ItsMoneyMark Newsletter #73

Supreme Ventures Limited: Doing Deals, and Moving like a Hedge Fund

Could be cheap even at 28x P/E

Do not always focus on the P/E ratio, but always remember, observe, and compare it to the growth rate, before you say, that share price, company is expensive or over-priced. Although, admittedly, Supreme Ventures Limited (JSE: SVL) slowed down in its last quarter, Q2 2022, however in its YTD – year-to-date, SVL still registered continued colossal growth, with numbers flying at + 34%: 

• Profit for the period of J$ 1.63 billion versus J$ 1.22 billion for the 6 months June 30, 2022, versus 6 months June 30, 2021
• Earnings per share of J$ 61.3 cents versus J$ 45.8 cents
• Impressively as well, total gaming income improved to J$ 25.4 billion from J$ 21.5 billion, top line increase of 18%

There are three (3) points, which take a big of digging in the quarterly results, the MD&A – management discussions and analysis and footnotes, but they are well worth the read. 

• For segment revenue contribution (%), interestingly, (a) lotteries is now at 47%, and (b) combining sports betting and pin codes, makes up the balance of 53%: SVL’s diversification strategy working.
• Disclosure under Note 1 (Identification), by SVL, that on March 1, 2022, Supreme Ventures Lotteries Limited was reactivated and renamed to SV REIT Limited. The main activity of this subsidiary is Real Estate. 
• Disclosure under Note 3 (Acquisitions), by SVL, in February 2022 the Group purchased a stake in KEO World, a BNBP digital solutions company for cash consideration of J$ 154 million. 

SVL has been trading on or around J$ 28 – J$ 29/ share, and with 2022 expected earnings per share at J$ 1.00 – J$ 1.20 range, SVL’s P/E est. 25x – 28x. The company’s 52-week high, low, respectively is J$ 34.67/ J$ 16.00. 

The SV REIT announcement could be something or nothing, hard to tell. It could be an avenue for growth for SVL, and to create some inroads into the growing asset class of real estate or could just be a way to place SVL’s real estate assets strategically into a separate vehicle. At ItsMoneyMark, we are not sure yet. Either way, this should create some value for SVL shareholders, as SVL has been making good choices over the years and until we see a bad one, we will stick with it. 

The more interesting one, for a few reasons, and its an undisclosed stake is the purchasing of a stake in KEO World. We assume, its an immaterial stake as we did not see this corporate announcement previously on the JSE. In terms of what we know from this, and if it could be something to watch, and maybe a big deal, let us makes some notes… SVL already has:

• McKayla Financial Services, per its disclosures and owns 51% of it, is a microfinance provider 
• Additionally, an AI product called Evolve, SVL has disclosed prior
• Now, as reported by “RefreshMiami.com,” on June 15, 2022, KEO World, raised US$ 20 million to expand its platform. That is a “Buy Now Pay Later – BNPL” platform. The article highlighted, that KEO World, has developed Workeo, a digital platform to help small businesses secure access to capital. Here is what makes even more sense and demonstrates the synergies: “Miami Beach-based Montreux Growth Partners led the round, with additional funding provided by Mayberry Investments and Avior alongside a debt facility from Hayfin Capital Management.”
  • KEO World was founded in 2020, has provided financing to 16,000 businesses across 58,000 transactions from more than 4,000 merchants. 

Keep your focus on the growth rate, and as we always say, stick with Companies that are doing things. SVL continues to execute. 

Market Moves:

• Walmart Inc. (US: WMT) sends out a fire signal to the market, causing WMT to pullback as well in trading this week. Walmart cuts profit outlook and makes revision to its quarterly and annual numbers due to soaring inflation, and seeing shoppers spending less on electronics, clothing, and more on necessities. 

The result is the big-box retailer has even had to mark down its clothing items. Inflation has grown at it fastest pace in the last four (4) decades and WMT released the following adjusted earnings advisory:

• Q2 Numbers: Lower by 8% to 9% 
• Full Year: Lower by 11% to 13%

• QWI Investments Limited (JSE: QWI) Top 10 shareholder list is telling us something! Sometimes, yes you must focus on the financial numbers, the fundamental value, the earnings reports, but you got to dive also into the footnotes, disclosures, corporate action items, company insider trading and that magnificent “Top 10 List”. In this case, we are focusing on the Top 10. 

Since December 31, 2021, to the last report, June 30, 2022 (more so in the Q1), Mayberry Jamaican Equities has sizeably added to their equity stake in QWI, almost doubling it, to reside in the # 3 shareholder spot solidly, moving from 1.88% to now, 3.42% of QWI. Entering the fold too, is we would assume be an accredited retail investor, which accumulated significant shares over the similar comparative period as MJE did. 

While at ItsMoneyMark, we are not a huge fan of QWI, and we have some other preferences on the JSE, when you see material movements like this suddenly and QWI’s market price has been down, depressed for a long time, it signals some upside to come. QWI is currently trading at J$ 87 cents/ share, with its 52-week high at J$ 1.09/ share. 

• Key Insurance Company Limited (JSE: KEY) just came out with their financial results for their Q2 2022, and 6 months unaudited periods, respectively. To note, KEY commendably grew gross premiums written by 21% for the 6 months period to J$ 1.103 billion from J$ 915.5 million, year over year. The company continues to rebound, with profit after taxation registering J$ 12.2 million versus J$ 1.8 million. 

General insurance is not something that is easily fixable overnight, and it does take time. This is what KEY is still going through and it is understandable. The positive news is that they are getting the gross premium growth, but so too is the industry, so it will be about (a) managing their claims expenses, (b) managing their admin & other expenses and (c) managing their investment portfolio for the investment income line which they are doing a respectable job of to date. The turnaround continues at KEY, but its not a short tail. Investors need to be in this one for the long haul. 

• Some trading in shares, and dividend considerations coming up in quick order to be aware of, as we are getting into earnings reports again quite shortly. It seems like just the other day, we were there. With so many more securities/ companies on the JSE – Jamaica Stock Exchange, this is becoming a normalized feeling. 
  • Sygnus Credit Investments (JSE: SCI) saw some nice purchasing by a director. 48.584 shares bought on July 21, 2022, in SCI. 
  • Dolla Financial Services (JSE: DOLLA) saw on the other hand a sale, understandably, as the results came out quickly, and the share price which has done incredibly well, saw a senior officer, probably taking some profits, liquidity off the table. Senior officer of DOLLA sold 500,000 shares on July 22, 2022.
  • Onto dividends, Caribbean Cream (JSE: KREMI), better known as KREMI, their board of directors will be meeting on August 4, 2022, to consider a dividend. 

• Well, following on Walmart’s revised outlook, for its quarterly earnings and full-year profit outlook, and this impact on markets, and in particular Amazon, let us talk about the hit on “Shopify’s (US: SHOP) market cap.” The share price fell earlier in the week 15% +, due to this plus the company announcing plans to lay off approximately 10% of its workers, roughly 1,000 workers. SHOP makes tools for companies to sell products online. 

SHOP benefitted immensely from the pandemic e-commerce boom but the bottom line, is that there has been a pullback in online spending, and therefore resulting in this action by SHOP. 

Takeaway, besides, similar announcements from, Meta, Netflix, Alphabet, Coinbase, and many more, or hiring freezes: do you need more signals of the impending slowdown?