Regulatory Settlement a Growing Concern for Wells Fargo Investors

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Wells Fargo and Company may have to fork over $1 billion in settlement to regulators in order to resolve an investigation with regards to the sale of some of its auto insurance and mortgage products. The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency were preparing the hefty fine on Monday.

This is not the first regulatory issue Wells Fargo has had to deal with in just under two years. In 2016, there was an investigation into branch employees who had opened millions of accounts without the knowledge of customers. The Federal Reserve has already imposed sanctions on Wells Fargo for failing to have sufficient risk controls to detect these issues. One such sanction is the restriction on the growth of the banks balance sheet beyond 2017 levels of $1.95 trillion, until measures are implemented to address the bank’s board and risk management. The restrictions will significantly affect the company’s annual profit by more than half to US$300 million. Mishaps such as these, reduces customer’s trust and confidence in the bank and its sales tactics in various departments such as auto insurance, wealth management and mortgage.

Despite the developments, the bank reported a 5.5 percent increase in profit for the first quarter of 2018, with net income of US$5.9 billion or US$1.12 per share, compared to US$5.6 billion for the same period in 2017 or US$1.03 per share. Revenue, however, fell by 2 per cent to US$21.9 billion from US$22.3 billion. Average deposits decreased by US$2 billion to US$1.3 trillion while average loans decreased by US$12.6 billion or 1 per cent to US$9.51 billion.

These results may however need to be revised to reflect the final settlement from regulators. Many may argue that  US$1 billion fine may not have a significant impact on the company’s balance sheet but there is no doubt that it may take some time for the bank to repair its bruised reputation. This is evident in its shares which have already fallen to US$50.89, down 3.4 percent after trading on Friday.

Wells Fargo has already taken measures to prevent these unfortunate occurrences by revamping its operational structure. The bank made changes to its board and hired a new compliance officer.

Wells Fargo may be having a hard time now, but the company is known for making profit and appeasing its customers and that is why we at SSL continue to recommend this stock to our clients.

 

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Understanding Liquidity

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In the simplest terms, liquidity risk refers to the likelihood that an investment won’t have an active buyer or seller when you are ready to buy or sell it. Therefore, you will be stuck holding the investment at a time when you need cash and can cause you to take massive losses.

Liquidity poses a significant threat to investors’ financial well-being, therefore we wanted to discuss what liquidity risk is.

One of the reasons for the losses suffered by financial firms during the Great Recession was the fact that these companies owned illiquid securities. When they found themselves without enough cash to pay the day-to-day bills, they went to sell these assets but discovered that the market had dried up completely.

As a result, they had to sell at any price they could get.

On the upside, there is an opportunity with liquidity risk because other companies and investors that were flush with cash were able to buy distressed assets. Some of these “vulture” investors made a killing because they had balance sheets that could support holding non-liquid investments for long periods of time.

To compensate for liquidity risks, investors often demand a higher rate of return on money invested in illiquid assets, especially private placement deals.

Types of Liquidity Risks:

Bid/Offer Spread Widening

When an emergency hits the market or an individual investment, you may see the bid (buyer) and ask(seller) spread wider apart so that the market has a difficult time matching up buyers and sellers.

Example, you own Main Event Entertainment [JSE: MEEG] shares, you need the cash and ask for J$6.00, but the highest bid is J$ 5.00, you will have difficulty gettings funds as you either take the loss and sell at J$5.00 or wait and hope it goes to J$6.00 in the time frame you want!

Inability to Meet Cash Obligations When Payment Is Due

Puerto Rico bonds holders, you know what we are talking about here. This is the investment equivalent of defaulting on a debt. If a company has $100 million in bonds that reach maturity, it is expected to pay off the entire $100 million balance by the maturity date.

Most of the time, businesses refinance this debt. But what happens if the debt markets aren’t working and are unable to borrow money? In that case, if the company couldn’t come up with the whole $100 million, it could be hauled into bankruptcy court even if it is highly profitable. You would find yourself locked into what could be years of legal workouts due to the firm mismanaging its liquidity risk.

Inability to Meet Funding Needs at an Affordable Price

This is when it is impossible for a company or other investment to raise enough money to function correctly and meet its needs at a price that is economical. Wal-Mart Stores, Inc., for example, is one of the biggest and most profitable companies on the planet. It has tens of billions of dollars in debt to optimise the company’s capitalisation structure.

If the markets went haywire tomorrow and Wal-Mart could no longer borrow at 6% and investors instead demanded 30%, it would make no sense for the company to issue bonds. In effect, the market’s liquidity would have dried up entirely and the stockholders of Wal-Mart would have to worry about the company coming up with enough cash to wipe out all of its debt.

 

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Are IPOs the New Black?

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The Jamaican financial market went from one to two companies listing on the market each year to approximately ten for 2018. With so many companies choosing to raise funds on the stock market instead of going to the bank for a loan to expand their business, investors are left wondering which IPOs are worth considering.

An initial public offering, known commonly as an IPO, marks a pivotal moment in the life of any company. IPOs have played  a significant role in getting more and more Jamaicans interested in the stock market and also saw a record number of companies choosing to go public in 2017. Gone are the days of, “only the rich can invest”; investments and financial literacy is an everyman game.

With the government of Jamaica offering very attractive incentives for companies to list, they provide small and medium-sized enterprises (SMEs) a chance to grow which in turn benefits the economy providing jobs and promoting an overall healthy economy which is always a good thing.

However, there’s another way an IPO can go, and it’s nowhere near as glamorous or champagne-worthy as the scenario mentioned above. While there are some genuine gems in the market, there are also some cubic zirconias in the mix too. These cubic zirconias naturally become placeholders on Jamaica Stock Exchange.

IPOs tend to promote trading not necessarily investing. While the terms are used interchangeably, for this article, trading refers to the buying and selling of stocks based on price alone while investing relates to choosing a company based on fundamentals and thinking long-term. Not saying trading is the evil step child, however creating wealth requires the right combination of both.

Sometimes, it may be hard to figure out which IPOs are the gems, cubic zirconia or diamonds in the rough just waiting for the opportunity to shine.

 

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Main Event Launches New Division

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Main Event Entertainment Group Limited [JSE: MEEG] at its first annual general meeting since listing announced the creation of a new division called the M-Style which will aim to provide seating and equipment for events such as weddings, conferences and birthday.

With this new initiative M-Style, Main Events will see a decrease in the number of third-party contractors it usually needs for the proper execution of its events.  Complementing the company’s entertainment and marketing function by creating a new “experience” as stated by CEO Solomon Sharpe.

Furthermore, M-Style is already in full operation but, yet to be formally launched. Sharpe stated, “Previously, Main Event could not have necessarily played in the wedding market,” because the company was unable to provide that type of décor to create the “elegant” seating to cater to such events.

MEEG projects an investment of 100-150 million in equipment for 2018 which would aid in the expansion of their offerings and internal resource which is a significant part of the company’s strategy to offer a full-service solution to existing and prospective clients across the region.

The Company achieved record revenue of $1.18 billion as at the end of 2017 financial year, an increase of 4.42 percent comparing to $1.13 billion in 2016. Operating profit rose to over 80 percent at $108 Million in 2017 compared to $59.8 Million a year earlier. The net profit margin increased in the same period by 78.85 percent to $101.047 Million from $56.499 Million.

Moreover, Main Event has started 2018 with a good momentum having aided with the execution of major events such as Inter-Secondary School Sports Association (ISSA) Boys and Girls Championships and ‘soca’ parties including the Carnival road march.

Currently, Main Event Entertainment Group Limited is trading at a price of JMD 6.19, and we at SSL recommend a definite buy for this stock.

 

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U.S Sanctions Affecting Russian Rouble

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Sanctions by the U.S. on Russian businesses and officials, had a negative impact on the Russian rouble as it fell by more than 4 percent against the dollar this week.

Investors lost their confidence and sold their assets as they feared more sanctions could be imposed which would increase market risk.  The sanctions imposed were narrowed down to two reasons:

The first being the U.S.’ response to allegations that Russia interfered in the 2016 U.S election. The other being another allegation that the Russians are responsible for the poisoning of Russian ex-spy, Sergei Skripal and his daughter.

If the U.S. keeps targeting Russia, then this may pose a political issue for Russia, whose President, Vladimir Putin, was recently re-elected. The Russian economy is in a state of recovery, and these sanctions may worsen the issue as the Russian government will have to spend money budgeted for other tasks, to bail out sanctioned Russian companies.

However, Russia is optimistic this current rouble depreciation is temporary. Even Russian businesses are refuting the claim that a decrease in the value of the rouble has affected operations.

Russia is preparing to act if there are risks to the country’s fiscal stability. One such response would be to resume foreign currency repo operations if necessary. Consideration will even be given to possible retaliation against the U.S.

After a 1.5 percent increase in the Russian economy in 2017, a floating rouble rate could have an adverse effect on the Russian economy which was projected to grow by 2 per cent in 2018.

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Blame the Dollar Appreciation

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Microfinance Company, ISP Finance Services Limited, has blamed the appreciation of the Jamaican dollar against foreign currencies for the decline in foreign exchange gains in the company. Foreign exchange earnings decreased by $5.83 million in 2017 totaling a meagre $934,543 compared to $6.76 million in 2016.

On a more positive note, ISP Finance reported $261.95 million dollar in revenue for 2017 compared to $219.70 million dollar in 2016; a 19.2 percent increase. Year over year profit increased by 24.4 percent, $49.99 million in 2017 compared to $40.24 million in the previous year.

In a bid to grow its client base, ISP now plans to expand the company outside of the Kingston Metropolitan Area to include branches in other densely populated towns across the island. The company also plans to introduce new loan products customized to its clients’ needs. Additionally, plans will be implemented to improve technology in order to enhance service delivery.

Currently, ISP focuses mainly on the disbursement of loans to employed persons and to small and micro-businesses, which require short-term financing at competitive rates. ISP describes the loan requirement process as simple and their service delivery as prompt.

ISP Finance Services Limited was listed on the Jamaica Stock Exchange (JSE) in 2016 and immediately saw an increase in the company’s net profit to $40.24 million. The company currently trades on the JSE at $15.00.

 

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Government to Ban Facebook for One Month

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The government of Papua New Guinea has announced that it will block Facebook for a month to sift out fake profiles, users who post pornography and assess the effect of Facebook on the population. Communication Minister of Papua New Guinea, Sam Basil, stated that online criminals are abusing the social media site with fake identities and the ban will allow the country to enforce the Cyber Crime Act passed in 2016.

Whilst researchers will be analyzing how Facebook is used in the country, the government will be exploring other options of its own social network for its citizens. Basil stated the ban could reveal the conclusion that people do not really need Facebook and are actually ‘better off without it.’

The date for the ban has not yet been revealed but it comes at a time when Facebook is facing extreme pressure from governments around the world. Recently, Mark Zuckerberg who acts as CEO of Facebook, had to endure grilling questions from the U.S. Senate over the misuse of data and privacy concerns involving data mining consultant firm, Cambridge Analytica Limited.

Zuckerberg was again questioned by members of the European Parliament in Brussels, last week, because of data privacy concerns. Earlier this year, the government of Sri Lanka moved to ban the social media site for one week accusing it of fueling ‘sectarian violence in the country.’ In the past, countries like: China, Iran, North Korea, Pakistan, Bangladesh and Vietnam have temporarily blocked Facebook from its populace.

Since news of the impending ban in Papua New Guinea emerged, Facebook has since reached out to the government in order to get a better understanding of their concerns.

Could Facebook’s stock price be affected by the Papua New Guinea ban?

 

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Sky News Sale and Media Plurality

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A few weeks ago, 21st Century Fox announced its intentions to buy the remaining 61 percent of Sky it does not own. To add another layer to the media takeover, it was reported that Disney could possibly acquire 21st Century Fox which could result in Sky News ultimately being controlled by Disney, but the deal is yet to be approved by U.S. Regulators.

Fox is now faces regulatory pushback from the Competition and Markets Authority (CMA) in the UK. The CMA feels the proposed takeover of Sky is not in the interest of the public as the deal poses a real threat to media plurality. Fox currently owns 39 percent of Sky as well as newspapers in the UK including the Sun, the Times and the Sunday Times.

If this media takeover is completed, it is argued that the Murdoch family, who currently owns 21st Century Fox and all its businesses, would be given too much control over news in the country. If the Murdoch family has control across all media platforms in the UK, this would threaten the diversity of views that make up a healthy media landscape and give them the opportunity to have too much influence over public opinion and also an avenue to push their political agenda.

Based on the concerns of the CMA, Fox has already proposed solutions. Fox wants to make Sky News a distinct company within Sky, having an independent board.

But to what extent will the board be independent?

Rupert Murdoch and his son Lachlan Murdoch are already the Executive Chairmen of Sky. Additionally, the head of Sky would still be appointed by the head of 21st Century Fox; who would evidently have influence over editorial decisions.

In the end, if Fox acquires the outstanding shares of Sky and Disney acquires Fox, the end result will likely be similar. The threat to media plurality may very well come from Disney.

We will be closely watching the developments around these acquisitions and the effects it may have on the stock market.

 

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China Increases Investment in Jamaica

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Since the presence of international entity, China Harbour Engineering Company (CHEC) in Jamaica, many residents are of the view that Jamaica’s government is slowly selling sections of the island to the Asian nation. It should be noted that CHEC has contributed invaluable infrastructure, through their work in developing the new North South Highway which has significantly reduced the travel time for residents driving to and from the south to the north coast.

Along with this development, Jamaica also has profited from increased employment in different departments that has resulted in consumption of local goods and services. Additionally, the company has embarked on projects to upgrade existing roads, alleviating perennial traffic issues plaguing drivers.

The most recent investment out of China is the establishment of Shacman’s regional headquarters. The heavy-duty truck company recently signed a deal with Tank Weld (TW) to distribute its trucks in Jamaica, where they will be setting up offices in Six Miles, St Andrew, close to Tank Weld’s main offices by the end of April, according to a recent news release. The deal is set to bring permanent employment to residents and offer an after service to customers who purchase Shacman trucks. Tank Weld has partnered with Jamaica National Bank to provide loans to small haulage contractors so that they can be in a position to purchase trucks from the company. The ripple effect throughout the economy should be significant, as this is a boost across different sectors.

The fact is that no one can confirm or deny the rumours behind China’s interest in Jamaica but the fact is we have seen changes and improvements in infrastructure that would not be possible using strictly local resources. CHEC has been a driving force in our economy creating job opportunities for individuals and increased foreign exchange through frequent travels to and from China.

 

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Duration – Friend or Foe?

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Bond duration is an investment concept that average investors genuinely understand, yet it can have a meaningful impact on how your fixed income portfolio performs relative to the bond market as a whole.

Investors tend to shy away from discussions of bond duration because the underlying math is relatively tricky. The good news is that once you look past the math involved, the underlying concept of duration is easily understood.

To make good use of duration when investing in bonds, you don’t need to calculate it — you need to understand the concept. However, before discussing duration further, consider another bond term related to duration: present value.

Present Value

Present value is what an investment is worth at the moment of evaluation. It contrasts with the value that the investment may have at some future time after it has benefited from compound interest. It acknowledges that investors discount the future value of an investment. Although ten years from now a sum invested at 6 percent compounded annually will be worth much more than the initial investment, investors place a discount on money earned in the future. The basic idea is that money received next year is worth less than cash in hand now and money earned the year after that is worth even less.

Which would you prefer: $100 in your pocket now or the promise of $100 you’ll receive in three years?

Duration

For individual investors, the duration is primarily used as a measure of a bond’s sensitivity to prevailing interest rates. It’s defined as the weighted average of the payments an investor will receive over time, discounted to the bond’s present value.

Duration, which is expressed in years, measures how much a bond’s price will rise or fall when interest rates change. The longer the duration, the greater the bond’s sensitivity to interest rate changes. Duration, then, is a particular expression of volatility.

The Impact of Duration on Bond

Duration, which is expressed in years, is a term that investors will encounter when assessing fixed income investments. Typically, portfolio managers will say their portfolio is overweight or long duration, meaning that their duration is higher than that of the benchmark. Alternatively, the portfolio could be underweight or short duration.

A portfolio with a duration that is above its benchmark can be expected to outperform the benchmark if rates are falling, and underperform if rates are rising. Conversely, a portfolio with a below-benchmark duration will typically outperform when rates are rising, and underperform when rates are falling.

Other factors also impact portfolio performance; most notably, the specific market segments in which it is invested — durations of junk bond funds will exceed durations of treasury funds with similar maturities.

Note as well, that duration should be considered a snapshot rather than a permanent aspect of the fund’s strategy.

Investors need to be alert to the risk/reward trade-offs rather than merely using past performances as a gauge of quality.

Short duration funds can be expected to be lower risk / lower yield, while longer duration funds tend to feature higher risk and higher yields.

For investors, the takeaway is that duration – while just one of many factors that can impact the performance of a fixed-income portfolio – is something that nonetheless warrants attention since it is one of the most important factors in the risk profile of any bond investment you might consider.

 

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Insulating Your Portfolio from Inevitable Market Corrections

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Naturally, investors get uneasy during times of volatility, but rather than see it as something to worry about investors should view volatility as an opportunity to pick up more shares at bargain prices. After most market corrections, clients typically ask how they can construct their portfolio to insulate from dramatic price movement. So here are a few recommendations if you find yourself wondering the same thing:

Consistent dividend-paying stock

The most powerful defence is a stock that has healthy earnings and a good dividend payout ratio and dividend yield, especially when compared to the return that is available on the risk-free treasury bond.

Here’s how it protects you during a down market: As the stock price falls, the dividend yield goes up because the cash dividend is a more significant percentage of the purchase price of each share.  In the midst of a market crash, at some point the dividend yield becomes so high that investors with excess liquidity often sweep into the market, buying up the shares and driving up the price. That’s why you typically see less damage to high dividend paying stocks during down markets.

Go Blue Chip

Seasoned investors are interested in one thing and one thing only: Buying companies with stable earnings at the most attractive price possible. In difficult economic times, the stability of profits is crucial. Often, the most successful stocks are those that have durable competitive advantages.

Identifying these companies isn’t hard. They are often referred to as blue-chip stocks; for example: Coca-Cola, Johnson & Johnson, National Commercial Bank Financial Group, Jamaica Producers  Group Limited, just to name a few. They often have extremely large market capitalisations.

Stocks Trading at Reasonable Valuations

Of course, diversifying your portfolio with stocks that traditionally have low price to earnings ratios, low price to book ratios, low price to sales ratios, and conservative balance sheets, the odds are good that you will emerge from the wreckage unscathed over the long-term.

This is why value-based money management have managed to return such impressive results to their investors for years. For investors lacking experience, this is best achieved through funds such as the Safe Solutions or Money Managers or Collective Investment Schemes.

A Few Other Thoughts

If you can’t analyse financial statements and calculate a conservative estimate of intrinsic value for the assets in your portfolio, it is a wise policy to maintain broad diversification.

Consider keeping a portion of your portfolio in international investments by investing in a highly rated, low-risk companies.

Never invest any capital in equities that you might need within the next five years.

If you can’t handle price volatility, consider reducing the overall gyrations of your portfolio by including a substantially fixed income component. Although this might lower your returns over subsequent decades, if it reduces the chances of you selling everything in a panic, it can provide a workable compromise.

 

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Pfizer Seeking another Miracle Pill after Two Decades

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Major pharmaceutical company, Pfizer [NYSE: PFE], is seeking another miracle pill with similar earning potential as Viagra to boost revenue. Viagra, a brand name popular pill among men, is used to treat erectile dysfunction. However, it now faces heavy competition from the generic version of the drug, Sildenafil which is sold by the same company.

Back in 2000, 92 percent of the global market who used prescribed erectile dysfunction pills, chose Viagra. But that number has dwindled to 50 percent by 2007. In 2017, Pfizer lost the patent for Viagra, resulting in a lack of  growth for the company. Pfizer is now seeking to create another miracle pill, however its efforts may be limited as the company recently announced cost cutting plans in Research and Development.

Pfizer plans to spend between USD$7.4 billion to US$7.9 billion in Research and Development when compared to USD$7.7 billion spent last year. Pfizer is facing competition from companies such as Johnson and Johnson and Merck, who are projected to spend USD$10 billion in that field.

Pfizer does not seem to be in good financial standing as evidenced in the 300 jobs that were cut in January. It has been reported that the company ended its research programs in the treatment of Alzheimer’s and Parkinson’s disease, to fund other projects. Pfizer also made it known that the company may sell its consumer healthcare business which owns over the counter drugs such as, Advil, Centrum multivitamin and Chapstick lip balm.

According to Tufts Center for the Study of Drug Development, it takes an average US$2.6 billion to bring a new drug on the market. That is considered a hefty sum as in 20 years there have been 19 treatments that have generated US$1 billion in annual revenue for the last 5 years. Because of this, Pfizer chose a model where it shares the risk and benefits with other companies such as Merck and Bristol Myers Squibb.

Pfizer has had other profitable drugs such as Lipitor for cholesterol, Zoloft which is an antidepressant and Celebrex an anti- inflammatory drug, but none has matched the selling power of Viagra.

In 2017, Pfizer made revenue of US$52.5 billion compared to US$52.8 made in 2016, a less than 1 percent decrease. Net income on the other hand, did not disappoint as the company amassed US$21.3 billion in 2017 compared to US$7.2 billion in 2016. Pfizer trades on the New York Stock Exchange at US$35.73.

 

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Boost for Lasco Distributors

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Lasco Distributors Limited [JSE: LASD] have been experiencing tremendous business performance recently. So much so, that they have decided to pay out an interim dividend amounting to $406.35 million to their shareholders. An interim dividend is a distribution to shareholders that has been both declared and paid before a company has determined its full-year earnings. Such dividends are frequently distributed to the holders of a company’s common stock on either a quarterly or semi-annual basis. The shares will be approximately $0.12 per share and paid out on April 30, 2018. Not only have they experienced improved company performance, Lasco Distributors has been receiving funds through their ongoing court case with Pfizer. The American drug manufacturers paid a out a multimillion dollar lawsuit when Justice Vivienne Harris awarded special damages of USD$77,075 (just over JMD$5.32 million), to Medimpex (using the 2007 exchange rate of $69.06 to 1) and $155,738 to Lasco Distributors.

Lasco has also completed most of their planned major capital projects, such as the warehouse expansion and the upgrading of their business application software. Both of which has increased business efficiency and enabled the company to experience savings due to decreased operational costs. With their continual plans to improve software systems, Lasco is poised to further maximize on cost-savings and operational efficiency. This can raise the value of their stock, and then provide increased dividends for present shareholders. Lasco has set quite a precedence for other local public companies to follow. With the gradual advancements of technology, more specifically software systems, Jamaican companies have a greater capacity for business improvements. If other companies follow in Lasco’s footsteps, then we can expect greater returns in the future, along with a highly competitive market.

 

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Is Spotify a Good Buy?

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The stock price of Spotify has increased  by 12 percent at the close of trading, there is still some amount of doubt surrounding the success of the stock. SPOT was directly listed on the NYSE with a reference price of USD$132.00 but once trading started it quickly jumped to USD$165.90. However, the price fell and closed in its most recent trading session at US$149.01. The company is now worth around USD$26 billion, more than the value of Twitter.

The decrease in stock price is attributed to investors’ lack of confidence in the company’s business model. Spotify had no intentions of raising capital with this IPO and that is why the company opted to directly list the stock on the NYSE so shareholders can sell shares directly to the public instead of using an intermediary. This worked in Spotify’s favour as they did not have to pay hefty fees from investment banks.

Currently Spotify has an estimated 70 million paying subscribers and almost 90 million free listeners, however, the company is yet to turn a profit. The music streaming giant earns an estimated US$5 billion a year in revenue but pays out more than three quarters of that amount in royalties to music labels, songwriters, artists and producers.

Competition in the online music streaming industry is strong but Spotify has been finding ways to increase revenue from not only through paid subscriptions and advertisements but from original content and podcasts. Many analysts have already casted doubts on Spotify’s viability even though the music industry needs music streaming companies like Spotify.

Music streaming can be transformed into a profitable platform but Spotify needs to diversify its core offerings to increase its paying subscribers. Not to mention the company needs to turn a profit as it is competing against companies such as Apple, Amazon, Google, among others, which use the music streaming business to support their core product.

Spotify has already disrupted the entertainment market with its debut and may very well change the way people stream music online. Would you take a chance on Spotify?

 

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Ganja Company in Jamaica to List on Toronto Stock Exchange

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Licensed ganja company, Kaya Inc, has announced that the entity will be releasing its IPO soon, which will be listed on the Toronto Stock Exchange (TSX) in Canada. Kaya also intends to do a ‘reverse takeover’ of Buzz Capital, a company already listed on the TSX. Buzz Capital was formed in 2017 and listed on the TSX that same year.

Kaya plans to raise CAD$8.5 million from the merge. CAD$5.5 million is hoped to come from institutional investors while CAD$3 million will be given by HIKU Brands, who has already committed to that agreement. The deal which should be completed by April 15, will see Kaya shareholders owning almost nine-tenths of Buzz Capital.

The takeover involves a series of transactions which includes Buzz reducing its ordinary shares by half from 8.2 million to 4.1 million units. After which, the company’s name will be changed to Kaya Inc. Following the name change will be an exchange of all issued and outstanding shares of Kaya for common shares of the resulting entity.

Subsequently, Kaya will warrant for shares of the new company. The resulting entity should have 43 million issued shares. Kaya shareholders will own 89 percent while Buzz shareholders will hold 11 percent.

Kaya made it clear that this transaction will be subjected to the oversight and approval of the Cannabis Licensing Authority in Jamaica. Kaya has announced that there will also be over 50 percent of Jamaican shareholders and Board Directors at all times.

 

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Stock Your ‘Barrel’ with Derrimon Trading

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Do you remember ever following a family member to the wharf or having gone yourself, having to wait for hours to clear just one barrel? Better yet, have you been privy to the hefty service charges and customs fees you have to pay to clear a barrel of goods? If you have been among the unfortunate few, then Derrimon Trading [JSE: DTL] has a solution for you.

Derrimon Trading Company Limited seeks to make shopping and more importantly, the delivery of goods easier for Jamaicans. The company is hoping to get the attention of the Diaspora to use its services which will include an online shopping platform which will list ‘name brand’ items Jamaicans prefer. This method will save persons the hassle of packing barrels by reducing the sender’s labour to just clicks on a cell phone or laptop. The items will then be delivered within 48 hours.

Derrimon Trading will pack the ‘barrels’ from their warehouse; located on Marcus Garvey Drive, Kingston. The company started its online shopping quest with university students but admits the supermarket shopping online is not easy but they have figured out a way to complete the task.

But how will consumers be guaranteed that they are buying quality products?

CEO of Derrimon Trading, Derrick Cotterell, explained that it is in the best interest of the company to deliver quality goods. If not, then Derrimon will lose money as items returned will have to be disposed of.

Most business transactions in this generation are being done digitally and this venture is just one way in which Derrimon Trading is positioning itself to take part in the evolution.

For the financial year ending 2017, Derrimon Trading Company Limited made $6 billion in revenue and $281.7 million in net profit. A notable increase of 59.6 percent in revenue when compared to $953.9 million the company made in 2016. Net profit was also increased by a whopping 142.6 percent from $116.1 million.

The company has been doing well, and although we would not recommend adding the stock to your portfolio at the moment, we continue to monitor it carefully.

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Trump Shoots; China Fires Back

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China’s response in imposing $3 billion tariffs on U.S. imports was seen as rather ‘modest,’ but it should not have been taken lightly, as the Chinese government on Friday announced its intentions to play hardball. China intensified the trade war with news that they will be raising tariffs on 128 U.S. products coming into the country.

These products included fruits, wines, pork, nuts and recycled aluminum. This development has not only affected the S&P 500 Index in the U.S. but has taken a toll on the stock market in Japan and China. On Friday, Tokyo’s Nikkei fell by 4.5 percent and China’s Hang Seng by 2.5 percent.

While it is clear President Trump has no intentions of squashing this impending trade war, China is actually open to resolving the friction. Clearly, China is not afraid to retaliate, however the country is giving the U.S. opportunities to reconsider its position.

China plans to raise tariffs in two phases. The first being an increased 15 percent on tariffs for 120 goods worth almost $1 billion only if the U.S. does not want to reach a ‘trade compensation agreement’ within a particular period of time. The second being a 25 percent tariff imposed on eight products from the U.S. with a market value of almost $2 billion after there has been an evaluation of the impact of the tariffs.

The World Trade Organization (WTO) is urging both countries to rethink their decision and come to an amicable solution to settle their differences using mechanisms specified by the WTO.

The bigger issue with this impending trade war is the effect it will undoubtedly have on a global scale. Trades, not to mention economies, to as far as the Caribbean will be affected.

However, Trump sought to quell fears that the increased tariffs will be imposed on other countries. But anything is possible with President Trump. He describes China as a ‘friend’ to the US but is still targeting that one country.

How do you think this impending trade war may affect Jamaica’s economy?

 

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What is New with Brexit?

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The decision to leave the European Union has dominated the new cycles since June 2016 highlighting that no matter the strides made to respect people’s differences in backgrounds, economics and geography prejudice remains. Some people wished Brexit would happen faster. Some didn’t want it but will get on with it anyway. Others were waiting for a chance to stop it from happening at all. And there were those who said Britain is being upended, for better or worse, by a decision they shouldn’t have to make.

The formal departure date is slated for March 29, 2019, and one thing is consistent when you bring BREXIT into any conversation – a sense of frustration.

The most prominent concern for people on both sides of the argument?

The size of the divorce bill, getting a fair deal from the EU and the prospect of rising food prices and living costs.

So the question is if given a chance to vote BREXIT again, would people change their vote?

British Prime Minister Theresa May has not gotten the traction she would like since the vote, but finally agreed to keep EU laws in place until 2020. With 2019 right around the corner she needs to finalise the terms of the U.K.’s exit and work out what the future relationship with EU.

One concern stands out to citizens and investors alike, how would Brexit affect trading ?

Either way both sides want to wrap up a deal by the end of the year.

 

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Mayberry Subsidiary to List IPO

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Mayberry Jamaica Equities Limited, formerly known as Mayberry West Indies Limited, has its eyes set on releasing an initial public offering (IPO) hopefully next month. The company is now awaiting regulatory approval as shareholders already welcomed the move. The company’s portfolio will only contain stocks listed on the Jamaica Stock Exchange. The listing of the company is targeted towards millennials between the ages of 18 – 29 years, giving them the opportunity to start investing at an early age rather than to rely on saving.

Mayberry hopes the stock will be valued based on the net book value of the company as they argue that the stock currently trades below its market value. This was blamed on the fact that the accounting valuation technique being used to determine Mayberry’s stock price does not take into account its equity portfolio; which holds 80 percent of the company’s assets. Therefore, Mayberry sees the listing of its subsidiary as a smart move which will allow the market to better value its stock portfolio.

Mayberry’s revenue for the financial year of 2017 increased by 83 percent, from $1.20 billion to $2.20 billion. This was attributed to gains on investment revaluations, foreign exchange gains, gains in corporate financial advisory fees and commissions. While net profit for 2017 was $475.2 million compared to $172.1 million the previous year, a rather impressive increase of 147 per cent.

Mayberry Investments Limited currently trades at $6.25, however, the company claims the stock price should be between $10 and $20 based on its earning per share. The company’s book value is $7.80 but clearly trades below it.

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Who is a Whistleblower?

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Whistleblowing is the act of drawing the public’s attention to corruption or any other lawlessness that took place, usually within a company. The term is referred to colloquially as ‘informa’ but the standard name for them is known as a whistleblower.

Publicly shunning a whistleblower is a cultural practice that seems to continue for generations, where the backlash that follows is sometimes more severe than the crime. This is not a good practice as oftentimes, it is to the demise of a person’s life and property.

This is evident in the recent scandal surrounding Facebook, where user information was passed on to data research firm Cambridge Analytics and misused to lobby persons to vote for Donald Trump. The whistleblower that revealed this information, had the public’s interest at heart, wanting others to be aware and cautious when using or providing information on this social media platform. As a result, shares in Facebook have plummeted, reflecting  that investors have lost confidence in the company. Whether temporary or not, Facebook Inc has taken a hit.

In 2012 a Protection Act was implemented in Jamaica to encourage a culture of whistleblowing. This would allow employees to disclose information about their employers or colleagues, if they have any reason to believe that misconduct occurred or will occur. Here, the identity of the person will be withheld, and the process sped up to allow for quick turnaround time. This therefore shows that the company must have efficient systems that allow for this culture to be adopted and staff members that are able to keep information among those who should know.

Jamaica has even implemented an anonymous tip hotline, Crime Stop, that secures the user’s phone number, to disclose any information about anyone they have suspected or know has conducted illegal activities.

Companies can discuss adding incentives for those persons who have spoken out about wrong doings and caused action to be taken, as a way of encouragement.

Stop the informa culture! Let us get in the habit of speaking up for the betterment of our people, companies and country!

 

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