Economy On Track, Market Inches Up, Digicel To Cut 1 in 4

Here is the latest weekly 101 (Feb 20th – Feb 26th, 2017). A quick easy read of this week’s top and most relevant business news. No fluff, just the highlights.

Market Review

The market inched up by 0.24% this week. Not as aggressive as it did during early February and January, but still an increase compared to last week’s fall off. The big winners this week were SEP up by a whopping 46% (what’s happening here), DCOVE up by 25%, KEX jumps to a high of $35 (up 17%), and ISP hits $10 (and there are a few others). GENAC fell 16%, MUSIC by 13% and PJAM and AMG by 11%.

There were new analyst ratings this week as JMMB put a Buy/Overweight rating on JBG, a Hold on DTL and SVL, and a SELL on JP. Read the links for their reasons for the ratings. There were also other picks mentioned this week at Mayberry’s Monthly Investor Meeting. 

Mayberry CEO (Gary Peart’s) top picks offered at the forum included Berger, Caribbean Cement, Caribbean Flavours, Carreras, Dolphin Cove and NCB, among others. CWJ was also mentioned as a pick based on market sentiment and a possible takeover. Rezworth Burchenson’s (of Prime and VM Wealth) top picks include NCB, Caribbean Cement, Lasco Distributors, Purity, General Accident, Carreras, Pan Jam, and Eppley.

Economically, Jamaica is be doing well. International rating agencies continue to affirm our growth, commercial bank credit is growing (meaning people are borrowing more), we have seen continuous quarters of GDP growth (and positive forecasts), unemployment is trending down (5 quarters straight), inflation is at it lowest point in 40 years, the dollar is fairly stable, consumer confidence is high, tax revenues are surpassing targets, we are passing and surpassing the IMF tests, and the stock market is doing tremendously well.

To take it a step further the central bank will be tightening the reigns on foreign currency investments. They will be making it more unattractive for persons to borrow and save in US dollars by adjusting the reserve requirement in March and April . This should also help to reduce the pressure on the dollar.

National Highlights

Now for the highlights…

• Jamaicans’ appetite to invest in US currency has driven the Bank of Jamaica (BOJ) to increase its required reserve on the foreign currency deposits of financial institutions, thus creating a disincentive for the banks to take deposits in any other currency but the Jamaican dollar. The BOJ adjustment means that individuals seeking to hedge against the sliding local currency by saving in foreign currencies will — effective march 2017 — no longer see the returns they were once offered by the banks on deposits.
  • The Bank of Jamaica (BOJ) is implementing a three percentage point adjustment in the cash reserves and liquid assets that deposit-taking institutions are required to hold against foreign currency liabilities.
  • The adjustment will be in two steps beginning with an increase of two percentage points on the first business day in March 2017.
  • The remaining one percentage point will be effected on the first business day in April 2017. 
  • At December 2016, the cash and liquid assets reserve requirements were (12 per cent and 26 per cent respectively, for both foreign currency and Jamaican dollar liabilities.
• With only 10 per cent of working Jamaicans being members of pension funds and retirement schemes, Prime Minister of Jamaica Andrew Holness is urging more Jamaicans to invest in formal pensions funds as a means of saving towards retirement.
• The Planning Institute of Jamaica (PIOJ) is reporting that key sectors in the economy are performing well, with growth projected at one to two per cent for fiscal year 2016/17.
  • The agency is also projecting growth of three per cent in gross domestic product (GDP) for the 2017/18 fiscal year.

Highlights From the Bank Of Jamaica’s Governor Quarterly Briefing (October-December 2016)

The Bank of Jamaica Governer had his quarterly briefing on the economy, discussing the October-December 2016 quarter. Here are a few highlights

• Annual growth in commercial bank credit to the private sector grew by 14.8 per cent as at December 2016, significantly stronger than the 9.5 per cent recorded a year earlier. In real terms, Wynter said loans grew by 12.8 per cent for 2016 compared to 5.7 per cent a year earlier.
• Wynter also pointed to the latest labour force survey for October 2016 showing the unemployment rate down to 12.9 per cent from 13.5 per cent the year before, saying it represented the fifth consecutive quarter of employment growth, which has delivered annual growth in new jobs of three per cent.
• He expects fiscal year inflation at end-March to fall somewhat below the projected range of 4.5 per cent to 6.5 per cent. For the next fiscal year, 2017/18, the forecast ranges from four per cent to six per cent, underpinned by oil prices that the central bank expects to remain below US$60 per barrel on average. Oil is currently trading on the world market below US$55 per barrel.
• The sub-2.0 per cent 12-month inflation of the last few months was a reflection of the unusual fall in prices, or deflation, recorded in the first four months of 2016, caused in the main by the agricultural recovery in that period compared to the same period in 2015
• The BOJ Governor further pointed to Government’s programme of fiscal discipline and smart debt management, which has resulted in a fall in the debt to gross domestic product (GDP) ratio from 143 per cent to 122 per cent as at March 2016.
• Jamaica’s global rankings by international rating agencies Moody’s and Fitch has been boosted. Moody’s upgraded Jamaica’s sovereign debt rating to B3 in November 2016. Fitch, affirmed its single-B sovereign rating for the country, pointing out that “Jamaica’s sovereign risk premium has trended to all-time lows”.

Companies and the Markets

As it relates to companies and the markets…

• Impressive results from Blue Power – Profit for the quarter (before tax) was $40m compared to $26m in the same quarter last year an increase of 56%. Lumber division contributed $14m ($8m in 2016) to net profits (of $36m) while Blue Power did $21m ($17m in 2016).
• Digicel to Cut 1 in 4 – Digicel is targeting savings of about US$100m (€95m) a year as part of its 2030 global transformation programme. The company will look for savings through reducing staff costs and other operational cuts. On Wednesday the Caribbean and Central American mobile operator announced plans to cut a quarter of its global workforce (over 1,500 persons) over the next 18 months as it looks to lower the burden of its $6bn debt.
  • The group has committed to reducing its debt ratio — which is reportedly about six times annualised earnings before interest, tax, depreciation and amortisation — to four and a half times by March 2018. (Earnings has been on the decline for the last 3 years)
  • Digicel also announced it would overhaul its operations, centralising back-office operations across its 31 markets in two regional hubs in the Caribbean and south Pacific regions.
  • As The Sunday Times puts it, Labour costs are not Digicel’s biggest headache. Salary costs are in the region of $250m; the interest bill is more than $430m. Digicel needs to possibly sell equity to pay down its debt.
• GraceKennedy General Insurance Company Limited (GKGI) will later this year roll out operations in Guyana and Trinidad and Tobago. After cementing insurance operations in Antigua, St Vincent, Dominica, St Lucia, and Turks & Caicos, GK’s Group CEO Don Wehby said the company is now hoping to expand its footprint into Belize by year end.
• Seprod’s CEO, Richard Pandohie is prepared to invest $180 million in a drive to revitalise Jamaica’s dairy industry — but is calling for Government to create the framework for a viable sector. A private-public sector partnership plan — similar to the models adopted by the island’s pork and poultry industry — is what is needed to support talks by the Government that by 2020 the dairy industry will reduce Jamaica’s annual dairy import bill by $3.01 billion, and add approximately 1,300 jobs to the agriculture and manufacturing sector (according to Pandohie).
• Desnoes & Geddes Limited, which operates as Red Stripe Jamaica, recorded double-digit growth in the volumes of beer sold in 2016, according to reports from the brewery’s Dutch owner. 
• Jamaica Public Service Company (JPS) reported an 18 per cent decline in net profit to US$21.8 million and a fall-off in revenue. During the year, the power utility collected US$712.8 million from electricity customers, down US$47 million or six per cent, attributable in part to the cooling of oil prices. The company made four times more profit in the fourth quarter, but that performance was insufficient to cover ground lost in the previous periods. Profit in 2015 amounted to US$26.5 million.
• Consultants are now analysing the retail offerings at Sangster International Airport (SIA) in Montego Bay, ahead of mid-year plans by the airport’s management to put up 13 of its 63 retail shops for tender at the nation’s busiest airport.

Internationally…

• Restaurant Brands International Inc. has agreed to acquire Popeyes Louisiana Kitchen Inc. for US$1.8 billion in cash. Under the terms of the agreement, Restaurant Brands, operator of Burger King and Tim Hortons, will pay $79 per Popeyes’ share, equal to a 27% premium over Popeyes’ 30-trading day volume weighted average price as of Feb. 10, the last trading day before media talk of a potential sale. The deal is expected to close by early April. Restaurant Brands share has gained 65% in the last 12 months, while the S&P 500 has gained 22%.
• Last Friday (the 17th), Kraft Heinz seemed determined to press ahead with a US$143 billion takeover bid for Unilever, an ambitious campaign that would have put dozens of the best-known names in consumer households around the world under one roof. But less than 48 hours later, Kraft Heinz’s board — including Warren E. Buffett and the Brazilian-born billionaire Jorge Paulo Lemann — decided to walk away. Kraft Heinz withdrew their offer for Unilever on friendly terms.

Here are some key market and economic figures

• Stock Market Movement: 0.24% Week-to-date (-1.51% Last week) | 9.26% MTD – Feb (10.09% MTD Jan) | Year To Date – 20.29%, 21.85% YTD Last Week (27.6% YTD 2016)
• Inflation: 0.4% – Jan, 0.3% – Dec (Month) | 1.7% Jan 16 – Dec 16 (YTD)

• Unemployment: 12.9% – Oct 2016 (12.9% as at Jul 2016)
• GDP: 2% – Jul – Sep 2016  (1.4% – Apr – Jun 2016) (Rate of Growth of Value Added at Constant (2007) Prices Seasonally Unadjusted)

Thanks for reading Vol. 2017 Issue No. 8 of our weekly digest. ( 20.02.2017 – 26.02.2017). All Weekly reviews can be viewed here.