JIM / UTECH individual Case

8/14/2019 JIM / UTECH individual Case

1/28

Economic Outlook

The recent fall of some gigantic banks in the United States of America has

caused a domino

effect on not just only their own economy, but the world. Unlike what the

present government and his administration had thought, Jamaica is now

feeling the effect of the recession. What we are presently facing, however, is

not just the effects of the recession,

but because the Government, after wining the election in 2008, tried to

impress the people by abolishing tuitions and hospital fees and to negotiate

huge wage increase for some civil servants, rather than tightening the

budget for turbulent times.

In recent months, our country has closed three of its four Aluminum pants

which resulted in the decline of the bauxite production. There is also a

reduction in the inflow of remittance, tourist, and loss of access to the

foreign market and also an increase in interest rates. These resulted in the

decline of foreign exchange inflows and Standard and Poor downgrade rating

of the countrys credit rating CCC+, as a result, no private-sector company in

Jamaica can hope to be rated higher than the CCC+' sovereign credit rating

assigned to the Government.


2/28

The economy now faces a serious long-term problem which includes: sizable

merchandise trade deficit, large-scale unemployment and

underemployment, and a debt-to-GDP ratio of almost 130% and is now

seeking to approach the IMF for financial aid. Rates offered on Certificates

of Deposit issued by Bank of Jamaica were reduced by 100 basis points. The

six-month benchmark rate will therefore move from 18 per cent per annum

to 17 per cent.

Profile of the Investor

Client #: MQ002510

TRN#: 111-617-819

Name: Ciquoy Maccaville

Gender: Female

Home Address: 12 Alkirk Drive, Eltham Acres, St.

Catherine

Email: [email protected]

Nationality: Jamaican

Date of Birth: May 21, 1981

Age: 28 years old

Telephone: (876) 345-0069

Name of Employee: Guardian Life Insurance Company

Total Income: $1,190,775.00 per annum

Total Expenses: $954,000.00 per annum

Disposable Income: $236,775.00
mailto:[email protected]:[email protected]


3/28

Spouse/Dependents: None

Next of Kin: Warren Maccaville (Father)

Net Worth: $1,074,400.00

Investment Experience: None (client has only a regular saving

a/c)

Risk Aversion: Conservative

Financial Goals: To earn funds that will be used to

supplement the cash that she already

has as deposit to purchase a house. Also

client wants to save for retirement.

Particulars of the Investment

Principal: $1,000,000.00

Source: $345,000.00 was given to Ms. Maccaville

as a gift from her father and

$655,000.00 is money that she has

saved over the past three years in

regular saving accounts and cash valueon Insurance.

Investment Tenure: Medium Long Term


4/28

Ms. Ciquoy Maccaville's Balance Sheet as at August 14, 2009

Fixed Assets $ Long Term Liabilities $

Car 760,000 Hire Purchase 102,400

Furniture 500,000 Car Loan 180,000

Desk Top Computer 45,000 Insurance 96,000

Notebook 68,400

Total 1,373,400

378,000

Current Assets Current Liabilities

Cash 37,000 Food 144,000

Bank 338,000 Utilities84,000

Insurance Cash Value 280,000 Shelter

216,000

Transportation 132,000


5/28

Total 655,000 576,000

Total Assets 2,028,400 Total

Liabilities 954,000

Net Worth 1,074,400

Ms. Ciquoy Maccavilles annual expenses

The pie chart below shows Ms. Maccavilles basic annual expenses.


6/28

Ms. Ciquoy Maccavilles fixed and current assets


7/28

Investment Options


8/28

As the Investment Manager of the fund, I hope to achieve the following:

1. Provide client with information regarding all the financial options she

has and what we will be doing with her money.

2. To attain a reasonable increase on the portfolio within 3 months.

3. Update client with periodic information on the happenings of her

investments.

4. Achieve sufficient amount of funds which will assist client in purchasing

a house.

Recommended Asset Mix


9/28

Selected Investments


10/28

On August 17, 2009, of Ms. Maccavilles $1,000,000.00, the amount of

$200,005.70 was

used to purchase stocks as follows:


11/28

Stock Units Price ConsiderationCommission(2%) Trade Fee

Cess(.2%)

GCT -16.5%

TotalCharges

NetConsideration

Buy NCBJ

3,914.50 12.91 50,536.20

1,010.72 110.00

101.07

201.60 1,423.39

51,959.59

SLJ8,000.

01 5.35 42,800.05856

.00 110.0085.

60173.5

1 1,225.1244,025

.17

PCFS3,000.

00 14 42,000.00840

.00 110.0084.

00170.6

1 1,204.6143,204

.61

BNS3,460.

00 17.1 59,166.001,183

.32 110.00118.

33232.9

2 1,644.5760,810

.57

Total 199,999

.94


12/28

On August 19, 2009, the amount of $199,994.30 to purchase Repurchase

Agreement for tenure of 6months and yields at 16.25%; $300,000.00 to

purchase Fixed Rate 17.875% Investment Debenture 2013 (Series BU). And

the balance of $300,000.00 was used to purchase Treasury Bills on August

28, 2009.


13/28

Rational for Investment Selection

Government Bonds

Government Bonds are unsecured loans that are offered by individuals to the

government, who in return repay them with a rate of interest. Government

Bonds are generally short term or long term debentures, that is, the terms

are generally 1 year to 5 years.

Advantages

1. There is a tax relief on in come generated

2. High rate of interest

3. Principal is refunded at maturity

4. Interest and face value id guaranteed

5. Unlike other instruments, debentures often have two principal

payments

6. Investors receive regular interest payments on a set date

Disadvantages

1. Debenture holders have no collateral from which to claim if

government goes bankrupt.


14/28

Treasury Bills

This is a short-term debt obligation backed by the government with a

maturity of less than one year.

T-bills are issued through a competitive bidding process at a discount from

par, which means that rather than paying fixed interest payments

like conventional bonds, the appreciation of the bond provides the return to

the holder.

Advantages

As a direct obligation of the Jamaican Government, Treasury Bills are

considered the most secure investment instrument available

T-Bills allow you to set a strategy for your investments, such as

staggering your returns by buying bills with different maturities.


15/28

Repurchase Agreement

A repurchase Agreement (Repo) is a contract giving the seller of an asset the

right or obligation to buy back the asset at a specified price on a given date.

Benefits of purchasing a Repo include:

1. Guaranteed interest rate assures great returns.

2. You specify the duration of the investment and which gives you the

flexibility of withdrawing or re-investing funds on the maturity date. It

is therefore a liquid security.

3. Highly competitive yield guaranteed for the life of the agreement.

4. Investments, principal plus interest, can be immediately reinvested at

the roll-over rate to take advantage of compounding interest.

5. Confirmations and advices are sent quickly so you can keep track of

your investments.

6. No management fees.

7. Repos are easy, and have a well-recognised record of performance.


16/28

Stocks

Stocks are merely long term investments. There are two types of stocks;

these are common stock and preferred stock. Common stock holders are

owners of the company while preferred stockholders are lenders to the

company and are guaranteed fixed rate on dividend payments. Stocks were

chosen for my client because she is young and is able to make money if she

holds the stocks for a long period. Stocks are even at a low now because of

the global financial crises and it is now a good time to purchase.

Advantages

1. The benefit of owning stock in a corporation is that whenever the

corporation profits, you profit as well. You can buy them at a low price

once the stock goes up you can sell them at a higher price and make a

profit.

2. The right to a proportional share of the company's income either paid

out as a dividend or retained and reinvested in the business.

3. The right to vote on company affairs.

4. The ability to sell ownership in the company to anyone else at any

time without the need for approval.

5. The right to inspect the company's

6. The right to a proportional share of any value remaining after all other

claimants has been satisfied, particularly in bankruptcy.

7. Freedom from legal responsibility for company errors beyond the

amount of the money invested in the company.
http://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htmhttp://www.investorglossary.com/stock.htm


17/28

Disadvantages

1. Although the prices of the stocks can go down in which case you will

lose a lot of money.

2. If the company needs to be liquidated, then the common stock holders

will be paid after the other obligations have been paid.


18/28

Bank of Nova Scotia

The Bank of Nova Scotia is Jamaicas oldest bank. It commenced operations

in 1889 and since then, has maintained a strong and stable reputation. Their

records have being showing consecutive increases for over a decade. BNS

provides a wide range of financial services and products to suit small,

medium and large organizations and also individuals.

BNS financial records has indicated that total assets has increased from

J$77.7 billion in 1999 to J$280.2billion in 2008 and earnings per shares also

indicate a steady climb over the past five year period. In June of this year,

the company reported net income of $2,844 million on net interest income of

$6,978 million compared to net income of $2,117 million on net interest

income of $5,252 million for the last year.

The world standard for expense control productivity ratio (a measure of cost

and effectiveness) is 60%, the banks ratio for 2007 was 63.15%, and

64.76% for 2008, indicates that BNS continues to improve productivity by

controlling expenses.

In June 2009, they paid interim dividend of 24.26% on $100,000,000.00.

This is $0.1213 per stock units. This was paid on preference stocks for the

period January 1 June 30, 2009.


19/28


20/28

Sagicor

In the year 1970, Jamaica opened its door to the first life insurance company,

Life of Jamaica, now called, Sagicor Life Jamaica Limited. It was also the first

life insurance company to be listed on the Jamaica Stock Exchange (JSE).

Sagicor has a solid reputation as an innovator, leader and pacesetter in the

Caribbean life insurance industry. The company has been the market leader

among life insurance companies in Jamaica.

Policyholders and team members of Sagicor Jamaica are comforted that the

company continues to perform well with record profits over the past seven

years and is demonstrated by:

posted profits of $2.8b for the six month period

ending June 2009, an

increase of 88% over the same period last year.

The net worth of SLJ currently stands at $19b.

The chart below shows dividend paid over a five years in dollars.

The Sagicor Group of Companies recorded a commendable performance for

the three months ended March 31st 2009, despite a business environment

which continues to be challenging. Net income for the quarter amounted to

US $17.8 million compared to

US $20.0 million for the same quarter last year. When one excludes the gain

on acquisition of US $5.1 million from the 2008 revenue, the 2009 results


21/28

represent a growth of 19.0% over the same period in 2008. Net income

attributable to shareholders was US $10.5 million compared to US $8.4

million (excluding the 2008 gain on acquisition). Earnings per

share for the three months totaled US $3.8 cents and the annualized return

on shareholders equity was 9.7%. Sagicor showed an eight year

consecutive increase in their earnings.


22/28

Pan Caribbean Financial Services

In 2005, an agreement between Pan Jamaican and Life of Jamaica Limited,

now Sagicor Life Jamaica Limited, led to PanCaribbean becoming a 52%

subsidiary of LOJ, creating one of the most profitable financial companies in

Jamaica today.

On June 23, they became the seventh commercial bank to operate in the

Jamaican market. They offer services such as investments, stock broking,

savings and chequing accounts and more. PCFS is well capitalized, has a

strong income growth and a strong net worth coverage which is far superior

that its peers.

Pan Caribbean was ranked a first place stockbroker since they traded 20.5%

of the market in 2008, up from 13.0% in the previous year and has realized

increased earnings for each quarter of this year, registering an all time high

of $1.03 Billion in total income in the fourth quarter.

In 2008, Pan Caribbean reported Net Income of $606 Million, that is, EPS of

$1.11 for a six-month period ended June 30. That is 11% above the previous

year which was $546 Million. Net Income for the second quarter was $352
http://www.sagicorjamaica.com/http://www.sagicorjamaica.com/


23/28

Million, up 32% when compared to the $267 Million which was reported for

the same period in the previous prior-year.

For the six-month period, Net Interest Income advanced by 19% to $952

Million from $803 Million, influenced primarily by improved interest margins

and balance sheet growth of

10% for the year-to-date. Non-interest income declined by 1% to $397 Million

versus $401 Million in 2007, due largely to a fall in fixed income trading

gains. However, improved

trading gains in foreign exchange, equities and related activities partially

compensated for this decline.

Below are graphs showing their dividend paid in J$ and their earnings per

share over the past five years. Both graphs have shown a steady increase,


24/28

indicating that they are a steady slow grower.


25/28

National Commercial Bank

National Commercial Bank Jamaica Limited is a privately owned organization

and is a strong and secure organization with its capital base being one of the

largest in Jamaica. It commenced operation at Harbour Street, Kingston in

1837.

For the year 2008, NCBJ reported net profit of $7.34Bn (EPS: $2.98) for the

first nine months in their financial year, this is 8.6% more than what was

recorded for the same period last year. Since March of this year, they are in

the #one position in loan growth which surpassed the industry growth of

33% to record a net loan growth of 41% over 2008. Their net loans to total

asset ratio has improved from 25.41% at June 2008 to 28.57% at June 2009.

NCBs performance for nine months ended June 2009 compared to same

period last year: Net Profit of $7,340 million, grew by $583 million or 9% ;

Earnings per Stock Unit of $2.98 increased by $0.24 or 9%; Operating

Revenue of $19,807 million, improved by 9%; Cost to Income Ratio of 48.9%

vs. 51.0%; Risk-Based Capital Ratio of 13.66% vs.14.09%; Net Loans of $89.0

billion, grew by 25%; Investment Securities of $159.2 billion, increased by

$8,304 million or 6%; Customer Deposits of $132.8 billion, increased by 11%;

Return on Average Equity was 28.37% vs. 29.54% and Return on Average

Assets was 3.25% vs. 3.37%.

The graphs below shows NCBs EPS and dividend paid over a five year

period.


26/28


27/28

Summary on Investmentsfor the period August 17 November 12, 2009

For the investment period August 17, 2009 November 12, 2009, Ms.

Maccaville realized a 34% return on her investments.

A minimal gain of 1% was realized on her Treasury Bill; 3% on the

Repurchase Agreement; 4% on the fixed Rate Debenture and 26% combined

selected stocks.

In the stock market all for four stocks stood ground. There is potential for

growth in Jamaican stock market. Despite the current economic climate,

these companies have maintained a strong presence in the Jamaican

financial market.


28/28

JIM / UTECH individual Case

Documents

Transcript of JIM / UTECH individual Case