Ashford W. Meikle, Staff Reporter
Capital and Credit Merchant Bank was among the biggest losers on the Stock Exchange last year with its price depreciating by some 30 per cent. - JUNIOR DOWIE/STAFF PHOTOGRAPHER
OF THE ten companies that recorded the biggest losses on the Jamaica Stock Exchange for 2005 almost half of them were in the finance sector.
It was a tough year for market players who invested in Capital and Credit Merchant Bank (CCMB), Pan Caribbean Financial Services (PCFS), Mayberry Investments Limited (MIL) and First Caribbean International Bank (Jamaica) Limited (FCIBJ).
These four companies saw their share prices plunge from between 18 to 27 per cent over the period December 31, 2004 to December 30, 2005.
But, while these companies suffered a decline in their prices, the biggest loser of them all was the Dyoll Group, which saw its share price plunge by 87 per cent. Dyoll, which began the year trading at $16.60, closed 2005 at $1.85.
PERFORMANCE UNDERSTANDABLE
Given the near collapse of the Group - which saw its main subsidiary, Dyoll Insurance Company, being wound up - the stock's performance is understandable. Analysts have repeatedly pointed out that the Dyoll crisis did much to shatter investors' confidence in the local equities market.
By the end of year the company was trading just below its net book value (NBV).
The biggest loser in the finance sector was Capital and Credit Merchant Bank which saw its share price dip by about 30 per cent, plunging from $32 to $22.50. This was despite the fact that the bank reported healthy profits during the year.
For example based on its nine months to September 30, 2005 the CCFG recorded a 20 per cent increase in its profit, which went up to $942 million.
Senior manager in the Stockbrokerage Division of DB&G, Vernon James, explained the reasons for CCMB's decline which, coincidentally, was the top performing stock for 2004.
"By the close of 2004 it was trading 20 times above its earnings. That wasn't sustainable, so even though the company produced good earnings it wasn't strong enough to sustain the value."
According to James since the market cannot sustain P/E ratios over 15 for very long, a "correction in [CCMB's] price was inevitable."
He also pointed out that the rights issue negatively impacted the price, a view shared by analyst, Neilson Rose, of First Global Financial Services (FGFS). "The rights issue definitely had an impact, as well as the unfavourable market conditions," he reflected. "By the time it came out the price fell from $26 to around $22."
After the rights issue, for example, the company raised just 80 per cent of the $1.2 billion it had sought.
NEXT BIG LOSER
The next big loser in the financial category was Pan Caribbean, which saw a 29 per cent decline. According to James, PCFS's position is somewhat similar to Capital and Credit -- priced above the market average.
He explained that while PCFS's earnings grew in 2005 (for its nine months to September 30, 2005 PCFS saw a 36 per cent increase in its net profit to $820 million), "it was not enough for the stock to trade at a higher valuation ... so you had a correction."
Another finance company, Mayberry Investments, also had a very bruising year. The company, which had a very successful and oversubscribed private placement and initial public offering (IPO), disappointed many with a decline of just under 28 per cent. But that does not tell the whole story. The company, which came to the market at an IPO price of $5.05, plunged to $3.70 by the end of the year. The stock traded as high as $8.50 in the first week of being listed on the exchange.
CORRECTION QUITE SEVERE
Said James, "The correction in Mayberry's case was quite severe."
Analysing FCIBJ, James noted that the stock "is one of the most illiquid ... on the market. It doesn't take a lot to push the market either way. The liquidity of that stock is quite tight and most people have shunned it and so it's not heavily traded and when sellers come in the market they drive the price down. Last year there were quite a few sellers and the [bank's] earnings wasn't all that spectacular."
The senior manager had a word of advice for potential investors. "For finance companies the P/E ratio band is 6 -13. Anything outside of that a correction is imminent.
JSE Top Ten Losers For 2005
Company - % Change
Dyoll - 88.86
Salada - 49.95
H&L - 39.70
Berger - 33.33
CCMB - 29.69
PCFS - 28.74
Mayberry - 28.73
Carib Cement - 28.36
GraceKennedy - 25.89
FCIBJ - 18.14
