ItsMoneyMark Newsletter #82

Caribbean Producers (Jamaica) Limited, back in a Big Way, Pre-Covid Levels or Bigger?

Can we say, what a year-end? Even if we await the 1st quarter, CPJ has chalked up a heck of a year of revenue and profits for the year ended June 30, 2022. Back in a Big Way. 

  • Gross operating revenue: US$ 119.9 million 
  • Net profit: US$ 7.72 million 

Based on CPJ’s current market cap, and the latest earnings, a historical P/E of 12.5x does not sound bad in these markets, if CPJ can now keep this consistent and demonstrate a + 20% growth rate or higher for the new fiscal year. The key for CPJ moving forward will be maintaining this net profit number and the earnings growth they set as a Company coming out of the pandemic. 

Overall, it is safe to say, seeing CPJ’s numbers, MTL’s numbers and a few others, that the JSE rules, guidelines around extensions for filings due to Covid-19, should be in the rear-view mirror, and the JSE should consider advising the market on an overdue and well needed position for market stakeholders regarding this.

The Juniors that Bounce Back; Watch Out for KREMI Next, as they Build out Even More…

We speak to this more under “market moves,” but do not always focus on a company’s shares, when things are great, sometimes look out for that company that has a great foundation, great historical revenue, and earnings growth, but is going through a downward earnings cycle for a variety of reasons. 

It would not last forever, hopefully no longer than 4-6 quarters, for the company to get itself sorted out or going in the right direction again, but at times, these earnings troughs present excellent opportunities for the discerning investor. 

We have seen this over recent cumulative quarters of earnings, from Paramount Trading (Jamaica) Limited, AMG Packaging & Paper Company Limited, Knutsford Express Services Limited, and a few others. Case in point, with Paramount Trading (Jamaica) Limited, the stock was a low as J$ 1.05 in the past 52-weeks and traded some notable volumes in the J$ 1.30 price range. PTL, jumped from J$ 1.80/ share, to now, J$ 2/ share & higher with the latest earnings release, its Q1 from PTL. The good ones come back, especially if they are growing revenue in that downward earnings cycle, and it is really a net margin or margin compression issue that is hurting them for assorted reasons. 

Look out for KREMI, and we highlight in more detail below, that with a market cap of approximately J$ 1.5 billion, at 0.6x sales, growing top line in Q2, + 33%, but with profits flat, the market has already put their market price lower as a result. Like the other Juniors we have mentioned, KREMI will be back are our thoughts, and look at their potential, in their forward sales number, at their historical average net margin to get an idea of their future EPS – earnings per share. We hear about P/E ratio day in and day out with our Mr. Market, but before you critique KREMI’s current P/E too much, take a deeper examination. 

Market Moves:

  • FosRich Company Limited (JSE: FOSRICH) has been trading around J$ 4.40/ share with a whopping J$ 22 billion market cap. If you got into this one around the IPO – Initial Public Offering or shortly thereafter, not only have you been singing to the bank, but you are holding one of, if not the best performing JSE – Jamaica Stock Exchange performing IPOs, outside of the Jamaica Stock Exchange itself.
    • FosRich is getting busy again and in the coming weeks, has a dividend consideration at their Board of Directors meeting on October 25, 2022.
    • Additionally, FosRich gets to the point that with a market cap of J$ 22 billion, you better take care of your key managers, and your key people. In their latest announcement, FosRich, announces to the Market that, the majority shareholders of FosRich together agreed on September 26, 2022, to make 15,276,802 shares available to the Directors, Managers, and other team members at J$ 3.75/ share, a price below the current market price.
      • On September 26, 2022, FosRich was on or around J$ 3.92/ share 
      • As at today, FosRich is on or around J$ 4.40/ share
    • In either case, it is not a huge discount for team members, so the benefit would really reside to team members given the offer being fully taken up, we assume, if FosRich offered some form of loans, advances, long-term financing, guarantees for team members to access this funding, or a form of grant, e.g., if they partially paid for the J$ 3.75/ share as a benefit. Let us see, as perhaps their next earnings report may have some more disclosure on this announcement. 
  • Access Financial Services Limited (JSE: AFS) with another “wow” moment in a corporate action release to the JSE – Jamaica Stock Exchange, that their CEO has resigned, Mr. Frederick Williams. On a more sober note, it is not immediate but at a forward date, effective December 9, 2022. 

Nonetheless, there is no question, it will add to more shockwaves, speculation, in the continued AFS/ DOLLA debacle, and may even re-ignite it. Let us see. 

PS, Mr. Williams resignation now follows on Ms. McLaren’s resignation from AFS

  • Knutsford Express Services Limited (JSE: KEX) showed the recovery signs over the last few quarters, but KEX roared back to their old winning ways in this quarter, their 1st quarter, ended August 31, 2022. 

KEX registered revenue of J$ 415 million versus revenue of J$ 232.5 million year over year, surging + 78%. Net profit 9x higher or more to J$ 84.2 million for KEX’s 1st quarter, recovering, and rallying strongly from J$ 9.2 million, year over year. As a result, KEX’s total equity closer the quarter higher at J$ 835.3 million. 

Few items, to takeaway from the MD&A – management, discussion & analysis, as KEX continues to invest heavily and expand the courier, logistics business. This is a space that, at ItsMoneyMark, we feel represents superior margins, is still undeserved and will consolidate. KEX signals clearly, this is a space they are being aggressive in. KEX no longer has the drag of their international operations, or U.S. operations that were creating net losses for them in this area, and lastly, Drax Hall, is performing above average. 

  • Paramount Trading (Jamaica) Limited (JSE: PTL), like KEX, soars in its 1st quarter with revenue and net profit topping expectations across the board. 

PTL reported revenue of J$ 595 million for the period ended August 31, 2022, versus J$ 369.3 million, year over year, an increase of + 61%. Net profit improved considerably to J$ 83.9 million, from J$ 18.9 million, year over year. Important note, at J$ 83.9 million net profit, PTL’s net margin based on the quarter, was 14.1%. We have mentioned it before at ItsMoneyMark, and we will say it again, few JSE companies, whether Junior or Main, have a net margin of 10% +. Well, PTL does. 

Paramount Trading (Jamaica) Limited resulting total equity, improved to just under J$ 1 billion, to close the quarter at J$ 993.1 million. Given the dramatic earnings improvement, PTL’s share price has increased to over J$ 2/ share, and its market cap is trending north of J$ 3 billion. 

  • Caribbean Cream Limited (JSE: KREMI) released a 2nd quarter for the period ended August 31, 2022, that if you over focus only on the result, it could confuse you, or disappoint you. We, at ItsMoneyMark, would encourage you to place your focus on the revenue growth, market share assumptions, and KREMI’s balance sheet investments in P,P&E. 

KREMI’s 2nd quarter operating revenue hit J$ 645.4 million versus J$ 486.2 million, year over year, an improvement of + 33%. Net profit was more or less flat at J$ 7.1 million, versus J$ 7.26 million, year over year for the quarter. Besides the positive revenue growth of 33%, note the P,P&E, moved significantly from J$ 857 million as of August 31, 2021, to this reporting quarter, August 31, 2022, of J$ 1.325 billion, an increase of some J$ 468 million.

We re-iterate, think what occurred with PTL, KEX and AMG Packaging in recent times, with KREMI trading at approximately 0.6x sales and 1.75x book value, KREMI could be next in the line up with patience. 

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