ItsMoneyMark Newsletter #62

Recession Possibilities in the U.S. and the Ensuing Impact 

As the famous saying goes, “When the U.S.A. sneezes, we in Jamaica catch cold.” So, far Jamaica has been quite alright, given the Dow Jones, S&P 500 are well off their highs, however the JSE – Jamaica Stock Exchange continues to climb higher. From a stock market standpoint singularly, Jamaica is doing well, and no cold or flu yet. We are in the inverse phase even more so, if you take a sample size of U.S. big tech, and big market caps with some as much as 50% or more from their highs, and then with recent Q1 earnings reports (March 2022) released on the JSE, sending similar local big market caps, flying by as much as 100% or doubling their share price. Cases in point, (a) Mayberry Investments (JSE: MIL) & (b) Supreme Ventures (JSE: SVL). 

Over the past week, a material amount of U.S. investment bankers, CEOs and influencers have come out publicly with the overarching message of a U.S. recession is on its way. We have seen this time and time again in the investment markets, and these statements now dominating the headlines were always coming based on the action the FED commenced earlier this year, and their messaging for the remainder of 2022. Interest rates, inflation, global market uncertainty, supply chain logistic issues, and more all contributing to what many are saying is an imminent U.S. recession. 

The good times on the JSE – Jamaica Stock Exchange continue to roll, as mentioned, but as we continue to mention on ItsMoneyMark Media, where you can, use this time & window wisely, to pay down your debt (banks continue to send out notifications of rate adjustments already) if you have any be focused and very selective with your investment decisions to protect against rising rates, inflation, and the global uncertainty. 

Market Moves:

  • Eppley Limited (JSE: EPLY) produced a robust earnings quarter, way higher than market analysts anticipated. Additionally, EPLY’s total assets closed the quarter, Q1 2022, March 31, 2022, at J$ 5.3 billion. EPLY continues to grow its earnings continuously and quarter over quarter, year over year like the ascent of Blue Mountain Peak, a nice upward slope. EPLY’s financial review section is what one endeavours to invest in over the long-term. Eppley produced net profit for the quarter of J$ 91 million or Earnings per share of J$ 48 cents. The drivers of the 85% growth year over year were, primarily, (a) interest income and (b) fees and other operating income. 
    • Eppley Limited (JSE: EPLY) is one of those stocks, known for income and growth, one of the few on the JSE market where you get the best of both worlds. Eppley declared a dividend of J$ 5.2 cents per share on May 13, 2022, and it will be paid on June 17, 2022. 
  • Derrimon Trading Company Limited (JSE: DTL) has released to the JSE – Jamaica Stock Exchange the purchase consideration for their most recent deal, that is the purchase of Arosa Ltd. This would be further to their previous advisory of April 7, 2022, to the JSE. DTL has advised that the purchase consideration is J$ 932 million, that equates to approximately US$ 6.1 million. 

Arosa Ltd is an interesting play for Derrimon, as per the 1st advisory DTL made to the JSE on the acquisition, it opens up DTL to the tourism revenue segment whereby Caribbean Producers (Jamaica) Limited – CPJ, another publicly traded company on the JSE dominates the market. New business, new revenue, new customers, etc. for Derrimon. What is intriguing about the transaction as well, is that Derrimon has had an experienced and successful history in doing deals and growing the respective companies (subsidiaries), whether private or public shareholder value. It may be difficult to quantify the private plays as well, example, Woodcats International and a few others, but we specifically speak to Derrimon’s success with CFF – Caribbean Flavours & Fragrances Limited. 

We are not sure, exactly of Derrimon’s plans for Arosa Ltd long-term, but we have always said, with the number of deals, acquisitions that DTL does, they are more like a “private equity food company.” Therefore, don’t be surprised, if they get Arosa Ltd and/or Spicy Hill Farms Ltd to grow very fast and improve their earnings substantially, and they list one or both on the JSE. It is an effective way, especially with the Arosa Ltd trade, for DTL to recognize upside, potential gains, and equity down the road.

  • Elite Diagnostic Limited (JSE: ELITE), well who didn’t expect this type of quarter? Especially after the near 10% trade (9.9%), purchase in ELITE shares by the Chairman (Director) of the Company. Let’s get to the numbers. Bottom line, the company producer a 3rd quarter, that was “Huge” and essentially represented almost all the profit for year to date or the 9 months… Net profit jumped 6x or more for Q3 2022 at ELITE

Earnings per share for March 31, 2022, was J$ 8 cents per share versus J$ 1 cent per share year over year. Net profit was J$ 28.1 million versus J$ 4.3 million in the previous year’s quarter, on operating revenue of J$ 160.9 million for March 31, 2022, an increase of J$ 31 million in top line. The MD&A spoke to reasons for the significant rebound, as facilities got back to full resumption operating hours, price revision and the signing up of two (2) international insurance providers during the quarter. 

The quarter revealed some interesting movements in the Company’s balance sheet and cash flow statement that can’t go unattended… ELITE’s long-term loans as at March 31, 2022 increased to J$ 325 million from J$ 156 million a year earlier, and, upon review of their cash flow statement for the period, the Company, received a long-term loan of J$ 193 million, and utilized J$ 94.5 million for a deposit on equipment and J$ 50 million for purchase of property, plant & equipment. 

  • Mayberry Investments Limited (JSE: MIL) had a monster quarter and demonstrated its not only food & distribution companies having all the fun on the JSE – Jamaica Stock Exchange. MIL produced a net profit of J$ 691 million for the 1st quarter versus a net loss of J$ 330 million in the previous year, a massive turnaround for MIL ordinary shareholders. On an Earnings per share (“EPS”) basis, J$ 58 cents versus a loss of J$ 28 cents comparatively. Primary drivers to ensure, MIL delivered this type of financial result were, (a) dividend income of J$ 131 million, (b) net unrealized gains/ losses on financial instruments at fair value of J$ 260 million and (c) net unrealized gains/ losses on investment in associates at fair value of J$ 868 million. 

MIL’s net book value per stock unit as at the end of the 1st quarter, March 31, 2022, was, J$ 14.32/ share or J$ 17.1 billion in stockholders’ equity. 

  • Barita Investments Limited (JSE: BIL) net operating revenue leaped for their second quarter, ended March 31, 2022, by 21%, hitting J$ 2.48 billion. Net profit ended the quarter at J$ 1.21 billion with Earnings per share (“EPS”) at J$ 1.01, earnings were up 5.2% year over year for the respective quarter under review. 

Barita’s total assets hit another milestone for the company and its shareholders, attaining J$ 100 billion as at the end of the 2nd quarter, J$ 100.87 billion to be exact, with total shareholders equity at J$ 37.5 billion. 

A big takeaway from the BIL earnings report was the very detailed MD&A signed by BIL Chairman, Mr. Mark Myers. It highlighted two (2) significant & interesting areas that jumped out to us at ItsMoneyMark. Firstly, BIL’s capital allocation into alternative assets and secondly, BIL’s expected re-organization of the Group. 

BIL’s alternative disclosures surrounding MJR Real Estate Holdings Limited, as a special purpose vehicle with its focus on, securitization, outright sale, joint venture & partnership arrangements, and public listings, now totalling some J$ 9 billion or approximately 9% of BIL’s total assets. To note, this was deployed throughout the year… Next up, although BIL’s earnings have slowed in the 2nd quarter and YTD – year to date earnings report, you get the “gut feeling” just knowing BIL over the past 3.5 years, approaching 4 years, that the more detail and updates the market gets about the re-organization of the Group, the financial holding structure/ company, that something big is coming, efficiencies, the power of the brand/s and earnings uplift again is on the horizon… 

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