Profit or Pics – What Do Investors Want? SSL Dumps JSE & Venezuela Down To Its Last US$10B

Here is the latest weekly digest (Feb 27th – Mar 5th, 2017). A quick easy read of this week’s top and most relevant business news. No fluff, just the highlights.

Imagine, on one hand you have all of these profitable Jamaican companies who are making actual products, with sales and customers, and on the other, a company that has made losses every single year since being in operation.

Profits or Pics – What do investors want? This week over 20 Jamaican companies released their year end financials. Most were profitable and continue to show signs of steady growth. This is of course in stark contrast to the loss making Snap Inc (Snapchat), that debuted on the New York Stock Exchange this week.

Let’s start with the Jamaican ones. This week there were results from a number of companies…

  • Jamaica Producers Group earned record net profits of $3.9 billion and their revenues increased 39% year-over-year to $12.1 billion. These impressive results however were driven significantly by the gains of recognizing Kingston Wharves Limited as a subsidiary in the Second Quarter and the gain recognized from the divestment of their 50% interest in Mavis Bank Coffee Factory Limited in the Third Quarter.
  • Derrimon Trading Ltd has concluded the purchase of Empire Supermarket located at 1-3 Retirement Road and initiated acquisition of Cari-Home Supermarket located in Manor Park, both in Kingston. As stated in notes attached to the financials for the year ended December 2016, the negotiations relating to the acquisition of Cari-Home are ongoing. Costs involved in both purchases were not disclosed.
  • Sagicor Group Jamaica’s earnings reached a new record at $11.3 billion for year ending December 2016, reflecting synergies from the amalgamation of the banking operations and earnings from other investments. Profit rose 15 per cent, while revenue climbed more than eight per cent to land just shy of $60 billion.
    • All the conglomerates operating segments grew earnings during the year – the individual insurance line made profit of $3.2 billion on revenues of $23 billion; the employee benefits segment earned $4.8 billion on revenues of $22 billion; the bank earned $1.85 billion on revenues of $9.2 billion; and the investment banking segment earned $1.74 billion on revenues of $4 billion.
  • GraceKennedy Limited grew its annual earnings by 39 per cent to $4.5 billion. That equated to earnings per share of $4.03, up from $2.78 a year earlier.
    • The food-trading segment earning $1.33 billion in profit before tax on $68.8 billion in revenues; the banking and investments segment earned $378 million on revenues of $5.58 billion; insurance earned $789.2 million on revenues of $6.03 billion; and the money services arm earned $3.07 billion on revenues of $7.8 billion for year ending December 2016.

And on the other hand, there’s Snap, Snapchat, whatever you want to call it.

It’s amazing, isn’t it – A company built on disappearing messages and dog-ear pics, that has made a loss every single year since it began operation – being so valuable and having such a huge IPO.

Loss Making Snap Inc goes public – US$34 billion! That was the value of Snapchat’s parent company, Snap Inc., after its first day of trading on the New York Stock Exchange on Thursday. Its closing price of US$24.48 was 44 percent above the US$17 offering price set late Wednesday. It’s the biggest initial public offering since Alibaba’s in 2014.

  • Snapchat is a business built in large part on disappearing messages and adding animated dog ears and flower crowns to users’ selfies.
  • At US$34 billion the company is worth more than the market value of the old-line media company CBS, and about three times the size of another social media company, Twitter.
  • There’s no point in comparing Snap’s profits to any of those companies, since Snap doesn’t have any. The company lost US$514.6 million in 2016 and US$372.9 million the year before, according to the prospectus it filed in February. It has lost money every year since it began commercial operation in 2011 and has warned it may never earn a profit. Read that? → It warned that it may never make a profit, gave out minor voting rights and yet… IPO success!
  • The company sold 200 million shares raising US$3.4 billion, being valued at nearly US$24 billion. Here’s an excellent NYT article if you want to read more

Goes to show how much people are believing in technology as the new driving force of the future of businesses. Speaking of which, McDonald’s is looking to overhaul its entire business, with technology at its core.

McDonald’s is looking to beef up its sales with new tech. The company plans to launch an app where diners can place orders for pickup. They will also expand delivery, mobile and kiosk-ordering options as it looks to cut costs and expand access. The company unveiled a strategy that would try to use technology to keep existing diners, convert casual customers into frequent eaters and regain those lost to competitors.

  • Look at this stat, very interesting McDonald’s said nearly 75% of the population in its top five markets – U.S., France, the U.K., Germany and Canada – live within three miles of a McDonald’s.
  • McDonald’s will launch mobile order-and-pay in 20,000 restaurants in some of their largest markets, including the U.S. by the end of 2017.
  • McDonald’s is on the path to refranchise 4,000 restaurants by the end of 2017, a year ahead of schedule and ‘reimage’ 650 restaurants in 2017. They are also targeting 2,500 ‘Experience of the Future’ restaurants by end of 2017
  • McDonald’s targets returning US$22 billion – US$24 billion to shareholders by end of 2019 and sales growth of 3%-5% beginning in 2019

Other Headlines

Jamaica is banking on Chinese capital to transform Petrojam into a more efficient refinery, a deal that could still end up with a third country having a stake in the asset. Sinohydro Corporation Limited (a Chinese company) will finance, engineer, develop and construct the refinery upgrade at a cost of about US$1 billion. The Jamaican and Venezuelan state entities, which currently co-own the Kingston-based refinery, are about to enter negotiations with the Chinese state-owned engineering firm to finalise repayment and other terms.

Venezuela (that owns a part of Petrojam above, yes you read right) only has US$10.5 billion in foreign reserves left, according to its most recent central bank data. For rest of the year, Venezuela owes roughly US$7.2 billion in outstanding debt payments. In 2011, Venezuela had roughly US$30 billion in reserves. In 2015, it had US$20 billion. To make debt payments in the past year, Venezuela shipped gold to Switzerland.

  • The thinning reserves paint a scary financial picture as the country faces a humanitarian crisis sparked by an economic meltdown. Venezuelans are suffering massive food and medical shortages, as well as skyrocketing grocery prices.
  • Venezuela has more oil reserves than any other nation in the world, and oil shipments make up over 90% of the country’s total exports. However with the low oil prices, which are now at half of what they were in 2014 it is now more difficult for the country to pay its debt and buy basic necessities.

Companies and The Markets

  • Caribbean Broilers Group says it has pumped US$4 million in a state-of-the-art facility aimed at producing healthier, convenient foods and to reduce Jamaica’s import bill on poultry products. The new facility, located on CB’s Clarendon property, will officially begin production in April and is expected to provide employment for an additional eight individuals. The company has partnered with the Hi-Lo supermarket chain for unveiling of the products.
  • Caribbean Cement Company Limited made annual profit of $1.3 billion last year, but it represented a shrinkage of the cement producer’s bottom line, despite a spike in volume sales of cement in its major market. Profit was down 16 per cent relative to 2015.
  • Liquor consumers drank a lot more Appleton rum and Campari liqueur, with sales in Jamaica hitting €79.1 million for the year ending December 2016, according to year end financials released on Tuesday. Jamaica contributed 4.6 per cent of total sales for Italian parent Campari Group.
  • Stocks and Securities Ltd dumped its stake in the Jamaica Stock Exchange this week at $7.50 a share netting about $260 million from the sale. SSL was the lead broker for the offering in 2013 which debuted at $2.85 a share.

Here are some key market and economic figures

  • Stock Market Movement: 0.68% Week-to-date (0.24% Last week) | MTD – 0.93% (Mar), 9.26% (Feb), 10.09% (Jan) | Year To Date – 21.11%, 20.29% 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. 9 of our weekly digest. (Feb 27th – Mar 5th, 2017). All Weekly reviews can be viewed here.

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