Shane Ingram, Contributor
INGRAM
MARKET PRICES have strengthened over the past week against a backdrop of five consecutive days of appreciation in the Main JSE Index. Although volumes continued to be thin, investor interest is on a gentle upward slope on account of the opportunities that permeate the market.
As evidence, analysts point to the fact that the current All Jamaica Composite P/E is now 10.3 times, down from the 16.6 times at the end of January's trading. Moreover, with the significant discount selling that occurred in recent weeks, several stocks are now available below their Book Values (BV). Using the price-to-book value ratio (P/BV), JPG and CWJA appear to be two key stocks for one's portfolio.
JAMAICA PRODUCERS GROUP (JPG)
At a P/BV of 0.50, Jamaica Producers is the most undervalued stock on the market. This fact may not be recognised because many traditionally focus on the stock's P/E ratio of 16.5 times, which is one of the highest on the market. However, this inflated P/E is highly reflective of the adverse events that have pulled on year-to-date profits, including $213.5 million losses in the banana division in Q1 following Hurricane Ivan, the product tampering episode in Q2 that cost JPG $157 million in profits, and the recent passage of hurricanes Dennis and Emily in Q3 that resulted in significant crop losses. Therefore, the anticipated normalisation in business over coming periods should make this stock an attractive buy now. JPG is a leader in the U.K. fresh produce and processed foods market. The SunJuice brand, in particular, is increasing in popularity in the U.K. market and is expected to be a major profit driver for coming periods. In the same vein, JPG has made significant strides to diversify its product lines to not only include primary products but
secondary ones as well. This vertical integration should also serve to buffer the group's returns in times when the primary crop has been destroyed by natural disaster. Notwithstanding, JPG, like other agricultural based operations, is particularly vulnerable to adverse weather conditions. The pending EU arrangements could also affect the Group's banana production in Jamaica and may require adjustments to its sourcing strategy in the UK.
CABLE AND WIRELESS JAMAICA (CWJA)
CWJA trades at P/E of 9.6 times and P/BV ratio of 0.54. This situation exists despite the results for the second quarter ended September 2005 that saw profits lifting 12.06 per cent to $415.6 million. Although revenues remained flat in the period, reductions in cost of sales and finance related charges engineered the upturn in profits experienced during the period. Investors have grown increasingly confident in the prospects of CWJA given the new management's vow to win back market share lost to competitors while tightening the firm's cost structure. The prices for CWJA's high-speed Internet service were slashed 40 per cent in July; a move consistent with the Company's strategy to attract an additional 50,000 broadband customers by next March. CWJA also converted to single calling rate for its fixed line service effective October 1, 2005, which industry observers expect to yield approximately 15 per cent more revenues from that business segment. CWJA also reduced the rates to call other networks by an average 47.5 per cent. Likewise, CWJA offers customers of its competitors the opportunity to trade in their handsets for new model phones at a discount. These initiatives, together with a $124 million marketing budget, point to significant revenue benefits over ensuing quarters; especially over the long term when the market fully adjusts to these developments.
RECOMMENDATIONS
Again, investors are encouraged to remember that stocks are long-term investment options. Among the better long-term options currently available are JPG, CWJA PJAM, Carreras, BNS, NCBJ, and RJR. Short term gains could surface from CRTS, KW, Seprod, D&G, and Goodyear. Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
