ItsMoneyMark Newsletter #68

Access Financial Services Limited (“AFS”): Back in a Big Way, Loans top J$ 4.5 Billion!

Will AFS seek to grow again more deliberately and turn up their Loan Distribution?

Well, well, Access Financial Services (JSE: AFS) is making Proven Investments Limited (JSE: PIL), QWI Investments Limited (JSE: QWI), and several other minority ordinary shareholders happy again. They have stuck out the last few years, and remained extremely positive on Access Financial, and this is the type of year-end they wanted (March 2022), by AFS. To note, Proven sits at 24.72% and QWI sits at 3.08% in Access’ top 10 shareholder table. 

Access Financial reported their audited financial statements year-end, for March 31, 2022, and the company hit, a few important numbers:

• Loans and advances: J$ 4.51 billion
• Net profit (Group): J$ 437 million
• Earnings per share (Group): J$ 1.60 
• Net profit margin: 22%

Of interest further is the interest income rough calculation on the loans and advances book of business, places the effective interest rate on average, somewhere between 36% – 40% p.a. (roughly). Access’ average interest rate is much lower than some of the smaller microfinance companies (60% – 108% p.a.) and rightfully so, as Access is a much more mature microfinance company… this happens along the lifetime of a company…  

AFS did a much better job in 2022 versus 2021 with the allowance for credit losses, the line item that hurt them badly in the previous years of audited financial statements. Besides seeing loan book growth occur again at approximately + 13% year over year, and profits grow, the biggest takeaway for us at ItsMoneyMark was to see the net profit margin return at 20% or higher. If you understand the microfinance profit and loss template and financial forecast goals, this is what you really want to see after accounting for, interest expense, admin expenses, allowance for credit allowances, and boom, net margin @20% or more…

Historically with EPS at J$ 1.60/ share, AFS is at 13.5x P/E ratio seems on the cheap side, with a few comparative P/E ratios at 20x or higher, plus this does not consider if AFS continues its rebound and growth into 2023 fiscal year-end. Additionally, if Access really turns back on its brand, marketing, and loan distribution seriously and takes back on some risk (e.g., raises further notes payables, or corporate bond, or rights issue/ APO), the good times could return for AFS shareholders… 

Market Moves:

• FosRich Company Limited (JSE: FOSRICH) share price has been on a tear and seeing further buying into the shares by a director, for a material amount, is a further positive development for FOSRICH shareholders. On June 17^th, 2022, a Director of FOSRICH, purchased approximately 2.21 million shares. 

FOSRICH’s market capitalization is trading above J$ 15 billion presently with the share price ranging between J$ 31 – J$ 34/ share and the company’s 52-week high at J$ 38/ share. FOSRICH has had several positive things going for the company in recent times. This include but are not limited to, new products, such as “solid pipes,” expansion plans for opposite their head office on Molynes Road, and of course, the continued significant growth in market share (“top line”) seen in their last quarterly results and net profit. Do not neglect the power of FOSRICH’s brand either, it is a brand and company that you can tell the market really likes and connects with. Just this past week and continuing to the end of June 2022, to our understanding at ItsMoneyMark, FOSRICH has been having a sale, and the deals and charisma around the whole thing has been worth it… Some deals seem to be as much as 50% off while it lasts, or the respective inventory lasts 😊. 

To re-iterate and note, FOSRICH has had a year of years, as its 52-week range, is approximately J$ 7 to J$ 38, that is a whopping 443% from low to peak!

• Barita Investments Limited (JSE: BIL) Annual General Meeting (“AGM”) is coming up, and BIL has announced same with their shareholder advisory to the JSE – Jamaica Stock Exchange. This will be Barita’s 44^th AGM. Quite an achievement. The AGM is set to be a virtual one, and is scheduled for this week, July 1, 2022. 

BIL needs a few more wins now, or the next stage of its growth curve to be outlined and executed. The Company has had such a rapid growth cycle in its first 3-4 years since taking over the mantle from Rita Humphries-Lewin, that the market will inevitably expect this type of growth year in and year out. Of course, it is not practical, and hyper growth typically matures and then a slow-down leads back to hyper growth once the plans are in place, the energy from management continues and all stakeholders are aligned. 

BIL’s 52-week low and 52-week high has been, J$ 77/ J$ 109.50 with current market price trading around J$ 86/ share. BIL had outlined previously to ItsMoneyMark re-collection several growth initiatives inclusive of (a) technology enhancements, (b) opening of a series of branches, we recall somewhere between 3-4 new locations, and (c) the revised, overall BIL structure defined as BoJ financial holding structure. 

Expect these to be keenly asked queries or robust Q&A at the upcoming Annual General Meeting, given BIL’s past growth curve…

• TransJamaican Highway Limited (JSE: TJH) share price has rallied during June 2022, from J$ 1.35 to the J$ 1.50 share price region, representing share price appreciation within the month of approximately, + 12%. Not bad. TJH during said month and on June 21, 2022, made a big announcement headlined “Notice of Intent to Acquire Shares”. 

“Advisory that negotiations are currently taking place between Jamaican Infrastructure Operator Limited (JIO) who is the entity responsible for the day-to-day operations of the Highway 2000 East-West and TJH, with a view to the parties entering into a binding Share Purchase Agreement for the acquisition of 100% of the shares of JIO by TJH.”

The announcement has sent the market into somewhat of a frenzy, plus with commentary and further timing about toll hikes, and other information in the market disseminated. Additionally, at ItsMoneyMark, we continue to make this point, the announcement makes little or no value for minority shareholders: without providing earnings guidance, potential impact on the future business, etc, how does the average investor interpret this announcement? 

• Zendesk Inc (US: ZEN), with the big news, to be acquired by an investor group for US$ 10.2 billion: the market has reacted favourably to the announcement and the U.S. market could use a few more of these types of deals…

Even if tech shares have gotten beaten up in 2022, tech still provides the occasional upside, and ZEN is further evidence of that, as a service first CRM – customer relationship management software company. A meaningful takeaway from this deal announcement, is that it is an all-cash deal, meaning “no shares, no share retention.” That is Big. 

As a result of the deal, ZEN’s share price surged 28% – 32% in the past few days… We re-iterate, software, tech, its where at times the biggest upside can be globally, with the least capital, capex deployed. There might be of course, many misses, but when that win happens like with ZEN, its bigly. 

• Darden Restaurants Limited (US: DRI), the home of well-known restaurant brands such as, Olive Garden, LongHorn Steakhouse, The Capital Grille and more, had a nice quarter and saw same-store combined sales rebound and continue to grow nicely, + 11.7% for the quarter. 

Darden Restaurants is in a unique space as it owns a nice combo of restaurants that offer, (a) casual dining and (b) fine dining so it is somewhat hedged. It is in one of the sectors that although it is sometimes hit by inflation, by supply chain issues and a potential recession impending, it does benefit as U.S. consumers enjoy spending on “food” and “eating out consistently.” Another fun fact is that Olive Garden, as it always has, time in and time out, continues to carry the way for DRI, accounting for almost half or 50% of DRI’s operating revenue. 

DRI’s share price has popped higher about 5% – 6% due to the quarterly results, and with a P/E ratio of approximately 16x is not bad. Do not expect breakout growth by DRI, as the net profit was down year over year, but they beat earnings expectations, and DRI is not known for growing earnings necessarily way beyond 16% or 20% per annum or quarter over quarter. With their dividend yield in US$ at around 4% they are stable and DRI does therefore provide some dividends in the event of a U.S. recession of further pullback in the markets.