuations in the short-term. As a result of the Midas touch of Mayberry Investments Financial Advisory Agreement with WIG whereby they made it clear, about M&A, deals and about diversifying their operations, income, then “BOOM” came the 1st deal announcement. WIG acquired 21% equity stake, associate equity holding, in Flash Motors St. Lucia, a pure equity company, which intends to focus on the distribution of electric vehicles (“EV”) via a subsidiary in Jamaica. This overall transaction has received a tremendous amount of traction, positive investor relations, and its many components to it since being announced. 

Factoring in both deals, where is WIG today? Since trading in the J$ 50 – J$ 53 cents per share range, with limited broker/ analyst interest, all throughout 2022, until around March 10, 2022, the share price is now at J$ 70 cents per share, talk about a whopping + 35% in under 3 months… Expect to see more M&A, deals, investor relations from Wigton Windfarm in 2022 and beyond

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