Bourse Weekly Review- January 23rd 2011- (2)

8/3/2019 Bourse Weekly Review- January 23rd 2011- (2)

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BOURSE SECURITIES LIMITEDWeekly Market Review

23rd January 2012

Add value to your portfolio

In a recent article Bourse presented its top stock picks for 2012. Despite thelimited upside projected for the local equity market, we outlined a fewstocks with good valuations and the potential for price appreciation. In thisweeks article we would advise you on how you can add value to your

portfolio by not just buying but by selling as well.

As investors, you should carefully monitor the stocks that you hold in yourportfolio. On the local market, there are stocks that are relativelyundervalued and may offer positive returns to its shareholders. At the sametime, there also exist stocks that are expensive relative to the market and toits peers in the defined industry. Some of these stocks offer little or noincentive to investors, potentially bearing unrewarded risks and as such, werecommend that if you currently hold these, consideration should be given torebalancing your portfolio.

This week we intend to outline some of these stocks. FirstCaribbean

International Bank Limited (FCIB), Guardian Media Limited (GML),

Capital and Credit Financial Group Limited (CCFG) and Readymix

Limited (RML) have been identified using fundamental analysis as

expensive stocks relative to not just the market but to stocks in the same

industry.

FirstCaribbean International Bank Limited (FCIB)

Historically FCIB has traded at a premium to the market. Between 2002 and2006, this Group traded at an average P/E ratio of 20.7 times versus theweighted average market P/E of 15.8 times. This premium disappearedfor a few years but has since resurfaced. In 2011, the weighted averagemarket P/E was 16.2 times while FCIBs P/E was 29.6 times (Exhibit 1).


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This stock was also expensive compared to the average P/E of the locallylisted banks, which averaged 15.0 times in 2011.

In the last three years, the Groups earnings has deteriorated at an averageannual rate of 20%, whilst most of the other banks in this sector haveregistered double digit growth. FCIBs dividend yield for this same periodaveraged 4.3% with an average dividend per share of US$0.055. Its currentdividend per share stands at US$0.045.

Whereas the dividend story for this stock may have attracted investors, thequestion is would this hold going forward. It should be noted that FCIBsdividend payout averaged 56.5% in FY 2009 and FY 2010, while in FY2011 the payout was 97.8% for a smaller absolute dividend payment.

Looking ahead, FCIB may struggle to grow its top line as it primarilyoperates within tourist based economies. Caution must be emphasized as the


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Groups efficiency ratio increased, moving from 49.8% in FY 2007 to66.7% in FY 2011. Both these factors can erode FCIBs earnings. Sucherosion may undermine the sustainability of its dividend payout.

At the current price of $9.10 there may be limited upside for this stock.

Guardian Media Limited (GML)

GML has and continues to trade at a premium to the market and its peerswithin the sector. Its five year P/E average is 19.4 times, while the weightedaverage market P/E stood at 12.2 times for the five year period. At thecurrent price of $21.50, the stock is trading at a trailing P/E of 22.4 times

GMLs earnings have declined in the last few years, with an average declinerate of 2%. The Groups dividend per share was $0.50 in the last three years,with dividend yield averaging 2.3% and a dividend payout ratio of 49.2%.There are however alternative stocks with higher dividend yields (Exhibit 2)as well as price appreciation potential, bearing similar risks.

The average price over the last three years stands at $22.00. In 2010, therewas no price movements and this was followed in 2011 with a stock price


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depreciation of 1.6%. At the current prices the potential for priceappreciation is limited for this stock.

Capital and Credit Financial Group Limited (CCFG)

This cross-listed Jamaican company traded at an average P/E ratio of over15.0 times in the last five years. At the current price of $0.30, the Group istrading at a trailing P/E of 16.9 times, a premium to the market and the otherNon- Banking Financial companies.

CCFG has not shown the resilience to the current downturn as demonstratedby some of its cross-listed peers. This is a critical attribute to be consideredin light of uncertainties that surrounds the Jamaican market. It is also worth

noting that CCFG cross-listed peers offer dividend, while CCFG has notpaid a dividend since 2006.

Readymix Limited (RML)

RML has faced some hardships in the last few years. This was notableespecially in its last few quarters where the company reported losses. In2009, the Groups P/E ratio was 38.2 times, which was the highest of all thelisted companies on the local stock exchange.

The company has reported declines in its earnings in the last three years witha loss being reported in FY 2010. Consequently, RML has failed to pay adividend to its shareholders, with the last dividend payment being in 2008.Since early 2009 the price of this stock has virtually remained unchanged atapproximately $31.35. In this time frame, there was little trading activity forthis stock so price movement would have been limited.

The inactivity in the construction sector will continue to manifest due toweak demand for cement and construction materials and this can continue to

hamper the Groups earnings even for its peers. Cost containment strategiesas difficult as it may be for the Group would be crucial going forward toattempt to assist RML bottom line. Its parent company has opted to increasethe prices of its cement in light of continued escalating production andoperational cost, this may be a possible strategy than the Group can alsoadopt. Investors are unlikely to be paid any dividends for this stock and thepotential for any increase in price is unlikely.


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We recognize that the illiquidity of these stocks may prevent price correctionin the short term and prices may be maintained at their elevated levels.

However, as the most basic investment need of any investor is usually tobeat inflation investors may have to pursue alternative investments in orderto accomplish this goal.

Again, we reiterate that investors should seek to complement and diversify

their portfolios with international equities and bonds and should seek the

advice of their brokers, of which Bourse Securities is one.

This report is for informational purposes only and does not constitute an offer or solicitation to buy or sell any

securities discussed herein. The information and any data contained herein have been obtained from financial data

provided to us by the issuers of the subject securities. Investors wishing to purchase any of the securities mentioned

should consult an investment adviser. Projections and estimates are those of Bourse Securities based on currentavailable information.

E-Mail us [email protected] phone 628-5550/ 9100 /3982

Bourse Weekly Review- January 23rd 2011- (2)

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