SELL Scotia Investments, NCBJ and JMMB; HOLD GraceKennedy Ltd and Sagicor Financial Corporation, and BUY Guardian Holdings Limited. These are recommendations from Bourse, recently published in the Trinidad Express.
Since the National Debt Exchange Offer was announced and up to March 27, 2013, there has been a noticeable fall in stock prices for companies directly affected by the exchange, and this is what their analysis shows. Almost all the companies have seen their stock prices plummet since the NDX as there were declines in the price of GraceKennedy – 21%, NCBJ – 10%, JMMB – 22%, SIJL – 25%, Sagicor – 16% while Guardian Holdings increased by 1%.
The Trinidad Express has compiled a nicely done summary on the NDX and its follow-up the NDX2. It’s a good read, with most of what is already publicly known but with some additional details. They state;
Despite this (99%) participation rate, there is a reported J$10B shortfall following the close of the NDX. The Jamaican Gleaner has reported that the GOJ has since approached financial institutions for an additional exchange of bonds (referred to as the NDX2) to fill the gap.
They also report on the impact the NDX has had on cross listed companies and non-cross listed ones. See some of their analysis below.
For the cross listed ones;
GraceKennedy Limited (GKC)
GKC announced the participation of two of its subsidiaries – First Global Bank and First Global Financial Services in the NDX2. GKC has GOJ investment securities valued at J$39.4B, which represents 37 per cent of Total assets.
GKC has reported that the impact of the NDX on the Company’s statement of financial position is projected to be less than 2 per cent of owners’ equity.
Post NDX, the weighted average coupon yield on the Company’s Jamaican dollar denominated instruments with a total face value of J$1.5B fell 2.7 per cent to 7.77 per cent. The weighted average tenor of those securities was extended from 5.54 years to 10.21 years. Also, the weighted average coupon yield on the Company’s US dollar denominated instruments with a total face value of US$3.7M declined 2 per cent from 7.25 per cent whilst the weighted average tenor of those securities more than doubled from 3 years to 7 years.
On the TTSE GKC’s price has depreciated 21 per cent to $3.15 on March 27th since the NDX announcement. GKC is currently trading at a trailing P/E of 5.9 times compared to 7.5 times prior the NDX. Bourse recommends a HOLD.
National Commercial Bank of Jamaica Limited (NCBJ)
On February 20th, 2013 NCBJ stated it will participate fully in the NDX. The Group and its subsidiaries exchanged approximately J$118B of bonds under the NDX. Based on information gleaned from the 2012 Annual report, the Group’s total exposure to GOJ debt securities stands at approximately 51 per cent of Total Assets, or J$193.3B.
On the Income statement side, NCBJ expects its future earnings to be impacted by a decline in interest income as the new bonds carry lower interest rates.
Post-NDX NCBJ’s price on the Trinidad and Tobago Stock Exchange (TTSE) has depreciated 10 per cent to close at $1.30 as at March 27th, recovering from a low of $1.10 on March 4th. Post NDX the stock is trading at a trailing P/E of 4.7 times, down from 5.3 times. Bourse recommends a SELL.
NCBJ is one of the financial institutions reportedly approached by the Government to participate in NDX2.
Jamaican Money Market Brokers Limited (JMMB)
JMMB is another major participant in the NDX. The Group is also a key stakeholder in the Economic Programme Oversight Committee, which was established to rectify the flaws of the first debt swap.
GOJ securities account for approximately 65 per cent of JMMB’s Assets.
After the NDX, JMMB’s price has depreciated 22 per cent closing at $0.50 on March 27th (Exhibit 1). JMMB is trading at a trailing P/E multiple of 3.3 times versus 4.2 times Pre-NDX. Bourse recommends a SELL.
Scotia Investments Jamaica Limited (SIJL)
SIJL is a subsidiary of Scotia Group Jamaica Limited (Scotia Group). Scotia Group accounted for approximately 14 per cent of the bonds swapped in the NDX, exchanging bonds with a face value of J$119.4B.
Approximately 86 per cent of SIJL’s Total Assets are GOJ securities.
Post NDX, SIJL’s price has depreciated 25 per cent on the TTSE closing at $1.50 on March 27th. SIJL is currently trading at a P/E of 5 times, down from 6.6 times Pre-NDX. Bourse recommends a SELL.
Sagicor Financial Corporation (SFC)
SFC is the largest regional insurer, with US$5.6B in assets and equity capital of US$860M, supporting a diversified portfolio of businesses in twenty two different countries. As noted in a press release by SFC, the NDX is expected to have an immaterial impact on the capital, and no significant long-term impact on the earnings of the Group.
SFC’s GOJ securities stood at US$1.1B, representing 31 per cent of its investment portfolio. SFC has an overall interest of 51 per cent in Sagicor Life Jamaica (SLJ). Using SFC’s 2011 Annual report, SLJ contributed 32 per cent of SFC’s total revenue.
Dodridge Miller, President and CEO of Sagicor Group stated his confidence in the well-established business operations in Jamaica expecting the subsidiary to continue to make positive contributions to the overall performance of the Group.
Post NDX, SFC’s price has depreciated 16 per cent closing at $6.00 on March 27th. Bourse recommends a HOLD.