1. Publication: Jamaica Observer; Date: Aug 20, 2008; Section: Business Observer; Page: 18B
Financials First to the Finish Line
Contributed by RAUL HAYNES
JAMAICA has been made proud this week with the glorious achievements of its athletes. Apart from Usain Bolt, another special moment was
when the ladies placed 1, second and second in the 100m to show the world that Jamaica is indeed the new sprint factory. The Jamaican
marketplace is similar in a sense, as it has some consistent top performers who are either keeping the pace or leading their races. These star
companies are setting the standard high, independent of whether US financials boom or bust. My medals are awarded today to the financials
that are driving the market, National Commercial Bank (NCBJ) Scotia Group Jamaica (SGJ) and Pan Caribbean Financial Services Limited
(PCFS) who earned Gold, Silver and Bronze respectively.
National Commercial Bank Jamaica Ltd's (NCBJ) 9M results were stellar. NCBJ has grown profits by 38.4 per cent to J$6.7B from J$4.9
billion. Although NCBJ received a one-off gain from the sale of its Visa shares, excluding this one off-gain of J$517mm the Company's
Earnings per Share (EPS) would have still grown 27.78 per cent to J$2.53 from J$1.98 in the corresponding period last year. The core
operations of the group grew in all its segments. It is predicted that the year end results will be equally as strong and the demand for the
stock will intensify. We must also keep in mind that NCBJ is consistently performing and a P/E of 10 or less makes the price relatively cheap.
Scotia Group Jamaica (SGJ), which will release its 9M earnings at the end of this week, is expected to report excellent results. The Company
released impressive earnings for the first six months of the financial year with an EPS of J$1.50 increasing 29.31 per cent over the J$1.16
EPS it recorded the previous year. This is significant because SGJ acquired DB&G and immediately increased profits, which is commendable
because most firms need a “breaking in” period. Scotia DBG Investments Ltd. (SDBG) bolted from the start and for the six-month period
ended April 30, 2008, the company's net income was J$637 million, doubling the previous year's earnings of J$319 million.
Pan Caribbean Financial Services (PCFS) reported solid 6M 2008/2009 earnings for the period ending June 30, 2008 due to consistent sound
management. The company reported earnings per share (EPS) was J$1.11 for the same period up 11 per cent compared to EPS J$1.01
reported for the comparative period last year. This increase in the (EPS) was a result of the increased income and a one off gain due to the
sale of Manufacturers Credit and Information Services Ltd (MCIS). This one of gain earned the bank J$58 million. Without the one off gain
the EPS would have been roughly J$1.00 and remained flat but nonetheless consistent.
Comparing the performance of financials with manufacturers, it is clear that manufacturing companies are not having it easy. For starters,
manufacturing companies have been battling with oil prices, and oil prices are winning regardless of the decline from its peak of US$145 to
currently US$112-113. Also, the spike in other commodities prices, such a wheat and fertilisers, has been a major blow to these companies'
bottom lines. In turn, this is affecting growth and stock price appreciation.
Berger, which has been trading in the J$2.90-3.50 range since the start of the year, has seen its stock price stagnate at J$3.00 from
January 2, 2008. The company recently released poor 6M results, reporting a Net Loss of J$6.5mm. Goodyear, Carib Cement Co and Jamaica
Producers' (JP) stock prices have plummeted from the beginning of the year. GYR declined 7.76 per cent from J$4.90 to J$4.52; CCC fell 5.26
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2. per cent from J$9.50 to J$9.00 and JP dropped 11.55 per cent from J$35.05 to J$31.00 at the close of trading yesterday. Jamaica Broilers
(JBG) is the only exception within the manufacturing companies group. Net profit increased 44.55 per cent for the year ending May 3rd 2008
and this is as a result of the high demand for ethanol and also excellent performance of its poultry division.
As many manufacturing companies are faced with continued upward pressure from rising fuel costs and the challenging economic climate not
only in Jamaica but globally, Jamaican investors have a narrow level of confidence in these stocks. Investors have their manufacturing stocks
on hold and repositioning their strategies by putting their faith in financials where they feel more secure. The benchmark for Return on
Equity (ROE) for financials is roughly between 18-20 per cent. Scotia Group Limited and NCBJ surpass this. The ROE benchmark for
manufacturing companies is five per cent and out of the group mentioned only The CCC and JBG were able to meet the mark with ROEs of
8.99 per cent and 12.62 per cent respectively (this is skewed downwards based on global fuel and commodity prices).
If the global economic situation stabilises by the beginning of 2009 and these manufacturing companies continue to put forth efforts (cost
cutting and price increases) to combat these turbulent times, we can expect interest in manufacturing to pick up. However, for now financials
will continue to be in the limelight and we can expect investor interest in the manufacturing industry to pick up. However, financials are
expected to remain at the forefront.
Raul Haynes is a research analyst at
Stocks & Securities Ltd.
rhaynes@gostocksandsecurities.com
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