ItsMoneyMark Newsletter #57

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Growing Corporate Profits, Shortage of Quality Assets: Jamaica
The better the corporate profits, the better the markets. In the U.S. corporate profits have been improving year over year continuously for more than a decade. Besides the anomalies, of course. Every year the query has come up, are we in a “bubble” and “when is this bubble going to bust.” The thing is, if corporate profits are strong, and growing annually, and/or upward trending, then stock markets will do well. The Dow Jones Industrial Average (US: DOW J) is evidence of that. Moving 10 years ago, from just below 13,000 points to this week hoovering around 34,000/ 35,000 points. If profits are stellar and growing, the index and the overall indices will make Mr. Market $$$.

We are seeing a similar phenomenon in Jamaica, whereby despite the pandemic, most leading companies, and some “newbies on the Junior Market” are churning out some record breaking profits and even after that they keep growing quarter over quarter and year over year. In a recent newsletter, we had spoken to the incredible growth rate (%) and results from companies such as, (a) Financial Sector: Sagicor Group Jamaica, JMMB Group, Sygnus Credit Investments & (b) Non-Financial Sector: Honey Bun (1982) Ltd, GraceKennedy, Caribbean Producers Jamaica, Carreras, Dolphin Cove, PanJam Investments, FESCO, and the list goes on and on. 

We raise this as a lot of queries have been asked with average p/e ratios around 18x-20x, will this market last? Similar query in the U.S. The query is also driven by higher interest rates, the trend of interest rates, high commodity prices (that is this should impact raw materials and margins for manufacturers if they cannot pass on) and the Russia-Ukraine matter. 

We re-iterate, if corporate profits keep growing, and at the last reported and currently expected above average growth rate (%) then things should continue upward as well on the JSE, especially in the companies that have been reporting higher numbers. 

There is another phenomenon happening that is not getting as much attention as it should. It has been happening for a few years and is getting worse. In our opinion, we are short on quality “equity assets” and/or “going concern companies” that investors want to invest in. Meaning, private equity, pre-IPO, IPO prospects are potentially less and therefore in significantly more demand recently and in 2022/ 2023… 

Overall, it is a fun time to be a quality business owner, potentially seeking “growth equity capital” with your desired valuation in these markets, record JSE quarterly profits and a shortage of quality assets pushing demand & valuations higher.

Market Moves:

  • The “Oh Hi Lol” message from Muskie got the World going on twitter and many platforms! Elon Musk signalled in recent times that the World needed another social media platform and boom, he did something that Muskie always does, something “different.” Earlier this week, Elon announced he had taken a 9.2% stake in Twitter, Inc. (US: TWTR) and of course, as a result, the share price valuation of TWTR ramped up immediately 25% +. The Muskie effect.

    Essentially, Elon has made US$ 600 million or more already on his investment in unrealized gains and he will be joining TWTR’s board. Exciting times ahead for not only TWTR shareholders but also TWTR’s platform, and content users 😊 
  • Both, Express Catering Limited (JSE: ECL) and Margaritaville Turks Limited (JSE: MTL), published their annual reports for 2021 earlier this week. They are well put together and “wildly aesthetic” in a positive way. Excellent job by their investor relations teams, especially considering the havoc and lack of operating revenue that the Pandemic, Covid-19 yielded upon the tourism industry in Jamaica, Turks & Caicos, wider Caribbean and globally. 

    The annual reports are for the respective year-ends May 31st, 2021, so they will reflect the businesses poorly as since that time to present there has been positive developments in tourism, and quarterly reports from both companies. These annual reports include the historical year-end 2021 audited financial statements. Both companies AGMs (Annual General Meetings) are scheduled for the same day, April 27th, 2022, and are at staggered times. They should be well attended and the Chair and CEO, and Directors of each company, are expected to speak towards the current developments, and outlook probably more so than the historical numbers. 
  • Mayberry Jamaican Equities Limited (JSE: MJE), declared their 2021 financial winners as they held their investor briefing this past week and made their social media director postings. The outstanding winners were, CPJ and SVL, the big ones! Mayberry Jamaican Equities and Mayberry have been active during 2021 and YTD – year to date 2022 with the virtual investor briefing, interviews, etc. and it has really set them apart in the marketplace from an investor standpoint and their overall approach to being digital. 

    MJE by the numbers for 2021, the audited financial results for year ended December 31, 2021, was a net profit of US$ 16.45 million versus a net loss in the previous year, December 31, 2020, of US$ 28.62 million. What a financial turnaround, given the active investor mandate by MJE. 

    MJE Facts & MJE by the Numbers:
  • They are actively managed and not passive like many other investment company listings on the JSE
  • SVL holdings alone, made up 49.8% of MJE as of December 31, 2021 
  • CPJ and SVL together made up 65.7% of MJE as of December 31, 2021 
  • CPJ contributed to NAV movement alone for 2021 of US$ 14.86 million. Recall net profit for 2021, was US$ 16.45 million 

  • Spur Tree Spices Jamaica Limited (JSE: SPURTREE) moving some major volumes again. We carried in last week’s ItsMoneyMark newsletter that approximately 85 million shares in SPURTREE moved on the JSE, equating to approximately 5% of the issued share capital, by the sale of shares via Directors. Well, here we go again! During late March 2022 too, a further 62.3 million shares were sold by Directors, specifically on March 30, & March 31, 2022. This further volume works out to be approximately 3.7% of SPURTREE’s issued share capital: overall, between the two (2) major volume sales in SPURTREE by Directors in late March 2022, we are speaking about approximately 8.71% of the company’s shares being sold or moving on the JSE. 

    We tend not to see this type of volume or shareholding cumulatively become available much or ever in a Junior Market company post-IPO. Even if the market cap has raced up post listing and potentially the earnings will have to catch up with it (as we await the 1st set of public results since their listing), typically large beneficial block buyers of Junior companies on the JSE, end up almost always winning!
  • Blue Power Group (JSE: BPOW) has been having some interesting developments… In its last earnings report release, it seemed its logo, font, etc. got all changed up, and in a positive way. Typically, when a company does this, whether public or private, it may be positioning itself for something “big.” Whether a change in business strategy, added business lines, or something “big.” 

    After this observation, BPOW released to the JSE an even more interesting corporate action item, that stated, it has called an EGM (extraordinary general meeting) for May 2, 2022, for the purposes of discussing the company organizational changes. This is not your ordinary corporate release, and something that we cannot recall seeing in our knowledge of the JSE either. It should be an interesting day. 

    We raise it as, while we do not know what all of this is about and the logo/ font change could be nothing, it is coincidental. Is there potential upside here based on what May 2, 2022, brings? 

    BPOW trades on or around J$ 3.90 – J$ 4.15/ share currently, and its 52-week range is, J$ 2.75 – J$ 4.45/ share. A lot of Juniors have broken out of their trading range in the past few weeks and moved higher than their 52-week high. BPOW is primarily held here due to the CARICOM soap matter, which has impacted its revenue and its respective results. Let us see what May 2, 2022, brings…

Have an amazing 2022, stay safe and don’t forget to invest!

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