Month: January 2018

Following consistent growth in marketing coffee for the past decade, investors are now losing faith in the performance of Starbucks. After a poor first quarter performance, the stock price fell by 4 percent last Friday. However, analysts are suggesting that the growth experienced in the Chinese market cannot offset the slow growth being experienced in the US, which is Starbucks’ largest market.

Starbucks locations in the US accounts for 70 percent of sales for the company for which comparable sales increased by a nominal 2 percent; while in China comparable sales rose by 6 percent. The lowest increase in five years for Starbucks in the US. CEO of Starbucks, Kevin Johnson, blames the lack of growth on the busy lifestyle of Americans which results in them purchasing more ready to drink beverages and coffee. Based on the demand for more ready to drink coffee, it is reported that the industry should increase by 67 percent in 5 years.

In an effort to compete, Starbucks is planning to expand the company by introducing more Roastery shops. In addition, the company plans to implement cashless stores when it begins to accept mobile payment from customers. In an attempt to expand its customer base, Starbucks is partnering with Chase and Visa by using branded reward cards, giving customers the chance to earn loyalty points when they shop at other stores.

Furthermore, with the introduction of new products, Starbucks is hoping that they can strategically increase sales in the US market. The company, this month, started selling a second type of espresso roast called Blonde Espresso and has begun the sale of nitro cold brew,  various fresh foods, bottled drinks and craft coffee.

Is this reason enough to improve your faith in Starbucks?

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On Monday, Amazon opened its first cashierless store on the ground floor of its Seattle headquarters. The store, which is called Amazon Go, is more of a convenience type grocery store. It sells products such as milk, potato chips, liquor, ready to eat lunch and breakfast items as well. Amazon Go is very convenient for shoppers who like to avoid long cashier and checkout lines.

But how does it work? Before entering the store, shoppers are required to scan their Amazon Go smartphone app at a turnstile and also check in with their Amazon Prime account which has credit card information.  Once an item is removed from the shelve it will be detected by cameras from above as well as weight sensors that sense exactly what is being removed from the shelve. Amazon will also be utilizing computer vision and machine learning algorithms in the one of a kind store. Each shopper will be gifted with a virtual cart. Each item removed from the shelf will be place in that cart. Once an item is replaced, it will be removed from the virtual cart. Shoppers who leave the store with items in their virtual cart will be charged from their credit card.

The store however, is not without employees. Employees will be there to check identification cards of shoppers who purchase liquor. Additionally, staff has to be there to prepare the meals and assist shoppers who need assistance. Even so, one may ask, wouldn’t it be easy to shoplift from a store that does not have a cashier?

Persons seem to think that the Amazon Go system is so robust that it would be hard to shoplift. For one, being that each shopper has to check in with the Amazon prime account would make it difficult. However, Amazon did report that for families to enter, one person in the group can check in everyone. Even though the weight sensor would recognize that an item was removed from a shelf, how would it charge someone who did not scan the app to enter or even enter a Prime account? Yes, the cameras can pick up persons removing items but what about persons who are of the same body type and size, especially children?  Nonetheless, it’s still left to see who would be brave enough to shoplift from such a highly technologized store without being caught.

This is just another stepping stone for Amazon in the retail industry as it makes its presence more felt offline.

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The National Commercial Bank, NCB, recently announced that it will now be providing residential mortgages to its customers. NCB is now offering a promotional mortgage rate of 7.99 percent with a reduction in commitment fees as high as 50 percent. Described as Jamaica’s largest bank, NCB has become the seventh financial institution in the island to participate in the Joint Finance Mortgage Programme by The National Housing Trust (NHT).

According to The Planning Institute of Jamaica (PIOJ), fewer persons have been receiving mortgages from financial institutions. The PIOJ reported that the number of mortgages approved have decreased by 4.2 percent for the period ending June 2017 to 2,013 mortgages. This caused the total value of mortgages to decrease by 10.6 percent to JMD$9.2 billion.

The Joint Finance Mortgage Programme provides additional financial support to persons who may need further assistance other than what is given to them by the NHT. The borrower has to pay the lending financial institution at its own interest rate and the NHT at a separate interest rate. The repayment is however, done at the financial institution. It is important to note that the NHT lends money to purchase houses at an interest rate as low as zero to six percent.

This new venture for NCB began in July of 2017 but was just made public. Another strategy by NCB to grow its customer base as it continues to rake in profits and continues its exceptional performance on the Jamaica Stock Exchange Market. NCB currently trades at $99.77 on the JSE.

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With a 93 percent gain in stock price for 2017, it is clear that business for Alibaba has been booming. This exceptional growth has made investors curious as to whether or not the stock price can grow any further.

It is reported that the retail business in China accounts for an estimated $5 trillion in revenue yearly with only 15 percent of that total representing online transactions. With no well-defined lines between shopping online and offline, Alibaba should be able to continue experiencing exceptional growth for years to come. Alibaba, the Chinese e-commerce giant, experienced a 60.7 percent growth rate for the quarter ending September 2017 with an $8.29 billion in revenue.

However, it is said that even though businesses experience impressive growth rates, once the company begins to expand the growth slows. However, that is the opposite with Alibaba.

Alibaba is able to sustain its exceptional growth based on the performance of the different segments of the business. Segments such as Digital Media and Entertainment grew by 33 percent for the third 2017 quarter. Revenue from the Core Commerce segment grew 63 percent, cloud computing increased by a whopping 99 percent and innovative schemes increased by 27 percent. Additionally, operating margins was 30 percent of revenue.

Many investors would argue that Alibaba’s stock price is unreasonably high; currently at US$198.33, a little below the fair value of $200. However, based on the company’s performance which has been consistently exceptional, it is clear the stock has more growth to experience. Despite the legal, regulatory and other potential or even obvious risks in China, the uncertainty that surrounds businesses such as Alibaba, is high. But investors will be watching to see the impact these factors will have on the company while reaping the profits from the growing stock price.

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Famous for movies such as Hunger Games and Twilight, Lions Gate Entertainment Corp is preparing  to be sold to a popular tech or media company. Although not releasing the name of the company, Vice Chairman of Lions Gate, Michael Burns, hinted on possible purchasers such as Comcast Corporation, Amazon, CBS Corporation or Verizon Communications.

With several high profile acquisitions involving companies such as AT&T taking over Time Warner for approximately US$85.4 billion and Walt Disney Company buying 21st Century Fox for US$66 billion, indicates several reasons other large players in the media industry may want to expand business by acquiring smaller successful businesses.

Furthermore, the expansion of some companies pressures or intimidates smaller video businesses into mergers and acquisitions. But would it be better to build to expand or just buy? Based on how far ahead companies such as Walt Disney and AT&T are in the media industry and their presence on the market, it would be wise for other companies to buy.

Most analysts’ bet is on Amazon Studios acquiring Lions Gate. Reason being, the two have had a close relationship from day one. Amazon Studio’s movies ‘The Big Sick’ and ‘Manchester by the Sea’ were produced by Lions Gate while Lions Gate’s computing services are provided by Amazon Web Services. Lions Gate is worth US$10 billion including all its debt with a US$7 billion market cap.

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Lasco Manufacturing Ltd has formed a new company, Lasvac, to manufacture medicinal ganja products. In a joint venture with United Cannabis and Cannabinoid Research and Development CRD, Lasco will be making medicinal marijuana products in the form of roll-ons, balms, sublingual and capsules. The agreement is said to be valued JA $12.8 billion or US$103 million. The products will be exported to Caribbean Islands which are native English speakers and Central America.

Lasco Manufacturing Ltd is not yet in receipt the license to produce these products but has applied for it through the Cannabis Licensing Authority (CLA). The Cannabis Licensing Authority in Jamaica monitors and regulates the legal marijuana industry in the island. Lasco has not released a lot of information on the venture but has stated that the company has located 30,000 square foot of space nearby its White Marl warehouse and hopes they can begin operations in the third quarter of 2018 as they are prepared with all necessary equipment ready.

Lasco is pushing for approval for the growing of marijuana in large quantities in time for manufacturing. This production will be of great advantage to Jamaican farmers as it will be a source of income. Already, interested buyers from other countries such as Australia have placed orders for some of the medicinal products while countries such as Canada, Italy, Europe and Ukraine have expressed interest in the authentic ‘Made in Jamaica’ labelled products.

Lasco will be offsetting US$100 Million for the manufacturing and distribution of the products while United Cannabis will be responsible for the US$3 Million difference. Furthermore, the CRD will be responsible for growing and producing the best seedlings of marijuana for production. Marijuana is reported to be beneficial for treating pain, dementia, epilepsy, cancer, insomnia and other illnesses.

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With a decrease in revenue and the lack of ability to meet its bottom line or to make profit, Dell Technologies is currently looking at different options in order to raise capital.

Based on the substantial debt amount of US$52.5 billion, analysts are suggesting that the company should go public to reduce the amount. They purchased 80% of VMware in 2015 for US$67 billion but still owes US$46 billion in debt from that purchase.

There have been whispers that they are considering a reverse merger with VMware, the company they acquired EMC Corporation from.  A reverse merger would mean that VMware, the smaller company, would buy Dell, reportedly for more than the US$67 billion.

A reverse merger would mean that they would not need to go public as VMware is already traded on the New York Stock Exchange Market as an independent company.

After they purchased VMware, its debt amount was US$57. 4 billion. Therefore in order to reduce that amount, Dell liquidated several assets. Dell Services was sold to NTT Data Inc, a Japanese telecoms company, for US$3.05 billion in March 2016. By June 2016, Dell sold Dell Software unit to Partners Management LCC, a private company in Francisco, for US$2.4 billion.

Additionally, in September of the same year, the company sold its Enterprise Content Division for US$1.62 billion just less than a week after it purchased VMware. With these sales, Dell paid off US$5.3 billion to reduce its debt with a further US$1.2 billion paid since the start of 2018.

Rumour also has it that Dell may very well purchase the remaining 20% of VMware but how feasible would that be? Wouldn’t they still be in debt? Analysts and investors are still waiting to see what they will do in the coming months to move from in the red to black.

But with a track record of losses and bold but risky moves made by Dell’s CEO, Michael Dell, would you buy Dell’s IPO?

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Since recommending Boeing Company [NYSE: BA] to our clients, the shares have increased more than 150%; outperforming the industry over the last year!

Boeing is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defence contractors.

The company continues to witness strong demand for its commercial as well as defence products. The company is also expanding its presence in cybersecurity, intelligence and surveillance and unmanned systems, where growth rates are higher than the overall defence budget.

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Since recommending Johnson & Johnson [NYSE: JNJ] to our clients, the shares have increased more than 122%; outperforming the industry.

Johnson & Johnson, Inc. focuses on the development, manufacturing and marketing of pharmaceutical, medical, and consumer-related healthcare products. Its worldwide business is divided into three segments: Pharmaceutical, Medical Devices and Consumer.

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To diversify its product line, Seprod [JSE: SEP] is now looking to produce palm oil in Jamaica. This production will be facilitated by a new processing plant which is expected to be built starting September 2018. This will be of great benefit to local farmers as they will be needed to plant palm trees for commercial purposes which will then be sold to the company for the mass production of palm oil. Seprod plans to spend JA$5 billion on this new venture.

Despite a JA$3 billion owed in loans, Seprod will be seeking to borrow the majority of the funds to offset the cost of production. The company wants to have at least 1,000 acres of land planted with palm trees to supply the processing plant.

Seprod is, however, not in a rush to get the product on the market as there is a three years’ time gap between the times of planting the crop to getting the oil ready to be sold. The palm oil production will be similar to that of production in Central America as the company will be sending a team to Central America soon, to view how it is being done there.

Most of Seprod’s revenue comes from its Serge Island Diaries subsidiary, but with this new project, Seprod is looking to grow its brand not only by producing palm oil but also through other milk processing, grains and edible oil production. The company hopes that with innovation and exportation of Seprod brands such as Supligen to countries such as the U.S and U.K and maybe Canada and Panama shortly, it can consolidate the business while also adding value.

Regardless of some segments of the business underperforming, such as its Golden Grove Sugar segment, Seprod’s revenue increased by 15% with a JA$1.6 billion in profits from 2015 to 2017.

If everything goes according to plan, Seprod’s business is expected to thrive in the coming years. Seprod now trades at JA$28.81 on the Jamaica Stock Exchange market.

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According to the Managing Director of Carreras [JSE: CAR], Marcus Steele, the Jamaican government is currently losing revenue from the excise tax imposed on cigarettes and tobaccos in 2017.

Even though the government raised the tax on each cigarette from $14 to $17, it is said that they are still losing an estimated JA$1 billion in tax when compared to previous years.

Reason being, Carreras has had to pass on the consumption tax bump to its customers through increased cigarette prices. However, persons are finding cheaper ways to smoke.

Smokers are purchasing cheap illegal cigarettes to avoid paying more for the product. Fewer sales for Carreras means less tax for the government as the illicit traders of tobacco and cigarette do not pay tax.  With a sale price as low as $20 per stick for illegal cigarettes and a sale price of up to $55 for Carreras cigarettes, consumers are choosing the former.

The illegal tobacco business is currently earning up to JA$5 billion in revenue which is 30% of the local tobacco market; not half as much as Carreras makes in revenue, but a significant loss in business. The income from the illegal cigarette trade is expected to continue growing if the government does not roll back the excise tax.

Steele says the government looks at the Tobacco Industry as a means of bridging the gap in its budget yearly but should consider the industry as a means of sustainable revenue for the country.

In 2017, Carreras made JA$13.5 billion in revenue of which it paid almost 43.7% in tax to the government when compared to 2016, where the company paid 42% of its revenue of JA$12 billion in tax.

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With a loss of US$1.9 billion in the final quarter of 2017, Goldman Sachs Group Inc. [NYSE: GS] has reported their first quarterly loss since 2011.

Included in the loss, is a US$4.4 billion tax as stated by the new tax law passed in the US last December. This tax charge is for foreign earnings which are now taxable as declared by law and deferred stock assets the company accumulated after the recent financial crisis.

Fourth quarter revenue decreased by a whopping 50% to US$1 billion, when compared to the same period for the previous year.

Overall revenue for the entire 2017 fell by 4.34% from US8.71 billion to US$7.83 billion. Goldman Sachs revenue stream was affected by fixed income, currencies and commodities trading. The fixed income desk lost money on oil and gas trades as well as corporate debts.

The trading operations of the company, when compared to the same period in 2016, fell by 34% to US$2.37 billion. Even though the majority of the major banks on the market such as Wells Fargo and Citigroup have reported declines in revenue for the fourth quarter of 2017, Goldman Sachs Group has published the steepest drop.

On a positive note, however, the Investment Banking Division, which deals with bond sales, mergers and underwriting stocks, reported a net revenue increase of 44% to US$2.14 billion.

Not to be outdone, the company’s Asset Management Division experienced a 4% increase in revenue of US$1.66 billion when compared to a year ago. Current assets under management is clocked at US$1.49 trillion.

Despite the underperformance in the industry for the past six months, Goldman Sachs Group’s have surpassed estimates. We believe the company’s well-diversified business and its focus to capitalise on growth opportunities through strategic moves should continue to bolster the overall business.

Additionally, steady capital deployment activities have boosted investors’ confidence.

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Investors had to see this one coming.

It is no surprise that one year into the Trump administration the government shuts down.

At this point, investors aren’t even flinching.

Investors showed little concern that the world’s largest economy may stumble. In fact, U.S. stocks jumped to a record close Friday even as the impasse deepened in Washington.

Unless the deadlock persists, the impact will have a hard time rattling markets that have been focused on benefits from the recently passed tax overhaul, improving corporate profitability and synchronised global economic growth.

What this shows is the desensitization of investors.

And why not? 

In 18 shutdowns over the past 42 years, the median return of the S&P 500 has been 0%

Although a government shutdown sounds scary, the reality is it has been a non-event historically for equities.

Fixed income likewise shrugged off the issue, with 10-year yields adding just five basis points during that span.

The shutdown comes with equity markets surging around the world. The S&P 500 just capped its third straight weekly advance, to post the best start since 1987.

Earnings optimism fueled partly by President Donald Trump’s tax overhaul has led to one of the most significant upward revisions to profit forecasts on record.

Global stock funds have taken in $58 billion over the last four weeks, the most ever recorded.

The risks to the economy and financial markets are somewhat higher in February than they are this month, due to the upcoming debt limit deadline.

Markets have tended to shrug off shutdowns as long as the debt limit is not involved.

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Five days into 2018 and social media giant, Facebook [NYSE: FB], saw a 6% increase in its stock price.

Company shares have outperformed the industry in the last 12 months and performances continues to be consistent. They owe their success to critical factors such as an active user base, efficient and profitable mobile and online advertising through its most prized acquisitions.

However, investors reacted negatively to their recent shuffle of its news feed last Friday, which caused the stock price to fall by 5.20%. With a consistent price above US$180 since the beginning of the year, investors saw the stock price fall from US$187.77 to US$178.

Therefore, did Facebook’s shift in algorithm negatively impact the company’s performance for 2018?

Their strategy to display personal content first on its newsfeed rather than commercial clicks and views, was unwelcoming news for many investors who believed that this move would lower ad revenues. But with a financial track record like Facebook and its loyal daily users, the social media giant is expected to bounce back in no time.

Currently, Facebook is one of the most dominant social networks of all time. Facebook has over 2 billion active users monthly. The other social networking companies it acquired such as WhatsApp and Messenger boast another 1.3 million active users and Instagram 700 million. With a market that is not entirely saturated, Facebook has the potential to grow its user base even further.

In 2017, the company’s revenue grew by 45.4% and is expected to increase by 33.5% this year. The company prides itself on surpassing its earnings estimate quarterly, and 2018 should be no different.  For the last two-quarters, FB’s earning per share increased by 16.81% and 24.22% respectively.

With an increasing EPS, the P/E ratio should be lower than 24 which would make FB cheaper than the average stock in the S&P 500.
Moreover, with a robust balance sheet of US$38 billion in cash vs  US$280 million in debt, it is evident many investors are confident in the future of Facebook.

It is a great time to buy Facebook, wouldn’t you agree?

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Shareholders of the telecommunications provider Cable & Wireless Jamaica got their long-awaited offer.
On Friday, December 29, 2017, Liberty Global, the parent company, made an offer to acquire the outstanding 18% at J$1.45 per share, 15% over the current market price.

Liberty Global, the world’s largest international TV and broadband company, acquired CWC in 2016 for US$ 7.4 billion. The acquisition has been the subject of contention between the company and CWJ shareholders, due to the lack of an offer from the multinational corporation.

Liberty Global currently owns 82% of the publicly traded company and according to the Stock Exchanges rules, no individual or organisation should hold more than 80% of a publicly traded company.

CWJ’s performance has been less than stellar. As of September 2017, the company reported a net loss of 172% when compared to same nine months of the previous year. Despite revenues increasing by 9.21%, operating profit decreased by 17%.

The CWJ stock has traded as high as J$1.80 and as low as J$0.70 year to date with an average closing price of J$1.45. The offer made, in my opinion, is satisfactory.

The offer closed January 31.

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