Jamaica Gleaner News - Market disappointment - Friday

Market disappointment
published: Friday | April 20, 2007

Ashford W Meikle, Business Reporter

The Jamaica Stock Ex-change dropped more than 10,000 points in the first calendar quarter, evidence of its struggle to maintain a connection with investors that seem to have lost interest in the roller coaster ride that the market depicts.

Overall, the market declined 10 per cent, over the period January to March and has continued to slip.

Even some companies with credible earning reports performed poorly as lagging investor interest put a damper on the market and cash flowed t investments.

"The handful of stocks that came out with positive results - NCB, PanCaribbean, FirstCaribbean Jamaica, Scotiabank - was insufficient to drive the market," said senior analyst at JMMB, Kiesa Ansine.

At the end of March, only six of 41 stocks were showing gains on their price, pulling the broad market index down to 90,595 points, plunging from the 100,678 recorded at the close of 2006.

Two weeks into April, the index remains at 90,792.23.

One analyst suggests that investors are ignoring fundamentals and hunting riskier investments; another said it was a correction of market "over-exuberance" in the twilight of 2006.

But whatever the reason, the JSE's bearishness has pushed all market sectors into decline, with finance, tourism and conglomerates taking big hits.

Biggest losers

Overall, the biggest losers during the quarter, not surprisingly, were the two stocks that investors and analysts have all but written off - Dyoll and Ciboney - which declined by 71 per cent and 43 per cent, respectively.

Cash-strapped Dyoll was suspended from trading in March for failure to file audited reports .

But two of the most illiquid stocks in the Index - MoBay Ice and Salada Foods - gained 7.0 per cent and 38 per cent respectively. Seprod, considered a good stock, had a year to date appreciation of three per cent while Supreme Ventures Limited's price went up by about 17 per cent some analysts argue that there is little value in SVL.

"For the past year as well as in the previous six months before its IPO ... a pretty picture was painted, concerning projected earnings or earnings per shares as well as future revenue streams [and] growth," said brokerage house, Stocks and Securities Limited in a recent analysis of the company.

" Supreme Ventures does not have a long-term earnings track record nor has it even come close to projections."

Individually, the stocks in the financial sector, which declined by 19 per cent, tumbled the steepest with Capital and Credit Merchant turning in the most disappointing performance, depreciating 33 per cent.

Companies such as First-Caribbean International Bank Jamaica, National Commercial Bank, PanCaribbean Financial Services, which reported fairly good earnings also suffered steep declines: FCIBJ fell by 32 per cent, NCB depreciated by 11 per cent and PCFS lost 22 per cent of its value.

Fundamentals ignored

Analysts with whom Financial Gleaner spoke attribute the drawback to several factors but said the most frequently occurring were: investors searching for high-yielding asset classes, disappointment with the performance of the financial sector and investors ignoring fundamentals.

"Last year people weren't looking at fundamentals; but currently there are other factors coming into play," said research manager at Mayberry Investments, Rex Shettlewood.

"You are still getting the impression that persons are still wanting higher yielding, more aggressive type instruments. Currently a lot of people are looking at active trading rather than long-term investment, with some people taking a 10 or 15 cent gain, others cutting their losses and moving. You are finding that stocks are trading in a low band."

Deputy general manager of Stocks and Securities, Mark Croskery, raised a similar point about investors ignoring fundamentals, hence the market correction in the first quarter.

"There was over-exuberance in the market given the earnings and economic environment during November and December last year ... valuations became too expensive too quickly at the end of November last year and these higher valuations for Jamaican equities carried into December and were relatively stable during December of last year," he noted.

As a result, Croskery argues, "Some stocks undeservedly traded at two to three times their book values during the two to three month rally period last year without a justification of historical earnings or earnings per share or on projected earnings or EPS."

Berger Paints, Croskery referenced, traded at an unsustainable price of $4.00 to $4.18, over two times its book value with poor earnings.

"Hence, we see the stock back at $3.00 today." (Berger traded at $3.10 Wednesday).

He also cited DB&G which opened the year at $28.00, "more than 14 times its historical core EPS in a declining interest rate environment and an even more competitive brokerage market."

Berger Paints, Croskery referenced, traded at an unsustainable price of $4.00 to $4.18, over two times its book value with poor earnings.

"Hence, we see the stock back at $3.00 today." (Berger traded at $3.10 Wednesday).

He also cited DB&G which opened the year at $28.00, "more than 14 times its historical core EPS in a declining interest rate environment and an even more competitive brokerage market."

Ansine argued that the uncertainty about the future performance of the finance sector - which is responsible for half of the $745 billion capitalisation of the Index - could be weighing on investors minds even though companies have been diversifying their revenue base.

"The financial sector has a large weighting on the market." said Ansine. If it doesn't move, she added, "it is kind of hard to see the market moving."

But the companies are finding ways to be more productive and more efficient, she pointed out.

Croskery agrees, saying fee and loan incomes are expected to grow at companies such as NCB, BNS and FirstCaribbean Jamaica, but at the same time he is apprehensive about the non- banking financial institutions.

Ansine projects that: "The moderate performance of the financial sector is going to reflect the moderate activity on the market for the next three months."

Shettleford, meantime, says investors are losing out on opportunities that the bear-run is throwing up.

"Persons are still taking on the risk and hoping to find higher value but the value is always in the stock market and that is where it will always be. Grace Kennedy is trading at close to book value [and] you can just see the long term value you can get in a company like that going forward," he said.

Croskery believes that investors should concentrate on the conglomerate sector, which itself declined by 16 per cent in the first quarter.

"Equities such as Lascelles, Pan-Jamaican Investment Trust and GraceKennedy all present strong historical earnings records, consistency in EPS Â except for as of late GK which has undergone a restructuring process and has taken some one-off hits as a result."

Croskery says the conglomerates are all within 6-20 per cent of their respective book values. Lascelles is trading at eight to nine times its historical EPS and PanJam at nine times, he said.

Top Advancing Stocks (Jan-Mar 2007)

SaladaFoods$55.00+ 37.5%

Supreme Ventures$2.10+ 16.7%

Mobay Ice $7.00+ 6.7%

Courts (Jamaica)$4.25+ 6.25%Seprod$16.51+ 3.2%

Top Declining Stocks (Jan-Mar 2007)

Dyoll Group$0.26(71.1%)

Ciboney Group$0.04(42.9%)

Capital & Credit$12.00(35.1%)

FirstCaribbean Jamaica$17.58(32.4%)

Mayberry $2.77(30.8%)

ashford.meikle@gleanerjm.com

Investors lose interest as big payouts beckon

Top advancing stocks (Jan-Mar 2007)

Salada Foods$55.00+ 37.5%