Category: Market News

Whether you call it a business cycle or an economic cycle you’ve undoubtedly heard the term “recession” before. It’s usually followed by the looks of sheer panic and horror stories of people losing everything. The financial crisis of 2008 is still fresh in the memories of many investors, and with a 10-year bull market coming to an end, investors are looking to mitigate the effects of a bear market and dare I say a recession.

Market indicators are signalling that a change in the global market is coming soon as the stock market skyrockets, interest rates, employment and inflation all on the rise.

Is it possible to gain during a market downturn?

Yes.

 

Let’s discuss a few tactics that have been tested and proven to work during a recession:

Update Your Asset Allocation

Investors should complete an investment policy statement (IPS) when opening an investment account, if not, you should fire your advisor immediately.

An IPS speaks to your preferred asset allocation, the problem is, it is often forgotten and not updated based on market conditions, changes in risk tolerance and goals. This can be detrimental during a recession as your 50-50 split of bonds to equities can cost you.

Right now, asset managers and advisors are recommending clients shift from active to passive investing (Funds/ETFs) as well as going overweight in equities versus bonds. This type of strategy focuses on capital preservation as the Feds increases rates and quantitative easing continues. Failing to adapt, investors may soon face the harsh realities of an unforgiving market.

 

Investing in “Recession Proof” Stocks

When a recession shakes the economy, people are often caught off guard, leading to knee-jerk emotional reactions.

“Sell Everything!”

The trick is to buy into companies with diversified revenue streams and a reputation of stable performance during these less than stellar market conditions. Bank of Nova Scotia [NYSE: BNS] has never missed a payment in 45 consecutive quarters; discount retailer Walmart Inc [NYSE: WMT] saw steady growth in 2007 and continues to outperform the industry 10 years later. Industries such as utilities & healthcare may not see as much capital appreciation but are classified as portfolio stabilisers simply because you can’t live without them.

 

Go Real Estate

Falling home prices during a recession is nothing new. Now buying a property during a recession is not a good practice if you are looking short term as interest and unemployment rates are high, and market sentiments are low.

You may get your dream home at an unimaginably low cost, but the question is how low can prices go?  Markets can take on average 2-10 years to recover from a recession but once it does the value of these undervalued/foreclosed homes should increase, thus making you profitable.

 

Timing Is Everything

Recessions happen after the peak phase of the business cycle. You can identify a peak based on favourable market sentiments, stock prices upswing, growth in GDP and earnings creating financial bubbles.

This is followed by an economic downturn. GDP growth falls, massive layoffs and we enter a bear market. In 2008, the markets contracted 2.4% in Q1, rebounded in Q2 and plummeted in Q4 by 8.5%, but wait there’s more. In 2009, the markets dropped by another 5%, and unemployment reached double digits.

 

Recessions are a natural part of any market and should be greeted without fear. Despite the news during the 2007-2009 period, there were many winners in the stock market game, these investors positioned their portfolio to benefit from the trough and come out on top.

 

Will that be you?

 

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Since Facebook (FB: NASDAQ) acquired Instagram in 2012 for $715 million, founders Kevin Systrom and Mike Krieger had stuck around keeping the brand and product independent of Facebook while relying on its resources and engineering talents to help it grow.

Systrom and Krieger say peace out to Mark Zuckerberg.

According to Bloomberg, the departure was prompted by the founders’ frustration over the direction of the photo-sharing app as Zuckerberg has become more involved with the day-to-day activities of the company.

You might be wondering, doesn’t this sound familiar?

It is.

WhatsApp’s founders Brian Acton and Jan Koum, departed in a similar manner after disagreements with Zuckerberg over the business model of the app and data privacy which FB seems to have a major problem with. Since their departure, Facebook had enforced some changes to the terms of service of WhatsApp, giving FB access to users’ phone numbers. Furthermore, it had advocated for unified profiles that allow for ad targeting and data mining. These changes may have led some Instagram employees to wonder that something similar will happen to their group and it seems their concern is now a reality!

With over 1 billion users monthly, Facebook has relied on Instagram as its main source of advertising revenue in addition to its own news feed.

Many may ask though, what does this mean for the future of Instagram?

For one, it could possibly be integrated into Facebook losing its independence and becoming another product division and two, it may lose its credibility as FB is continuously causing worry over its privacy scandals, fake news and election interference.

While Facebook has been around longer than Instagram with over 42.2 billion users, it is becoming more dependent on the younger and favourable ‘Gram’ which offers an attractive escape to a younger cohort of users who are wary of the political debates and privacy scandal.

Today, millennials are more vigilant about protecting their online footprints and as such is losing interest in FB while gravitating towards the great benefits of disappearing stories, encrypted data and more.

In the end, the departure of Systrom and Krieger gives Mark Zuckerberg the opportunity to take charge of Instagram directly. With this freedom, he must know how many changes to make without compromising the integrity and value of Instagram’s less tarnished brand.

 

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With the howling winds, banging windows and rain battering your roof during hurricanes, how your portfolio is performing is the least of your concerns.

However, there is money to be made when mother nature strikes!

Preparing yourself physically for a hurricane is of primary importance but keep in mind also that being able to benefit from companies with a boost in sales due to potential hurricane damages is a great opportunity.

In anticipation of hurricanes, companies in the insurance & tourism industry are adversely affected, this is reflected in their stock prices. In 2017, Margaritaville (Turks) Limited [JSE: MTL] sustained damages to their operations and were forced to close for two months which caused lower than the expected revenue for that year and their prices dipped.

This, of course, presented a buying opportunity for investors.

A smart tactic savvy investors use, as this allows for a great entry point for maximizing returns.

Insurance companies more specifically property and casualty, suffer losses due to paying out for hurricane damages they are able to recoup by increasing premiums in the aftermath. In September 2017 Hurricane Irma hit the US with record high damages, this had HCI Group Inc. [NYSE: HCI] and Heritage Insurance Holdings Inc. [NYSE: HRTG] dropping 14.7% and 14.2% respectively. Hotels, villas, restaurants and other leisure-based companies may suffer a drop in revenues due to renovations, lack of hotel rooms, as well as the destruction of fish and their habitats for food production.

On the other hand, companies such as Home Depot [NYSE: HD], Costco Wholesale [NASDAQ: COST] and Generac Holdings Inc. [NYSE: GNRC] are expected to boom as sales increases. The demand for consumer necessities, generators and hardware supplies are high before and after a hurricane for security, preventive and corrective construction and simply being sufficiently supplied with food provisions.

The state of Texas had large amounts of reconstruction done after Hurricane Harvey in August 2017. This resulted in stocks prices advancing for Home Depot [NYSE:HD], the main supplier of home improvement materials. In 2017, HD had a 23% increase due to both Hurricane Harvey and Irma. This stock is currently trading at $211.71 having popped 2% since Hurricane Florence earlier this month.

It may sound daunting but positioning your portfolio during natural disasters is smart move.

 

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It is no secret that stock prices have climbed to significantly high levels and naturally when investors see these high share prices, they often wonder whether the companies will stock split, thus putting more shares on the market but at a lower price.

A company’s overall value remains the same with a stock split, but a shareholder will double the number of shares in their portfolio, and those shares will trade at half the previous price.

Let’s look at some familiar stocks who have seen share prices rise to very high values. We’ll then examine the reasons why a company would choose to split its shares of stock or choose not to.

Amazon [NASDAQ: AMZN]

As of September 18, 2018, Amazon is trading at US$1,946.77. That’s nearly 40 times the price for a share of Coca-Cola. The price for of shares the major online retailer has nearly doubled in the last year. Believe it or not, Amazon did stock splits regularly, doing so three times in a 15-month span in 1998 and 1999. Back then, shares were trading much lower and dipped to single digits. When asked in 2017 whether he’d consider a stock split now, Amazon CEO Jeff Bezos did not rule it out.

Booking Holdings [NASDAQ: BKNG]

Also known as Priceline, this travel service company was trading at nearly US$1,901.60 per share as of September 18, 2018. This high price is at least in part due to a “reverse” stock split in 2003, in which shareholders received one share for every six they owned. The reverse stock split came after a major market downturn that slammed the company’s share prices to nearly US$1.

Thus, there may be some institutional wariness about splitting and allowing prices to get too low and there’s no indication from management that a stock split will be happening anytime soon.

Berkshire Hathaway [NYSE: BRK]

Warren Buffett’s company is perhaps the best example of a company that rarely shows a desire to split its shares of stock. Today Class A shares are trading at more than US $326,000  a piece.

No that’s not an error.

However, Class B shares, which are more available to everyday investors, are trading at US$217.30. The major difference between Class A and Class B is that B shares don’t have the same voting rights as A share. The company split Class B shares 50-1 in 2010, but has never split Class A shares.

Why Split?

• Make shares more affordable for more people.
• Avoid a concentration of shares.
• Allow for greater liquidity.
• Some companies will split shares simply as a way of getting people to believe share values are rising.

Why Not Split?

• Many companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige.
• Smaller companies may also wish to avoid stock splits because of a danger of share values falling too low.

What are your thoughts on stock splits?

 

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Our government is no doubt focused on advancing Jamaica’s economic growth, but one thing that goes hand in hand with growth is a low crime rate. The idea may sound eerily similar the chicken and the egg dilemma; but what came first crime or growth? Regardless of your opinion, you cannot deny a correlation does exist.

Crime affects the individual, community, and society on a whole at every level.

It’s tempting to suggest that significant macroeconomic factors explain crime trends. It is indeed simple to find stories that may predict the new crime trends to explain the reason Jamaica’s economy tanked in 2008; however, there is more to this.

Criminologists claim that tough economic times make more people willing to commit crimes and that bad economies lead to more property crimes and robberies as criminals steal coveted items they cannot afford. The economic anxiety of bad times can lead to drastic rises domestic violence and higher consumption of mind-altering substances, leading to more destruction in general.

Economists tend to argue the opposite, that better economic times increases crime. More people are out and about flashing their shiny new smartphones and tablets, more new cars sit unattended in parking lots, and there are more big-screen televisions in homes to steal. Better economic times also mean more demand for drugs and alcohol.

Do you agree with the criminologist or the economists?

A high rate of crime has many adverse repercussions, such as:

1. A higher cost of doing business – business will now have to employ different forms of security and allocate resources to repair damages incurred.

2. Brain Drain – crime impacts the human capital as skilled workers migrate to find a better quality of life. Let us not forget, during times of extreme violence in communities; schools are closed causing instability and shift the priority from education to safety.

3. Budget – Every year our televisions are blocked out for days as the government and opposition debate the budget. How much to spend education, healthcare, security … a politicians phone bill? With a high crime problem, more funds will be diverted from other areas such as education to help combat the crime dilemma.

The bottom line: Crime is episodic, and there is no singular effect of the economy on crime. To understand and prevent crime, it is, therefore, necessary to understand what type of period we are in. It’s also essential to understand what forces are at work locally, rather than focus on the national picture.

 

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The antitrust lawsuit filed against AT&T Inc. has been one of the most closely watched court cases in decades. Following AT&T’s [NYSE: T] bid to purchase Time Warner [NYSE: TWX] in 2016, the U.S. Justice department quickly filed an antitrust lawsuit over the acquisition, on the basis that the merger would “greatly harm American consumers”.

However, on June 12, 2018, District Judge Richard J. Leon ruled in favour of AT&T, thus allowing the acquisition to go ahead with- surprisingly -no conditions or remedies. This win for the company has made investors even more eager for investment opportunities for new acquisitions. The market sentiment for the telecommunications and media industries has driven up stock value of companies like Discovery Inc. by 4.7 percent amid speculations about it being the next target. The decision positively impacted other media houses like Comcast, Disney and Fox, whom all saw a stock boost as a result. Additionally, Aetna’s shares jumped 4 percent after hours, and 21st Century Fox’s shares rose by more than 7 percent.

According to Ed Black, President of the Computer and Communications Industry Association, the merger has set a precedent for more to come in the future. People are now incentivised to act upon acquisitions that they might have been considering previously. Comcast has submitted a bid for 21st Century Fox set of USD$65 billion, which is higher than the USD$52 billion bid proposed by Walt Disney [NYSE: DIS].

While we expect a resubmission of the lawsuit, a loss for AT&T and Time Warner will no doubt usher a new era of government scrutiny over so-called vertical mergers and halt attempts by companies like Disney, Fox and Comcast to announce their megadeals. This decision could also exert more pressure on companies like Amazon, Netflix and Google’s YouTube, which have been competing with traditional media companies.

What exactly does this ruling mean for AT&T?

The telecom powerhouse will finally have a sizable portion of the entertainment industry. They will now handle the programming of popular media franchises such as Game of Thrones, the Harry Potter movie franchise, and CNN – as well as the infrastructure that delivers that content to the public.

Shares of AT&T fell while Time Warner stock rose as is typical during a takeover. AT&T’s stock fell as much as 3 percent, bringing its dividend yield to 6 percent and Time Warner shares were up as much as 5.3 percent to more than USD$100.00 per share in after-hours trading Tuesday.

Our analysts believe that the share price of AT&T represents the level of uncertainty that the market holds since the company will be undertaking the massive debt that comes with the acquisition of Time Warner with its long-term debt rising from $134 billion to more than $175 billion.

It is crucial to keep an eye on how the stock prices for both parties’ progress in the coming two weeks, as the deal is set to close by June 20, 2018, or AT&T will incur a charge of USD$500 million. With the recent drop in the value of AT&T shares, investors might see this as a viable buying opportunity as they anticipate an upward trend once the merger has settled. Just as the price of Time Warner is rising, AT&T will soon realise an appreciation of their share price once they start to enjoy the profits from their latest investment.

 

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Economic growth is a key a driver of gold demand, especially in emerging market (EM) countries where there is a high affinity for gold (for example: cash for gold) and investment.

At the same time, gold tends to perform well in periods of crisis. Having a strategic investment in gold tends to help in improving the portfolio of emerging market countries and their respective economic performances as it can be used to:

• Protect against systemic risks, which reduce portfolio volatility and losses;
• Hedge foreign-exchange risk at a lower cost than traditional currency hedges.

Dual in nature

History has shown us, that gold has performed well with returns on par with stocks over multiple time periods. It is not merely a hedge that eats into profits, but it also provides diversification during bull and bear market environments.

Emerging markets potential

EM investments have a tremendous amount of potential for growth supported by economic trends. EM continues to play an ever-important role in asset allocation as a source of return, but it usually carries higher volatility.

Lofty valuations, market downturns and correlation

Lofty valuations in developed markets, as well as low bond yields across most developed economies have led to a more significant proportion of investment growth in new markets like emerging ones. Cheaper funding in the US has allowed better access to EM. However, expectations of rising interest rates in the US could cause uncertainty and hurt the attractiveness of EM exposure.

There is a higher beta of 1.26 in emerging markets versus the MSCI World Index. Systemic risks that impact global economies have an even more substantial effect on emerging markets. As gold often acts as a haven and hedge against systemic risks, it can provide an appropriate hedge to EM exposure.

And while EM stock performance is often linked and correlated to commodity performance, this does not hold true with gold, especially in market downturns. Gold has a negative correlation with risky assets during extreme market sell-offs yet provides returns during market strength. EM jewellery demand typically falls during market downturns, but this is generally offset by the increase in investment demand worldwide.

An asset in portfolios

Adding gold to a portfolio generally produces higher absolute and risk-adjusted returns than a fully hedged or unhedged portfolio. Gold is different than traditional hedges because gold gives an investor’s portfolio positive correlation in a rising market and negative correlation in a falling market, gold has a dual nature for investment purposes – this quality is not seen in other traditional hedges.

Choosing whether to hedge the foreign currency or systemic risk of an EM portfolio is a crucial decision for any investor. Regardless of the choice, having some gold exposure can provide an advantage for risk-adjusted returns compared to a portfolio with no gold exposure.

 

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Investors have been on the edge recently as the Italian economy hangs in the balance. This is stemming from a possible debt crisis that currently looms if Italy decides to exit the European Union (EU). Investors have since responded to the news by dumping Italian bonds which  has sent the two year Italian bond yield soaring to almost 2.7 percent; yields which were in the negative just two weeks ago. The ten year Italian bond increased its yield to 3.44 percent. This is the highest it has risen in over four years as bond prices fall.

Italian bonds aren’t the only instruments being dumped as investors are also dumping government bonds in other debt-heavy Eurozone countries such as Portugal and Spain. Even European banks are feeling the pinch as investors are also selling European bank stocks fearing that the banks will more than likely suffer losses on large bonds as prices continue to plummet. Italy’s largest bank UniCredit’s shares fell by 5.6 percent while Spain’s largest bank Santander fell by 5.4 percent.

How did Italy get to this point?

Italy had an inconclusive election in March of this year. Following that, there is currently a power struggle between the Eurosceptic populists and the Pro- European Union politicians. The Eurosceptic populists are those who are against the increasing powers of the EU and opposes the connection of a European country to the Union. It is said that the EU opposers won the election and choose a Finance Minister from within to oversee the government, however, the Italian President, Sergio Mattarella, vetoed the appointment in order to dispel the risk of Italy abandoning the Euro.

Given that the current government is displaying much uncertainty and division, Italy may be having re-elections soon.

Currently, Italy’s debt is 2.3 trillion Euro which is 135 percent of the country’s GDP.

 

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Digicel announces their plans to exchange  the full amount outstanding on both the 8.25% (2020)  and 7.125% (2022) bonds issued.

$2bn of 8.25% 2020 notes are offered to be exchanged for $2bn of new 8.25% 2022 notes;
Issuer: Digicel Group One Limited – 95c if tendered after the early tender date of September 14.

$1bn of 7.125% 2022 notes are offered to be exchanged for $1bn of new 8.25% Cash/PIK 2024 notes (7.125% cash/1.125% PIK);
Issuer:  Digicel Two Limited- 95c if tendered after September 14.

The exchange pushes maturities forward but does not fully address the issue of maturity concentration between bonds of 2020 and 2022. This move is likely to clear the refinancing risk of the ’20s that was of great concern for the relevant markets.

The offer is subject to a 90% acceptance rate for each series of notes with the tender expiration date slated for September 14. The company expects that through improved results this may channel the refinancing of debt maturities in the capital markets.

Sygnus Credit Investment Limited (SCI) whose initial public offering closed on May 16th 2018, has increased its Initial public offer from USD$10 Million to over USD$ 20 million, coming in at about 190 million shares.

Moreover, according to SCI’s whose Prospectus explicitly reserved the right to do so in any event, stated “the company reserves the full, unqualified and absolute right to increase the number of Shares in the IPO to satisfy all or part of the applications in excess of the 90,909,091 Shares, which are comprised in the IPO.”

Furthermore, Chief Executive Officer and Head of Investment Banking at Sygnus Capital Berisford Grey further affirmed this stating “Our decision to upsize to US$20 million is based strictly on our assessment of our pipeline and the growing demand for private credit investment by medium-sized firms across various sectors.”

SCI whose reason for listing is to be a household name and leader in the non-traditional financing niche, providing more avenues for medium-size businesses for growth. In addition, with this IPO SCI seeks to raise additional capital in Jamaica to boost its US$31.4 million deals, in which US$3.2 million has been approved, US$12.3 million has been mandated and US$15.9 million are at various stages of prospecting.

Sygnus Credit Investments Limited (SCI) is an international business company established under the International Business Companies Act, 1999 (as amended) of Saint Lucia.
SCI is a speciality private credit investment company, dedicated to providing non-traditional financing to medium-sized firms across the wider Caribbean region.

The credit SCI delivers is usually more customised and flexible than traditional sources.  As a result, the company offers an alternative channel through which medium-sized firms, which are typically overlooked by conventional forms of financing, can access capital to drive their expansion and growth.

 

 

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Without getting the opinions of YouTubers, popular video app YouTube, began testing an algorithm which changed the chronological order in which videos appear in user subscription feeds. This is done on the reasoning that users are shown videos they would most likely watch instead of scrolling or searching for those videos. Before, once a user subscribes to a channel, the video would appear in the sub box and the user is able to browse through the videos and see every video offered by that particular channel so they can choose which one to watch.

Many persons would think that having a personalized feed would be better but history has shown it is not. Look at every social media network that tried the approach and the responses they received from users. Facebook, Twitter and Instagram has tried personalizing news feeds before and the backlash they received was negative.

YouTube users are livid. Many creators have since complained that because of the optimization, they have received fewer views, less traffic and less revenue. Subscription feeds allow youtubers to connect directly with their subscribers and ensures they see when new videos are posted. This will make it difficult for creators to stay relevant on a platform that is constantly changing.

YouTube has since responded to say the ‘personalized’ feed is optional and only appears for a few people. They went on to further state that so far people with personalized feeds are watching videos for longer. The company’s focus has now shifted from the number of views on a video to how long someone watches the video. YouTube says it will allow its users to decide whether they prefer to view subscription feeds chronologically or by preference.

 

 

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As the business world becomes less rigid about Cannabis (Marijuana/Ganja), organisations and countries alike are investing in the herb that has both medical, and recreation uses.

When states and countries legalise cannabis, new businesses appear out of nowhere. California legalised recreational marijuana at the very beginning of 2018. Within two weeks, two dozen Los Angeles businesses got approval to sell recreational products.

Gives a whole new meaning to the phase, “growing like a weed”. It’s a growing industry, and people are starting to see that there’s money to be made here.

So where does that leave you, the investor?

Well, you have many options. Both directly and indirectly, there are many ways you can turn cannabis into one of the more intriguing investments in your portfolio.

Cannabis Companies

Cannabis stocks are such a new and unusual investment that even compared to your usual investments; there’s no such thing as a “safe bet.” But should you choose to take a chance, medical marijuana presents you with more options. Far more states have legalised for medical use than recreational, and Canada has had medical weed for nearly two decades.

Jamaica is playing catch up with decriminalising marijuana and allowing businesses such Medicanja and Lasco Pharmaceuticals the leeway to explore. What is disheartening is that Jamaica should have been leading the charge with investing in marijuana as much as bauxite and tourism. While no company has been listed on the Jamaica Stock Exchange as yet, we do expect to see a few soon, however, there are companies with direct or indirect exposure to marijuana on the major stock exchanges both in the U.S. and Canada – for example, GW Pharmaceuticals, whose CBD-based epilepsy drug Epidiolex was recently approved by the U.S. Food & Drug Administration (FDA).

Some Canadian companies have shown themselves to be intriguing players in the market. OrganiGram (OGRMF), a licensed producer and grower of medical marijuana, is coming off a strong Q2. As the number of medical cannabis patients in the country grows, so have OrganiGram’s sales, in no small part due to their production of cannabis oil.

Canopy Growth Corporation (TWMJF) is another popular option, a Canadian company that not only produces but researches and studies cannabis. It was recently valued at around $4.35 billion, and Bank of Montreal helps finance it, giving it a competitive advantage.

The first cannabis company to trade on a major U.S. exchange was a Canadian company, Cronos Group Inc. (CRON), which trades on the NASDAQ. What has drawn some people toward it is what has scared others away: volatility. Its overall decline this year hasn’t stopped it from having random days of jumping up 14%. Another Canadian company, Canopy Growth Corp. (CGC), recently began trading on NYSE.

Medicinal cannabis companies will undoubtedly benefit from the new customers, but it would also require more expenses to keep up with demand. That’s important to remember; there’s money to be made, but there’s money that must be spent too. Not every weed stock is going to spit out profits just because it gets legalised.

Some companies, though, have been preparing for the event where recreational marijuana is legal and distribution needs to expand, and they may be worth looking into. Scott’s Miracle-Gro, Co. has acquired multiple companies over the years like General Hydroponics and Sunlight Supply – producers of cannabis growing supplies.

Cannabis ETFs

As marijuana stocks become more of a common occurrence, so do marijuana exchange-traded funds (ETF). ETFs allow for trading many different securities in one fund, bringing a diverse portfolio. They’re tempting, but they are also even newer than cannabis stocks. Moreover, if banks are still wary of individual cannabis stocks, they’re going to be wary of a fund with multiple.

So stay cautious.

Horizons ETFs has a cannabis fund, Horizons Marijuana Life Sciences ETF (HMMJ) is a popular choice that trades previously mentioned companies like Aurora and Canopy Growth. ETFMG Alternative Harvest ETF (MJ) is a fund that focuses exclusively on pot stocks, while the newer Evolve Marijuana ETF (TSX: SEED) is almost entirely Canadian stocks, trading on the Toronto Stock Exchange.

Marijuana stocks are more volatile than your average stock, and the legality of cannabis is always hard to define precisely. It’s a changing world for marijuana, and how you think it will continue to change will determine whether or not you want to invest.

 

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As we enter the sweltering temperatures that signal of summer, it is safe to say that the Jamaica Public Service (JPS) is anticipating a spike in revenue from an increase usage of appliances. Typically, during the months of June to August, Jamaicans brave the heat with the use of air conditioning units and fans. Additionally with children being home for the holidays, parents receive higher than normal utility bills when compared to months where children are at school for five days per week.

In recent times, JPS has submitted a request for a new rate review to The Office of Utilities Regulation (OUR) on May 3, 2018. They are seeking to refinance USD$179.1 million of its existing long-term debt that is based on an interest rate of 11 per cent per annum. This review, if approved, will translate to a 1 percent increase in charges to customers. The Jamaica Public Service possesses this power under the Electricity License, 2016, which makes provision for “extraordinary rate reviews owing to exceptional circumstances that have a significant impact on the electricity sector/ or JPS”.

Being a pure monopoly in its field, JPS has the power to dish out rates that Jamaicans must accept or choose the alternative of solar power. JPS has been plaguing the country with high rates since its inception and being safe from competition, is able to project high costs on customers.

With the improvement in Jamaica’s business environment, is it time for another company to show their competence and offer their services? There is always the possibility that the Jamaica Public Service will be forced not only to reduce rates but increase their level of efficiency if they fear losing market share. Perhaps it is time for more options to present themselves, especially in light of the new rate review.

 

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Many may think an 80 percent increase in profit and a 19 percent increase in revenue just halfway through the financial year would be reason to celebrate for a company, but that isn’t the case for Salada Foods Jamaica Limited.

The Company is anticipating a levy on coffee beans this year which may very well derail most of the gains the company has made so far. Salada is expecting a significant impact on operating revenue stemming from imminent  government taxation and while the company cannot predict what may happen in the coming months, they are preparing for possible pitfalls ahead.

Effective April 1, 2018, Salada is expected to pay USD$1.41 per kilogram for imported green beans and USD$2.40 for value added products. Currently Salada pays USD$1.52 per pound for imported coffee in addition to USD$2.52 per pound for Jamaican coffee blended with the imports. The company already finds it difficult to get the grade of coffee needed to meet the 20 percent quota for local beans for coffee blends.

Initially, the company did not suspect they would be subjected to the coffee tax as part of an ongoing effort to protect local farmers. The assumption was that the tax would be on roasted and ground coffee sold to hotels. On the contrary, their assumptions were incorrect and despite instant coffee being of a different grade, it was also targeted.

For the six month period ending March 31, 2018, Salada reported an increase of JMD$77.89 million in sales of JMD$404.37 million in 2017 for the same period to JMD$482.27 million in 2018. While net profit increased from JMD$44.9 million to JMD$80.2 million, Salada saved 22 percent on expenses in order to achieve this result but the tax on coffee may very well thwart their efforts.

Salada is the sole manufacturer of instant coffee in the Caribbean region and currently trades at JMD$13.00 on the Jamaica Stock Exchange.

 

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For years, privately owned companies have had many different channels through which they have access to much needed credit. Financial institutions have awarded eligible entities with loans to assist with several operational activities. Recently, with the evolution of how capital can be raised, many companies seek the help the public through the issuing of bonds or the help of an Initial Public Offering (IPO). These measures grant companies the opportunity to facilitate repayment of debt, infrastructure updates, expansions, among others.
The most recent, and second largest bond issue in Jamaica was done by the National Commercial Bank Capital Markets on behalf of The National Water Commission (NWC). Investopedia describes a bond as is a fixed income investment in which an investor loans money to an entity (corporate or governmental) which uses the funds for a defined period of time at a variable or fixed interest rate. Bonds are used to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer.

The issue by NWC will be a total sum of $15 billion Jamaican Dollars. It will allow the company to finance the debt it has racked up attributed mostly to the depreciation of the foreign exchange rates, as their loans are foreign currency denominated. This will also assist with mitigating the currency risk they face without having to use most of their revenue (which is the case now) to finance debt. The bond will further be used to develop much needed infrastructure and network to regions across the island which don’t have access to consistent running water.

NWC is a private company which provides a necessary utility to Jamaica, this therefore makes them one of the country’s biggest assets and therefore needs to be protected. Prime Minister Andrew Holness aired his pride for the company in a press conference held on May 15, 2018 where details of the bond were provided. He believes that this bond is the first step to making the entity a publicly traded one, which will further benefit customers, as well as the economy as a whole.

 

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On Monday, Nestle announced that it will pay US$7.2 billion in cash for the rights to sell Starbucks coffee products in grocery stores and restaurants worldwide. The deal will allow Nestle to market, sell and distribute Starbucks brand. Many may ask why Nestle would spend so much on a segment which only generated US$2 billion in revenue about 9 percent of Starbucks total revenue. The deal is priced three times more than sales.

Nestle is the world’s leading coffee brand, however, in the U.S. it only accounts for 3 percent of the coffee industry. The company’s coffee brand, Nescafe, is viewed as boring by the younger generation and its other high end brand, Nespresso, has not garnered the appeal of many consumers.

The deal was made in an effort to recapture their appeal to trendsetters. Furthermore, Nestle is facing heavy competition from JAB Holding Company who has spent over US$30 billion to build its coffee empire. JAB Holding includes coffee brands such as Keurig Green Mountain and Peets. But the deal should help Nestle keep JAB at a distance.

Starbucks accounts for 15 percent of the coffee market in the U.S. According to market research firm Mintel, a jar of Nescafe and a bag of Starbucks coffee bean cost the same, but Nescafe makes more than three times the cups of coffee Starbucks beans make but despite this calculation, consumers prefer to use the more costly brand.

Starbucks plans to use the US$7.2 billion from the deal to fund stock buybacks and the deal would give them access to more markets. Currently Starbucks sells its products in 28 countries compared to Nestle which is operational in 190 countries. This expansion is something Starbucks would not be able to do on its own without spending a massive amount. The deal is said to prove profitable in the long term.

 

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One of the most recent box office explosions, “Black Panther” has proven to be more than just excellent cinematic artistry, but a great profit boost for Walt Disney Co. [NYSE: DIS]. Their second quarter profits have soared past estimates predicted by Wall Street advancing to USD$1.84 in earnings per share, while sales rose to USD$14.5 billion, compared with predictions of USD$14.1 billion. The worldwide movie phenomenon boasted USD$1.3 billion in ticket sales since its release in February and is still playing in theatres across the globe. These numbers have caused a ripple effect for Walt Disney Co.  through an increase in theme park visits during a typically slow season as well as the boost to a television business that’s being negatively affected from an overall decline in pay-TV viewership.

Additionally, more movie releases, such as “Avengers: Infinity War” and the upcoming “Solo: A Star Wars”, can assure the company’s profits for the first half of the year in their studio segment. Up to May 6, 2018, Disney is responsible for a third of the domestic movie business, as reported by Box Office Mojo.

Regardless, Walt Disney Co. faces an uphill battle with their cable division, as it portrayed a 4 percent loss is profits year over year. They are currently taking steps to boost earnings in this segment through the acquisition of 21st Century Fox Inc., but they face significant competition as U.S. cable company Comcast Inc. is rumoured to also place a bid for said company. This among other factors has propelled the company’s stock price to remain largely stagnant in recent years. Strong competition from companies such as Amazon.com Inc. [NASDAQ: AMZN] and Netflix Inc. [NASDAQ: NFLX] has ignited investor uncertainty, which caused the stock price to average about USD$100. This price has caused SSL to recommend it as a buy for clients. The company has the potential to increase share value if their current investments are successful along with the benefits they are set to reap with the present movie releases and increased ticket prices and sales to theme parks.

 

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Supreme Ventures Limited (SVL) has reported that the company has made progress on its mobile betting app project but will not reveal all the details to the public until testing is complete. The company has partnered with Advanced Integrated Systems Limited to use its Quisk platform to roll out the app. The app is being tested with sports betting before any other game.

Advanced Systems Limited has however indicated that the patent is still pending and authorities have not yet implemented any legislation to regulate online gaming. Another ambiguity lies in the regulation for online payment in online gaming.

The Bank of Jamaica is responsible for the regulation, however, the bank’s oversight does not include online gaming on a mobile device. The Betting, Gaming and Lotteries Commission (BGLC) stated that they will accept any payment method the Bank of Jamaica approves.

According to SVL having a mobile online gaming app will make it easier for persons to place bets. The use of Quisk will allow for faster payouts and access for the funds to be used to place more bets throughout the day. Mobile money will provide automatic audit trail for each bet and the banking sector will still be able to monitor KYC data or know your customer data.

For the quarter ending March 31, 2018, Supreme Ventures Ltd (SVL) reported a 14 per cent increase in revenue from JMD$13.39 billion in 2017 for the same period to JMD$15.29 billion. Profits increased by an impressive 49 percent from JMD$418.3 million to JMD$618.4 million. Lottery games continue to show increased growth in profit compared to the previous year, from JMD$556 million to JMD$796 million, a 30 percent increase in growth. However, horse racing continued to lose even more than it did in 2017 form JMD$19 million to JMD$40 million this quarter.

Nevertheless, Supreme Ventures  Ltd (SVL) continues to soar with an earnings per share increase of 49 per cent from $15.77 to $23.45 and we at SSL recommend our clients to include this stock in their portfolios. The stock is trading on the JSE at $12.20.

 

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For the half year period ending March 31, 2018, NCB has reported record profit of JMD$11 billion. Patrick Hylton, Chief Executive Officer of NCB, lauded the bank for being the first listed institution on the Jamaica Stock Exchange to exceed JMD$10 billion in earnings in six months. Hylton is optimistic that this will not be the last record profit set by NCB as he further boasted about the sustainability of the company’s business model which will push the bank to continue on this path.

NCB reported an increase in revenue of 25.2 per cent from JMD$36.8 billion in 2017 to JMD$46.1 billion for the same period in March 2018. JMD$1.5 billion has been attributed to the company’s acquisition of the Clarien Group. Net profit increased by 17 per cent from JMD$9.46 billion in 2017 to a record of JMD$11.04 billion in 2018. It has been reported that this is because of an increase in demand for investment securities as there is a reduced availability of government paper.

Wealth, Asset Management and Investment Banking performed exceptionally well and have proven to be the main contributor to the company’s operating profit with JMD$4 billion, an increase of 6 per cent from the previous year. Treasury and Correspondent banking is now the second largest contributor after only achieving JMD$3.96 billion in profit despite a 10 per cent increase from the same period in 2017.

NCB utilises advanced digital technology in order to provide enhanced solutions for customer experience. This has been well received by customers as is evidenced in its financial statements.

We at SSL continue to recommend NCB to our clients as we look forward to another stellar performance form the company in the coming quarter.

 

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Allergan Plc [NYSE: AGN] is a multinational pharmaceutical company that produces both drugs and conducts research and development within the same industry.

It is no secret that AGN specializes in ophthalmology, women’s health and aesthetics products, one of which includes a well-known product and their best-seller, called Botox.

Botulinum Toxin, most commonly known as Botox, is a non-surgical cosmetic treatment which is used worldwide. It is a wrinkle treatment that cripples repressed muscles that is administered by injection through the skin at the site of fine lines and wrinkles.

Generally used by women, Allergan has started advertising a Botox treatment specific to men. This proves that men are starting to be more conscious about their physical appearances, just like women.

Botox’s reported sales has exceeded, fell just below or breaks even with estimated sales. The last two quarters however, sales reported exceeded that of estimated sales, with Q1 generating $817.3 million globally. The company usually has competitive advantage with the fact that Botox is hard to replicate, however, in recent times, Revance Therapeutics Inc announced that they were developing a carbon copy of the same product that research shows the possibility of it lasting longer than Botox.

This news of course places some concern of the longevity of the company and how much longer it would be able to be on top. However, competition is something that also drives growth, it pushes a company to ensure there is maintenance of quality and that research and development is invested in, to add more products and services which allows for the company to maintain and acquire more market share.

SSL posits that it was a good move for Allergan Plc to provide a product for men. Women too long have been looked down upon for trying to enhance what they were born with; times have changed and now men are looking for cosmetic enhancements too.

In recent times we have even realized that men don’t only wear toupees but are now gravitating to wearing wigs just like women. This is a way that Allergan has now not only grabbed the attention of women, but also that of men, broadening their market share and keeping their name above all others.

Additionally, the company has a new drug that analysts say could be a game-changer for depression. In Jamaica and many other Caribbean islands, mental health is something that is still taken lightly by many people; however, it is wide-spread and prevalent.

Information on both products are in the pipeline, so we will see where these products will take the company and continue to watch its growth.

 

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