Business News

2015 report card and stock picks for 2016

Jan 17, 2016

n my January 4, 2015 article, I selected four local stocks that I anticipated would do well in 2015; these are shown in the upper portion of the table. My sole declining stock was Agostini’s Ltd, which lost $0.36 or 2.06 per cent of its value. Even so, its total dividend for 2015 was slightly increased to $0.56 from the previous year’s $0.55. On the other hand, TCL gained almost 60 per cent, cumulatively influenced by the rights issue, debt refinancing success and the reasonable likelihood of a dividend payment in 2016.

AHL delivered modest capital appreciation, with the price peaking at $16.00 on January 26, 2015. The changes in government and of Central Bank Governor have introduced elements of uncertainty as to the way forward on the CL Financial, Clico, Republic Bank, Angostura and related matters.

In the case of PHL, steady unspectacular growth and diligent attention to variable cost items seemed to be the formula for success.

Local selections

Trinidad Cement Ltd

You may well ask: “Why TCL, again?” The short answer is that I believe that its transformation and streamlining is still in the early stages and that those processes will prove to be increasingly profitable.

TCL is also an exporter and we have precious few of them on the exchange. (The other major exporter is Angostura.) Although Carib Brewery probably does a fair amount of exporting, its results are buried within the ANSA McAL group’s figures. While the local economy may not experience much growth in 2016, some strategic pockets of activity will benefit. These include export manufacturing and housing.

The share price peaked at $4.75 on December 2, 2015. Perhaps, the run-up in the share price was a little too fast? This may have panicked some investors, who then decided to take some profits.

When the audited results are released in March, investors will have a clearer perspective on what to expect in the coming year. Until that time, the share price may continue to drift.

I have estimated that the closing price next December could be $5.50 or higher.

Prestige Holdings Ltd

In a slow growth economy, PHL’s continued focus on cost controls and invigorating customer service will serve it in good stead.

Next month, the company will release its audited results for the year ended November 2015. Most expect that this will be accompanied by an increased dividend.

As its stock of cash improves, it is likely that it will grow its business by consummating an acquisition within its field of expertise.

Steady profits from its existing franchises combined with the possibility of an acquisition underpin my recommendation to buy this share.

I estimate a December 2016 price of $11.00; if an acquisition occurs, it could be higher.

Caribbean cross-listed companies

The robust expansion in share prices in Jamaica that occurred in 2015 may not be repeated to the same extent in 2016. Even so, there are some regional companies that deserve our attention and focus.

National Commercial Bank Jamaica Ltd

NCBJ is a dynamic entity, which, for a long time, has been trying to gain more than toe-hole in to the Trinidad market. It has had some success with its capital markets operations. Now, it has decided to up the stakes by proposing to take a 29.99 per cent ownership in GHL.

This proposal has been described as a “partnership”. With Lok Jack and Ahamad interests having only 22 per cent equity, it is reasonable to assume, that, after a suitable “learning period”, the NCBJ interests would begin to assert their influence commensurate with their larger shareholding.

In the medium term, many would agree that, after a suitable period of courtship, the two groups may decide that a less expensive merger would be in their best interests.

The outright purchase of GHL by NCBJ in the future may saddle the latter with too much debt; we have already seen that it has resorted to the sale of its future credit card receivables to obtain financing for the proposed share purchase.

We can estimate GHL’s full year’s 2015 profit attributable to shareholders of at least TT$300 million. NCBJ’s proposed 29.99 per cent of this is about TT$90 million, which translates to almost J$1,800 million.

For its year ended September 2015, NCBJ recorded net profit attributable to shareholders of J$12.3 billion; thus, the possible inclusion of GHL’s net profits could boost NCBJ’s bottom line by about 15 per cent. Some of this could flow to NCBJ shareholders in the form of higher dividends.

My target year-end price for NCBJ is TT$3.00, translating to about J$60.00 in its home market.

GraceKennedy Ltd

Another energetic Jamaican-based company is GraceKennedy Ltd, which is now focussing on two main areas, food and finance. The recent disposal of its Hardware and Lumber Ltd subsidiary would have provided it with a useful gross cash infusion of about J$869.75 million (about US$7.21 million); this can now be used to help grow its two core business groups.

The company has external operations in the UK, USA and Africa. Effective January 1, 2016, Massy Trading replaced AS Bryden and Sons (Trinidad) Ltd as the local beverage distribution partner for Grace Foods International. The group remains focussed on achieving its 2020 vision of deriving most of its income and profit outside of Jamaica.

At J$6.19 their EPS for the third quarter was lower than the J$7.21 for the comparative period in 2014. Some of this decline related to one-off expenses occasioned by the integration of the enlarged US food operations. The application of the asset tax, lower foreign exchange gains and higher finance costs also contributed to the lower result.

On a positive note, dividends improved from J$2.33 in calendar 2014 to J$2.48 in calendar 2015. It is likely that this trend can and will be sustained as the group continues to expand internationally and become more profitable.

Perhaps, its share price would again reach TT$5.00, which it attained on June 22, 2012?

Sagicor Financial Corporation

From a high of $11.75 back in January 2010, SFC’s share price has mostly been on a free-fall to lower and lower levels in the main, for good reasons. This decline was only occasionally punctuated by temporary upward blips that lasted for brief periods before the price slippage resumed.

Within the next six months or so, the company is expected to execute several actions that should redound to the benefit of shareholders.

These include the re-domiciling of its operations from Barbados to another jurisdiction, possibly T&T.

In May 2016, it will also repay all of its preference shares, which have a fair value of US$128.9 million and settle a 5.0 per cent note with a fair value of US$44 million.

The funds for this exercise were secured back in August 2015, when it issued a bond of US$320 million. US$160.5 million from that issue was used on September 10, 2015 for the early settlement of 7.5 per cent 2016 senior notes with a face value of US$150 million.

After these transactions in May 2016, SFC’s debt level will improve. Additionally, it is expected to confirm its complete exit from the European market, with no residual costs or liabilities.

There is a maximum residual liability under the original sale agreement (which has not been signed) of US$5 million, which is likely to be included in the fourth quarter’s results; this item should not dramatically affect the full year’s performance.

In its third quarter report to September 2015, EPS, after including a loss on discontinued operations of US$0.061, registered at US$0.06. This is a strong improvement over the restated 2014 loss of US$0.028; in 2014, the discontinued operations accounted for a loss per share of US$0.099.

Also, it is likely that the interim dividend for 2016, payable after September 2016, should see an improvement from the regular payment of US$0.02.

Let us see how these selections perform in the coming year.

Dividend increases by banks (optional section)

In addition to NCBJ, four banks have also increased their dividends, including two that have decided to pay special (bonus) dividends. Scotiabank and First Caribbean, paid or will pay a special dividend this month; the former of TT$1.10 while the latter will pay US$0.063.

In the case of FCI, consistent with its improved profitability, it has increased its regular final dividend from US1.5 cent to US2.0 cents. In addition, it has allocated US$100 million from its ample reserves to the payment of the special dividend of 6.3 US cents.

First Citizens Bank (FIRST) also increased its final dividend to $0.74 from $0.61; this brings its total dividend up to $1.32 from 2014’s $1.18. This increase was approved despite its miniscule EPS improvement to $2.51 from 2014’s $2.50. This may reflect one benefit of government ownership?

Republic Bank’s (now, RFHL) final dividend moved from $3.00 to $3.10.

Interestingly, none of the prices of these stocks have risen dramatically in the trading days following these announcements; perhaps, after the year-end lull, the market will “wake up” to these developments in the coming weeks and months? Or, is there a reason for the inertia?

Next week, we will review the 2015 results of Agostini’s Ltd.

 

http://www.guardian.co.tt/business-guardian/2016-01-17/2015-report-card-and-stock-picks-2016