ItsMoneyMark Newsletter #60

Compressing Margins upcoming at Manufacturers/ Distributors, and Buy Recommendations of Stocks at 25x, 30x P/E? 

The supply chain issue is coming across no longer as an issue but like a crisis, the more businesspersons we talk to, and viewing a few earnings reports to the JSE thus far that have been disappointing for Q1 whose businesses depend on logistics. If this issue, continues for a longer period, and/or escalates, one which we do not fully understand yet, what will be the impact on several listed JSE companies be? 

In particular, manufacturers & distributors: these listed companies have been all the rage during the pandemic. Especially the ones on the “food side of things”. Let’s see but based on seeing CAC 2000 quarter, other market global uncertainties (the list is too long and simultaneous), Amazon’s numbers, this sector on the JSE may be in for an interesting period over the coming quarter to two. How much or how fast will the companies be able to pass on the price increases, as well as for the companies who did not buy up as much inventory as possible previously; how are they being impacted presently? Several short-term earnings outlook queries here. 

Onto P/E ratios, our Market’s favourite valuation benchmark. A few brokers have been putting out or advertising buy recommendations, with local stocks or valuations at 21x – 29x P/E ratios. The last time we recall some of these P/E ratio levels was 2004, and we know how that ended. We are not saying at all history will repeat itself, but just ensure, if you are deciding to jump into the equities market at some of these selective stocks and these P/Es that you ensure the “growth” is there with your broker. There is a lot of downside risk, if profits are flat, taper off, or if growth slows, if you get in at a high P/E. 

Be aware. 

Market Moves:

  • There is a new guard at Blue Power Group Limited (JSE: BPOW). Dr. Dhiru Tanna has resigned as Chairman, effective April 30th, 2022, and Mr. Jeffrey Hall of Jamaica Producers Group, and Kingston Wharves fame, takes on the Chairman role, effective May 1st, 2022. 

Dr. Tanna in his own right has been a legendary leader, chairman, and driver behind BPOW for all this time, and the life of the company for as long as we can recall. In retrospect, an amazing foundation and solid balance sheet for the new chairman to move forward with. We had mentioned in a previous ItsMoneyMark Newsletter that, with the change up of the BPOW logo, we do read into those things, and we feel it could mean big things to come for BPOW plus the upcoming meeting. 

With the timing of this change, and the upcoming meeting (EGM, the day after this Chairman change, the EGM is on May 2, 2022), keep BPOW on your investment radar.

  • EduFocal Limited (JSE: LEARN) is on the move! Talk about doing things, and getting things done post-IPO. We keep mentioning in our ItsMoneyMark Newsletters and Earnings Reports, focus on the companies that are “doing things”, defined as growing via acquisitions or putting their funds into capex for growth. 

LEARN has made 2 more moves here quickly after its recent acquisition in the U.S. A connected party purchased approximately, 1.22 million shares in early April 2022. We love to see that happen at listed companies on the JSE, as they say, not much beats, “skin in the game”. Additionally, the announcement of a Chief Strategy Officer, LEARN, upping their people game post-IPO. Dr. Anna Bethune, joined LEARN, effective April 4, 2022, and will report directly to the CEO, Mr. Gordon Swaby. Dr. Bethune’s short bio, included in the release to the Stock Exchange, is nothing short of spectacular. 

  • Supreme Ventures Limited (JSE: SVL) is back in action and releasing corporate action items like 2020/ 2021 again. We like that. SVL has really set the trend with this one, regarding the Executive Chairman’s contract, whereby compensation will be in the form of SVL shares in lieu of cash. 

This is a normal matter, or trend in U.S. markets and most G-7 countries with developed stock exchanges. Usually, CEOs take a package like this, however its more normal to see a hybrid, versus 100% “shares”. Either way, we like the move, and sets a precedent in Jamaica financial markets, stock market moving forward. Good look for 2022.

  • General Accident Insurance Company Limited (JSE: GENAC) continues to strengthen their Board of Directors, with the appointment of Mrs. Lesley Miller, the company’s Chief Information Officer to the Board, effective April 20, 2022. The appointment is also, for Mrs. Miller as GENAC’s company secretary. 

The release makes mention of several critical points, as GENAC’s customer service, and efficiencies in the marketplace have noticeably improved, likewise their earnings over the past few years, and this gives some valuable info for the market. It states, “since 2018, Mrs. Miller has led the complete digital transformation of the customer service experience resulting in outstanding customer satisfaction, increased efficiency, and greater revenues.” 

It seems, of course although a team effort, Mrs. Miller is one of the clear “secret sauces” behind GENAC.

  • Sagicor Investments Jamaica (“SIJL”), a subsidiary of Sagicor Group Jamaica (JSE: SJ) has made another big move in the market, within its core, financial services. At ItsMoneyMark, we continue to say, and repeat, stick with the companies, “doing things, making deals, keeping active and growing”. 

Sagicor Group Jamaica clearly is doing that. We highlighted in a recent newsletter that, the two (2) financial companies that are leading the pack with this philosophy and it is showing in their earnings are, (a) Sagicor Group Jamaica and (b) JMMB Group. Well SJ did the deal twice here as they say. 

Sagicor Group Jamaica, recently acquired 100% of Alliance’s remittance, cambio services, etc. business. Now, they have entered into a definitive agreement for Alliance Investment Management securities dealer book of business. As their release to the Jamaica Stock Exchange (“JSE”) mentioned, it will fit nicely into their subsidiary, SIJL, and increase this entity’s client base. 

  • Caribbean Cement Limited (JSE: CCC) puts in another strong quarter, with their recently announced first quarter financial results for the period ended March 31, 2022. CCC reported a whopping J$ 6.81 billion in operating revenue, + 14% year over year, with net profit of J$ 1.59 billion. Stockholders’ equity surged to J$ 17.4 billion as Caribbean Cement retains all its retained earnings over the years and continued to do so, this past quarter. 

CCC has not paid a dividend in a long time, but that is expected to change this year and minority shareholders are looking forward to that accordingly, as any minority shareholder would. 

There was a lot of noise late last year, 2021, and earlier this year about the royalty fees for oversight, skills, knowledge by Cemex, etc. Well, of course, as the majority owners had “super majority” it was just noise. Upon review, these numbers/ entries are now in Q1 and are approximately J$ 133 million for royalties and J$ 50 million for management fees. They are not insignificant, as they easily would have pushed quarterly earnings to above J$ 2/ share for Q1, but on the other hand, just sometime ago, CCC was a share price in single digits versus J$ 70 now.

It’s an interesting story. 

  • In U.S. markets, Boeing Inc. (US: BA) after getting its act together, disappointed with its first quarter numbers and other announcements. BA as always, should rebound eventually though, they are one of those U.S. companies, that you just have in your “gut”, is “too big to fail”. 

Current share price around US$ 148, and BA’s 52-week low/ high, stands at US$ 146/ US$ 258.40. Big takeaways from the quarter were: BA is pausing the 777X production and that it doesn’t expect to make deliveries until 2025. Net loss for Q1, more than 2x analyst estimates, hitting US$ 1.2 billion, and revenue was 8% lower, coming in at US$ 13.99 billion. 

  • Spotify Technology (US: SPOT), beat its earnings, but like Netflix, due to missing estimates on paid subscribers, got beaten up by the market. We focus more here on some of SPOT’s interesting strategies, stats, and numbers for moving forward:

SPOT ended Q1 2022 with 182 million subscribers. 

SPOT has invested heavily in podcasting, making up 11% of revenue. 

SPOT has 4 million podcasts as at the end of 2021.

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Happy investing and Happy markets.

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