Sagicor Investments Research & Strategy Unit

Local
Equity
Watch
www.sagicor.com

Sagicor Investments Research Unit | October 2022 1

 Local Equities Market
Increased policy rates by most central banks have been the main theme for the
second half of 2022. This continues to be in response to rising prices as there is an
outlook for continued persistent high levels of inflation. With these factors at play,
the expectation for a recession has increased. The impact of a recession or slow
Jamaica Stock Exchange down in economic activities in-turn should result in lower valuations for equities.
Y-T-D
40.0% The increased cost associated with financing could see companies delaying
35.0% business expansions. Moreover, companies operating in the loans business may
30.0%
25.0% experience reduced take-up as consumer sentiments dip. Accordingly, we have
20.0% begun to see downward revisions in the market multiples on the local market. This
15.0% 19.6%
10.0%
has factored into our estimations. The difficulty to raise capital at favourabe rates
5.0% should be steeper for growth companies relative to blue chip companies.
0.0%
-5.0% -10.2%
-10.0% REOMMENDATION
-15.0%
Within periods of economic downturn, there is the possibility to purchase equity at
lower market valuations. Sagicor Investments want our clients to remain invested
and continue to reap rewards from equity investing. We maintain that clients hold
Main Market Junior Market
some cash in their portfolio to employ an “averaging down” method for investing.
Based on our fair estimation valuation we have provided purchase ranges for
stocks to guide purchase actions.

Sagicor Investments Research Unit | October 2022 2

Purchase Range
Company Ticker​ Purchase Range P/E

Massy Holdings Ltd MASSY $80.26 to $90.29 9.13x

Kingston Wharves Ltd. KW $38.08 to $45.01 24.68X

Mailpac Group Ltd. MAILPAC $1.88 to $2.27 9.19x

Sagicor Investments Research Unit | October 2022 3

Purchase Range
Company Ticker​ Purchase Range P/E

Spur Tree Spices

SPURTREE
Jamaica Limited $3.29 to $4.23 45.50x

Carreras Limited CAR 9.72x

$7.36 to $8.14

Fontana Limited FTNA $9.28 to $9.47 18.76x

Sagicor Investments Research Unit | October 2022 4

 •SPURTREE recorded profit attributable to shareholders of
Spur Tree Spices $89.251 million in the 6 months ending June 2022. This
Jamaica Ltd represents a 95% increase over the profit of $45.663 million in
(SPURTREE) the prior period in 2021.

•There was a supply issue in the second quarter of 2022, which

J$ Million according to management was addressed and shouldn’t affect
100.00 Net Profit the third quarter.

80.00 •SPURTREE has also signed a distribution agreement with

Massy Distributors to cover the local market, which was not
60.00 previously properly serviced.

40.00 • SPURTREE purchase of Canco Limited, supplements the

purchase of Exotic Products and gives than a deeper
20.00
manufacturing footprint.

0.00
2019 2020 2021 6 Months 2022 •Projected EPS for FY 2022 is $0.12 with a target price of $4.43
per share.
Sagicor Investments Research Unit | October 2022 5
 •MASSY’s strategy to divest its non-core operations is

MASSY expected to lead to faster growth in the future. Net profit

from its continuing operations, during the 2021 financial year,
HOLDINGS LTD grew approximately 68%, while net profit from discontinued
(MASSY) operations dragged MASSY’s entire group net profit growth
at only 11%.
J$ ‘B

23.00 Net Profit •In 2022, MASSY has been benefiting directly from the sharp
increase in consumption in its key geographical markets,
18.00
especially in Guyana.

13.00
•The main concern and risk to growth is the threat of a global
8.00
recession that will have a knock-on effect on MASSY’s key
geographical markets.
3.00

•Based on projected revenues and margins, EPS is expected to

-2.00
2018 2019 2020 2021 9M2022
be $9.30 for FY 20232.

Sagicor Investments Research Unit | October 2022 6

 •For the 6-months ending June 30, 2022, MAILPAC recorded
net profit of $137.6M, a decline of 30.6% over the prior year.
Revenue for the period also decline to $806.8M from
Mailpac Group $896.1M.
Ltd (MAILPAC) •The decline in profit for the period is attributed to the
ongoing supply-chain challenges and inflationary pressures.
J$ ‘M MAILPAC has managed to maintain a significant portion of the
500.00 Net Profit business gain during the pandemic. However, even though
450.00 the industry is expanding, the industry concentration ratio is
400.00
getting lower due to the influx of new entrants. This should
350.00
slow revenue growth over the next few years.
300.00

250.00

200.00
•MAILPAC has a very strong balance sheet with strong
150.00 liquidity. Current ratio is 4.19x, cash ratio is 3.10x. There are no
100.00 loans on the balance sheet as at June 30, 2022.
50.00

0.00
2019 2020 2021 6M 2022
•Based on projected revenues and margins, EPS is expected to
be J$0.14 per share for FY 2022 relative to J$ 0.16 for FY 2021
Sagicor Investments Research Unit | October 2022 7
 •For the 6-months ending June 2022, KW recorded revenue of
Kingston $4.56B, an increase of 16.48% over the prior year. Revenue

Wharves Ltd was driven by increased activities in the company’s container

business.
(KW)
•Net profit for the 6-months was 5.64% lower at $1.23B for the
J$ ‘B 6-months ending June 2022 relative to $1.30B for the similar
4.00 Net Profit period in 2021. The decline was as a result of inflationary
pressures and foreign exchange losses due to the
3.00 appreciation of the local currency.

2.00
•KW maintains adequate liquidity. Current ratio is 5.21x
however cash ratio is low at 0.23x. Debt to EDITDA is 1.20x as
at June 30, 2022.
1.00

•Based on projected revenues and margins, EPS is expected to

0.00
2019 2020 2021 6 Mnths 2022
be J$2.24 per share for FY 2022 similar to FY 2021

Sagicor Investments Research Unit | October 2022 8

 •Fontana has consistently recorded higher revenue and profits
Fontana Limited year-over-year with growth of 23.12% and 18% respectively for
(FTNA) FY 2022.

•Margins have been improving owing to cost-cutting efforts

J$ ‘M stemming from COVID-19 and reopening of economy.
700.00 Net Profit

600.00
•Fontana has announced its intention to have its 7th location in
Portmore, St. Catherine opened by the first quarter in 2023.
500.00

400.00 •Stemming from expectations for higher earnings, EPS has

300.00 increased in the last three years.
200.00
•Based on projected revenue and margins, EPS to be $0.51, an
100.00
increase of 5.44% relative to FY 2021.
0.00
2019 2020 2021 2022

Sagicor Investments Research Unit | October 2022 9

 •CAR saw a 2% increase in revenue and a 19% decline in net profit,
year on year, for its first quarter financial report ended June 30,
Carreras Limited 2022.
(CAR)
•According to management, overheads, especially, electricity, fuel
and maintenance, were the main reason for the decline in net
J$ ‘B profit in the first quarter. We anticipate that this will be a
5.00 Net Profit requiring issue for the remainder of the year.

4.00 •Unappropriated profits declined from March 31, 2022, to June 30,
2022, a three-month period, by 21%, due to dividend payments.
3.00

2.00
•Management is focused on carrying out its core function which
is the retailing of tobacco related products.
1.00

•Based on projected revenues and margins, EPS is expected to be

0.00
2020 2021 2022 Q123
J$0.81 per share for FY 2023.

Sagicor Investments Research Unit | October 2022 10

Sagicor Investments Research Unit | October 2022 11