ItsMoneyMark Newsletter #108

Scotia Group Jamaica, Coming in Hot for 2023

Really Changing their Financial Fortunes: Loan Growth & Earnings 

It is a strange phenomenon, but we got to highlight it. When most of the banking, financial sector has a down period or quarter, Scotia Group Jamaica (JSE: SGJ) does well here, and vice versa at times. It has long been said, that SGJ takes a different approach versus the sector to, loan analysis, credit growth, its risk analytics, etc. The numbers versus the sector do reflect this, and historically, while SGJ was either struggling with flat/ fair quarters and disappointing quarters (partly due to a loan book that was flat or declining, or in hindsight tightly held for risk reasons we assume), the sector was reporting extraordinary growth numbers (SGJ’s competitors). 

Scotia Group Jamaica for the first time in a long time that we can recall, has grown its loan book defined as, “loans, net of allowances for credit allowances”, significantly, year over year, for the comparative reporting quarter, April 30, 2023, versus April 30, 2022. This line item, hit J$ 249.3 billion versus J$ 207.2 billion, representing a staggering growth of + 20%. 

By the earnings numbers, these are the ½ year or 6 months results by SGJ. As mentioned, SGJ crushed it, and the market wants to see this continue until the year-end for the bellwether. SGJ reported earnings per share (“EPS”) of J$ 2.45 versus J$ 1.18, an increase of 108%. Net profit for the 6 months, April 30, 2023, was J$ 7.62 billion versus J$ 3.66 billion. Feels like old times rolling back for SGJ, but they aren’t fully back yet. A key ratio, that has SGJ trending back in the right direction, per their profits is their ROE – Return on Equity. For the 2^nd quarter, ROE was 15.7% and for the 6 months, ROE was 14.22%. 

The importance is to see SGJ maintain this 20% growth in loans, and not to see a pullback in their loan book overall in the coming quarters. SGJ shareholders want to see these consistent earnings per share growth again moving forward on an annual basis. 

Market Moves:

• GWest Corporation Limited (JSE: GWEST). The Company continues to struggle many years later, and still has not gotten its act together or lived up to expectations post IPO, Initial Public Offering. As a result, GWEST’s market cap remains as low as J$ 431 million on the JSE, Jamaica stock Exchange, one of the lowest on the overall JSE indices. The stock price is trading on or around J$ 89 cents per share. 

Further corporate governance announcements & changes hit GWEST this week, with the Company making the following announcement:

“Appointment of Director 

GWEST has advised that Mr. Wayne Wray was appointed to its Board of Directors on March 09, 2023. Mr. Wray is Mentor to the Board and will continue to act as Chairman of the Board of Directors. 

Resignation of Director

GWEST has advised that Dr. Konrad Kirlew has resigned from the Board of Directors effective March 30, 2023.”

Additionally, GWEST advised the JSE of a delay in the publication of their audited financial statements for their year ended March 31, 2023. They now expect to publish them, on or before July 12, 2023. 

It is a suggestion, as we opine at ItsMoneyMark, that GWEST given the material number of corporate governance changes, appointments over the years, they should consider giving an investor briefing to the market, that would include (i) the Company’s strategy, & (ii) the potential growth/ outlook of the Company. 

• Lasco Distributors Limited (JSE: LASD) and Lasco Manufacturing Limited (JSE: LASM). Both companies have advised of an important date coming up next week, that is June 15, 2023, to the JSE, Jamaica Stock Exchange. In the advisory posted on the JSE they state the standard, meetings to consider a dividend for both companies, however as they will be board meetings, there has been further reports in the media that these meetings will be used to declare further information regarding the status of the companies moving forward since the passing of Mr. Lascelles Chin. 

We recently spoke about the importance of this, and communicating with the market, as the market is anxiously awaiting the Lasco companies plans, especially these two (2), LASD and LASM. The outcome of June 15, 2023, which should be out by the latest the Friday, June 16, 2023, will be keenly watched and analyzed.  

• ISP Finance Services Limited (JSE: ISP). The micro-credit company, the 3^rd largest publicly traded one on the JSE, had a lower Q1 2023. ISP reported net profit of J$ 6 million versus J$ 8.95 million, year over year. For the quarter, ISP managed operating expenses well and maintained them year over year, however, interest expense almost doubled, while interest income from loans (core business) grew by only 6.2%. 

ISP’s loan book closed at J$ 789.5 million as of March 31, 2023, net of provisions for credit losses. For ISP on a historical basis, this represented a material increase of J$ 100 million, year over year for the comparative quarter. ISP maintained approximately J$ 231 million in cash & cash equivalents and marketable securities as of Q1 2023. 

While ISP needs to work on their profitability, and net margin line, they are well on their way to attaining that healthy and attractive loan book milestone of J$ 1 billion in time. 

• Some people think notable investor Cathie Wood and her investment vehicles, etc., the flagship Ark Invest ETF, Ark Innovation ETF, are “crazy” but many crazy investors over many decades and life have turned out to be right. 

We jump into ARK’s big moves, and in some cases, further move, buying US$ millions, of “Block Inc.” 

The company, Block Inc, is the fintech company behind platforms such as, (i) Cash App and (ii) Square. Recently, Ark purchased a total of approximately US$ 14 million of Square (US: SQ) shares. 

In terms of one of Ark’s funds, the Ark Innovation ETF, Block now comprises approximately 6.5% of it, with a market value of US$ 483 million. 

By the numbers, both Block and Cash App, have been growing well above average… For the latest results, Block reported gross profit for the quarter, + 32% year over year, while Cash App’s gross profit was + 50% year over year. 

• Caribbean Producers (Jamaica) Limited (JSE: CPJ). One of the powerful ways to gain exposure to tourism, has made a well-positioned and influential announcement to the market. 

CPJ has disclosed that its Board of Directors has approved three (3) major capital expenditure projects that will positively impact the company both locally and offshore and will impact further growth and development of CPJ for shareholders. 

“The Board has approved plans for a US$ 1 million solar expansion project, with installation to commence in Q1 of FY2024. The Board has also approved a US$ 2.3 million plans for the modernization of the Meat Processing Plant, with work to commence in Q1 of 2024. Off-shore, CPJ will be expanding its Operation in St. Lucia with a new store, final plans are being put in place with Operations to begin in Q2 of FY2024.”

CPJ’s share price has been trading around J$ 10/ share, representing a market cap of approximately J$ 11 billion. The last quarterly numbers by CPJ, were unexpectedly down, and the market’s expectation for the upcoming quarter, is that CPJ should get back on track. 

Let’s see, but the bottom line is, this is a timely announcement by CPJ, and improved investor relations, corporate communication by the company, after the recent earnings quarter.