ItsMoneyMark Newsletter #97

Quick Take on Sagicor Select Funds, Are they Still Relevant? What has gone Wrong?

Both Sagicor Select Funds, Financial and Manufacturing & Distribution (SELECTF and SELECTMD) posted mediocre financial numbers for 2022. In the case of SELECTF, the numbers were not a one-off, but represent two (2) years in row of net losses for shareholders. 

  • For SELECTMD the profit was barely there for 2022, with the Company registering net profit of J$ 20.2 million with earnings per share of J$ 1 cent. This was in distinct contrast to the previous financial year of 2021, where SELECTMD, hit net profit of J$ 866 million with earnings per share of J$ 23 cents.
    • The difference maker was, “other net changes in fair value on financial assets at fair value through profit of loss”, that saw a negative swing year over year, of a whopping J$ 865 million…
  • For SELECTF the “losses more than tripled” in 2022 from 2021. SELECTF saw a net loss of J$ 479.6 million in 2022, versus a net loss of J$ 148.5 million in 2021. 

Although both top 10 shareholder lists are dominated by pension funds, and more so Sagicor managed pensions funds, at some point, the query should be raised, are these two (2) publicly listed entities, structures of the past, serving the investors? 

If you compare the results of both, and importantly SELECTF to some of the actively managed opportunities, e.g. Mayberry Jamaican Equities the answer is right there. The SELECTs are index mirroring, but these pensions, and the minority shareholders who did invest in the respective IPOs or via the secondary market, would have been better served investing in some of the actively managed plays available, or creating their own portfolios. 

To re-iterate it may well be time for Sagicor to look to unwind these structures, listed entities and de-list them. 

Market Moves:

  • Stationery & Office Supplies Limited (JSE: SOS) Talk about putting out a colossal earnings number, back to pre-covid numbers is an understatement here. SOS puts out a break-out year of financial figures for 2022. 

The Company has just reported, audited financial numbers for the year ended December 31, 2022, and saw equity grow to, J$ 1.103 billion. Revenue for the YE 2022, rang in at J$ 1.74 billion, way ahead of YE 2021, at J$ 1.12 billion. The impressive number was net profit and earnings per share for SOS at, J$ 256.5 million and J$ 1.03 respectively. SOS more than doubled their earnings year over year upon review. 

Bottom line, yes, a rebound year was in the making, but SOS directly speaks to, taking market share in the office supplies market, its SEEK brand growing, and its latest addition the EVOLVE furniture brand, etc. We concur with the commentary and takeaways in the MD&A, that SOS is definitely taking market share to see this type of growth, even if there is phenomenal growth in the BPO and tourism space in Jamaica. 

  • Berger Paints Jamaica Limited (JSE: BRG) Get your coffee for this one, and maybe spike it with something… In a year with the construction market still booming, and most if not all construction companies or related companies doing well, BRG throws in a break-even year?!? Wow. 

Revenue mildly increased at BRG for 2022, versus 2021, to J$ 3.29 billion from J$ 3.10 billion. Net profit declined to a mere J$ 702k, falling from a great previous year of J$ 123 million. Therefore, earnings per share for 2022, was J$ 0.00. 

BRG does place these break-even financial results squarely on (i) cost of raw materials and (ii) shipping costs, and lack of commensurate pricing increase or adjustment, but we don’t buy into this MD&A reasoning fully for this one. 

Given the low revenue annual increase, perhaps, market competition, and better priced products in the marketplace, are giving BRG an issue and this needs to be addressed by BRG in 2023…

  • Kingston Properties Limited (JSE: KPREIT) Reported their December 31, 2022 numbers, and earnings were up by 26% on a net profit basis. KPREIT reported US$ 3.79 million in net profit for 2022, versus US$ 3.018 million in net profit for 2021. Leading the way in 2022, “increase in fair value property” of US$ 2.38 million, jumping materially more from the previous year, of US$ 838k. Of course, real estate is a part of KPREIT’s core business, but without this line item, and focusing on their operating activities would yield a different annual result. 

KPREIT’s total group equity closed the 2022 year-end at US$ 44.5 million. Based on their financial results, their ROE – return on equity, is improving but remains below 10%. 

  • Caribbean Assurance Brokers Limited (JSE: CAB). Registered another significantly stronger financial year, and continued the upward trend in their earnings under the leadership of Mrs. Tania Waldron-Gooden. Talk about the difference that leadership can make in a business. 

CAB in a highly competitive “insurance brokerage” market, not an easy space, sector to be in, delivered in 2022 year-end, versus 2021 as follows: 

  • Revenue of J$ 469 million, versus J$ 423.4 million, + 10.8%
  • Net Profit of J$ 77.9 million, versus J$ 56.1 million 
  • Earnings per share of J$ 30 cents, versus J$ 21 cents, + 43% 

CAB is slowly but surely hitting their milestones. They do not seem to be one of those companies that will have a breakout year or season, unless they announce a deal or merger, but, they clearly seem “slowly but surely” on their way to a steady, J$ 100 MM net profit year and higher. 

There is absolutely nothing wrong with that. 

  • The Jamaica Stock Exchange Limited (JSE: JSE). Yes, yes and yes, we always remind our ItsMoneyMark readers, that it is a listed entity, the actual exchange, just like what we see with the Nasdaq, the LSE and in other markets regarding their Exchanges. 

The JSE reported financial numbers for the year ended December 31, 2022, and they were good, given the market conditions, and re-confirms the JSE’s strategy in recent years of diversifying its revenue streams. 

Total revenue for YE 2022 was J$ 2.16 billion, improving against J$ 1.92 billion, + 12.5%. Important point to note, fee income in 2022, was J$ 1.54 billion. Net profit reported for the year-end was J$ 503 million, with earnings per share of J$ 72 cents. 

Total equity continues to improve, and closed the period ending December 31, 2022, at J$ 2.22 billion. 

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