September 3rd, 2008

 

Jamaican Stock Market Reveiw

Marginal Advances registered in weekly trades

The week ended August 29, 2008 saw the trading of a total of 32 stocks. Of these, there were 10 advancing, 15 declining and 7 stocks trading firm. For the period, the JSE Select Index and the All Jamaican Composite both advanced while the main JSE index declined. The Main JSE Index fell to 108,044.77, losing 170.05 points, while the JSE Select Index and the All Jamaican Composite rose to 3,013.22 points and 109,877.58 points, respectively gaining 0.66 and 171.28 points.

Trading volumes strengthened for the week as volumes amounting to 42.09 million units (valued at $533.95 million), represented a 400% increase over the 8.42 million units (valued at $89.42 million) traded in the previous week. Jamaica Broilers (JBG) was the volume leader for the week with 14.4 million units (34.21%) traded, followed by Scotia Group JA and Cable & Wireless JA (CWJA) trailing with 8.85 million units (21.03%) and 7.29 million units (17.33%) respectively.

Having lost 8.33% last week, Bank of Nova Scotia (BNSJVP) rebounded to realise the largest percentage price appreciation after gaining 10%, up $0.11 to close the week at $1.21. This was followed by Jamaica Broilers (JBG) which gained $0.65 to close at $7.20 after climbing 9.92%. The top three was closed out by Salada, which gained 8.0% to close the week at $135.00, up $10.00.

Shares in the D&G lost 8.03% to realise the largest loss for the week of $0.55 to close at $6.30. This was followed by Kingston Wharves (KW), which fell by $0.50 to $6.50 (7.14%) and Scotia DBG Investments (SDBG) with a $1.88 share price decline to $26.00.

Trinidad Stock Market Summary
Decline ratio remains robust

The decline ratio remains robust as 23 stocks traded, of which 6 advanced, 14 declined and 3 remained unchanged for the week ended August 22, 2008,. The All TT Index fell by 13.78 points as it closed the period at 1,530.01 points comparatively over the previous week. Meanwhile, the Composite Index decreased by 12.14 points week-over-week to close at 1,138.69.

Market volume was fell for the period as trades amounted to over 1.06 million units (valued at over $18.48 million) relative to 2.29 million units (valued at $41.96 million) in the period aforementioned. Sagicor Financial Corporation (SFC), for the second consecutive week, lead the way with volumes amounting to approximately 0.34 million units (31.78%) to lead the week. Accordingly, One Caribbean Media (OCM) recorded trades of over 0.16 million units (15.44%) traded to follow suit. The top three was closed by the national Commercial Bank Jamaica (NCBJ) with 0.10 million units (9.89%).

The National Commercial Bank Jamaica (NCBJ) topped this week’s winners with a price appreciation 7.50% or $0.15 to close the week at $1.85. The second highest price appreciation was registered by Scotia DBG Investments (SDBG), with a 7.41% gain to reach $2.50, advanced by $0.20. The National Flour Mills (NFM) which gained $0.05 or 5.26%, closed the period at $0.90. L.J.Williams Ltd (LjWb) with a loss of 1.62% or $0.03 closed at $1.88 to follow suit. Readymix W.I. (RML) finished the week at $31.99 (down 1.56% or $0.49) to close the top three.

Fixed Income
Strong levels of liquidity persist in the JMD Fixed Income Market


JAMAICAN DOLLAR FIXED INCOME MARKET
For the week of August 29, inflows of approximately $14.07Bn entered the Jamaican Dollar Fixed Income Market. This resulted in the thirty-day inter-dealer Repo rates beginning the week ranging between 14.50% and 14.60%. The market remained fairly liquid throughout the week, despite the offering of new instruments. Given the shortened trading week due to the passage of the Tropical Storm, the market closed the day on Thursday at an average 15.70%. Similarly, the overnight market began the trading week at fair levels of liquidity. As a result, the overnight rates hovered within a band of 7.00% - 8.00% compared with 7.00%- 9.00% in the previous week. Overnight rates ended the trading week at an average of 8.00% compared with 7.00% in the previous week.

On Wednesday, August 27, the BOJ tendered two Treasury Bills with tenors of 182 days and 91 days, and offer amounts of $500Mn and $400Mn respectively. Both the 182-day and 91-day Treasury bills were oversubscribed by $353.98Mn and $355.09Mn at average yields of 15.08% and 14.58%, respectively. This represents an increase for both the 182-day and 91-day Tbills from the 14.90% and 14.46%, respectively recorded in July 2008.

The MOF is offering a 20-year 17.65% pa Fixed Rate Registered Bond 2028 Series W with subscription period August 28- September 2, 2008. Interest payments will be made semi-annually. This instrument will mature on August 28, 2028. In addition, the BOJ announced the offering of a Variable Rate Certificate of Deposit (VR CD) Series J during September 1-2, 2008 with interest fixed at 14.58% pa for the first three months thereafter interest will be paid on a quarterly basis at 1.25% above the weighted average yield of the three month Treasury bill. This VR CD matures on February 26, 2010.

US DOLLAR FIXED INCOME MARKET
The US Dollar thirty-day Secondary Repo Market continues to experience low-to-moderate liquidity levels. As a result, the thirty-day Repo rates hovered within a band of 5.65% and 5.75%. The overnight market rates ranged between 5.00% and 5.10%.

Last week, the Global Bond Market was somewhat mixed as the Eurodollar denominated Eurobonds all recorded a retreat in prices, while the prices for the Digicel Limited 2012 rose by $1.50 and both tranches of Digicel Group 2015’s rose $3.75 and $3.50 respectively. The rise in prices for the Digicel bonds resulted largely against the background of strong demand predominantly from overseas investors. Notably, all the GOJ USD denominated Global Bonds remained unchanged with the exception of the 2019s which advanced modestly by $0.30 week-over-week. Looking ahead, the expectation is that the bond market will continue to experience volatility in prices amid deteriorating macro economic indicators in the domestic economy coupled with the ongoing instability in the US Financial Markets.


Foreign Exchange Report
Local currency depreciates against US dollarFor the week ended August 29, 2008 the weighted average selling rate of the USD moved from J$71.9883/US$1 to J$72.0710/US$1 amidst moderate broker and end user demand. There was no BOJ intervention in the market for the week.

The local currency gained $1.35 against the British pound to close the week at $ 132.0886/£1 and lost $0.51 to the Canadian dollar as the average selling rate rose to J$69.4081/CDN$1. Results were indicative of activities on the international market.

For the week, the US$ advanced against all its major trading partners except for the Yen, led by strong second quarter GDP revision numbers. The Euro declined 0.8% against the dollar to close the week at 1.4674. As investors went bearish on the sterling, it lost 0.2% to the dollar. The pound closed the week at 1.8211.

This week, the market will be looking to the interest rate decision by the ECB and the accompanying rhetoric.


JSE COMPANY SPOTLIGHT
[i][b]Pan-Jamaican Investment Trust Limited (PJAM)
Another strong performance for Pan Jam[/b][/i]

Financial Summary·
Pan Jamaica Investment Trust Limited started the year positively, reporting a 33% increase in first quarter profit attributable to shareholders of $271 million.

• For the quarter ended March 31 this year, the company recorded revenues of $377 million, up 38% or $ 104 million from the $273 million posted last year.


• Helping to drive the increase in revenues was a $66 million or 135% increase in investment gains to $115 million, and a 20% increase in property income with $245 million being recorded coming from $204 million last year.


• Helping the $40 million increase in property income was overall occupancy levels exceeding 98% for the quarter.


• Operating expenses rose by $29 million in the first quarter to $149 million. This 24% increase was driven principally by an increase in property operating costs of $16 million. The increase raised the operating margin to 60% from 56% last year.


• Resulting operating profits rose 49%, moving from $153 million last year to $228 million in 2008.


• Interest expenses of $9 million represents a 23% period over period increase for the company. The increase was due to a rise in long term debt for the firm.


• Share of results of associated companies for the quarter improved by 27% to $190 million coming from $150 million in 2007.


• Contributing to the rise in the share of associated companies was a 28% increase in net income for LOJ (now Sagicor Life), moving from $591 million to $757 million for the quarter.


• Pan Jamaica reported profits before tax of $410 million and net income attributable to shareholders of $271 million, a 33% improvement over the $203 million reported in the first quarter of 2007. Despite the rise in profits the net profit margin fell to 71.8% from 74.5% last year.


• Basic EPS rose to $1.58 from $1.19.


• Total assets as at March 2008 remained relatively flat at $10.5 billion. As a result, annualized ROA for the quarter was 10.4%.


• Stockholders equity also remained flat at $7.1 billion. The company’s debt to equity ratio was 5.5%.


• Annualized ROE for year was increased to 15.3%, coming from 11.6% in 2007.

Company Outlook
Pan Jamaica has begun the year positively, providing an indication as to what is to come for the rest of the year. Profits were driven by continued rises in the real estate market and by improved performance of the company’s associates. Also, Pan Jamaica has a much diversified flow of income as, through its large network, it has stakes in insurance, financial services, agriculture and the distribution and trade sectors. With the property segment accounting for 65% of revenues and the majority of their subsidiaries being heavily involved in real estate or property management, the company will continue to perform at a sterling level if current trends in the real estate market are sustained.

However, there is speculation that much of the boom in the real estate market is as a result of the large inflows of cash created by a proliferation of the unregulated investment schemes and that the apparent fall of many of these institutions may result in a deflation of the market. If credence can be given to this theory, it may signal a slow down in Pan Jam’s property segment growth.

The newly rebranded Sagicor Life Jamaica improved its performance in the quarter and with the recent acquisition of the entire health insurance portfolio of Blue Cross Jamaica Limited, we should see continued improvement as a result of the resulting growth of the company.

Recommendation
If, for the 12 months to March 2009, we assume that total income of the company will grow 20%, then revenues for that period will amount to $1.77 billion. A 10% increase in the share of results of associates will result in net profit attributable to shareholders of $1.2 billion or an EPS of $6.96. Using a P/E of 9X, share price is estimated at $62.64. This estimate leads to a ‘BUY’ recommendation.


The recommendation is supported also by the following:

• Pan Jam is trading at a P/E of 8.6X which is below both the industry average of 11.2X and the total market average of 11.3X.


• The stock also trades very close to its book value with a P/BV of 1.2X


• The contribution made by the associated companies should continue to be significant in the current year