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Dated: 1 November 2002
Over the past several years, the Jamaican stock market has not been a haven for initial public offerings. Indeed, it may be argued that the local stock market has never been viewed as a great place for corporate entities to raise capital.
The Jamaica Stock Exchange (JSE) has gone from a low of 32 listed companies in 1984, to a high of 51 listed companies in 1995 (34 companies were listed at its inception 1969). In between that high and low, the JSE has averaged some 40 companies listed over the period. We admit that it’s not a fair comparison, but the world’s largest equities market, the New York Stock Exchange, welcomed some 30 new companies in 2002 (this excludes various market funds).
In the mid to late 80s, several companies, notably Carib Cement, Radio Jamaica and Carib Steel all came onto the Exchange, as did KLAS (under parent Island Broadcasting) and entertainment company Pulse Group. Of these, only RJR, now the RJR Communications Group encompassing radio, TV and multi-media interests, remains in active trading.
Against that background, there was understandable anticipation for the share offer by the Donna Duncan-Scott led Jamaica Money Market Brokers(JMMB). The offer is the first by any Jamaican financial services company in approximately ten years. Back then, the Jamaican stock market was near the crest of its now infamous price-appreciation bubble (The U.S. ironically, was just about to enter the “Clinton era” of record economic and corporate growth).
One of the financial sector companies that went public during that “go-go” period was investment banking house Dehring Bunting & Golding. Vice President at DB&G, Mark Walters, believes that the JMMB offer is yet another confirmation that the sector’s vital signs are in order. “I’ve said it publicly before and I’ll say it again, that the financial service sector has emerged from the crisis a stronger and healthier sector than before.”
Beyond mere feel-good sentiment, he adds, the operating environment is a far cry from the “crash-and-burn” wreckage of the mid-90s.
The major concern, however, from the macro standpoint is controlling violent crime. “Bringing crime down is paramount. Not only will it enhance business operations and increase visitor arrivals, but less violence will allow for some of the resources presently deployed in anti-crime measures to be directed to higher-return activities.”
Overall though, his outlook for the market, and the economy, is upbeat. For the JMMB stock, he believes that while it priced just slightly above the market, there is room for growth.
“The offer price is between six and seven times earnings, which is a little bit higher than what the market has so far been willing to bear. But with the prospect for increased earnings over the next quarter very good, one could see overall price-to-earnings ratios moving up to about nine, so there’s some room for growth there.”
Another broker who spoke to Businessuite concurred with that assessment saying also the stock market in Jamaica was still considerably undervalued. “I think a 20% appreciation in the value of the market is certainly in reach.” He adds that JMMB in particular has the combination of sound management, solid performance and high brand equity that investors find attractive.
The public certainly thinks so. The share offer was reportedly oversubscribed by over a hundred million dollars, with retail investors, including the company’s clients, taking the majority of the shares on offer.
The feeling from the analyst side is that the JMMB offer is a harbinger of public offers from other privately-held corporate entities. “I think that more companies will be viewing a public listing as an advantage rather than a hindrance,” Walters says. “For one, the returns over the long term are better … and two, the financial and administrative discipline that public trading will impose on such companies, while it might seem onerous, is actually a positive, because it makes the companies more competitive and therefore more attractive.”
In compiling this report on the JMMB share offer, we decided to revisit the question of which of the current privately-held companies the brokers would love to see come to market.
The results? Few surprises, although one broker we spoke with made an interesting, albeit not unheard of, suggestion. Air Jamaica, the national airline, is a brand built on patriotic sentiment. And indeed, with government support still a considerable part of the wind beneath its wings, the public is bearing the burden [financially] of keeping the airline in the skies So, why not let us share in the upside?
DB&G’s Walters believes the directors of the national airline should give serious consideration to such a move.
Apart from Air J, the entities which attracted the most interest are the JPSCo which, amid recent labour-management hiccups, still managed to report a hefty increase in profits for parent company Mirant; the resort-based Margaritaville sports bar/entertainment chain and Internet services provider Infochannel.
These were mentioned primarily for their strong positions in their respective market segments, their [mostly] good performance (insofar as results can be ascertained) and also that intangible of bringing a fresh wind of diversity to an equities market which, after some three decades, is still largely a reflection of post-industrial and agricultural past.
For this reason, the brokers we spoke to also thought another media listing would boost the market. To date, aside from Radio Jamaica, which has had its fluctuations, Island Broadcasting (the former parent of KLAS) has been the only full-fledged broadcast media company to test the waters, and it’s presently in private hands. CVM TV has been posited as a possible media contender, but a long-delayed alliance with radio station Hot 102 will have to finalized either way first.
It’s also felt that the success of the JMMB offer will bring a few more financial sector players to the forefront of the market. This is indeed on the cards, as even before the JMMB offer, the head of the Capital and Credit Group, Ryland Campbell, had previously announced that the group would be coming to the market. Sources close to the matter tell Businessuite that the offer will be made in the first quarter of calendar year 2003.
Other financial players that would heighten market interest are Manufacturers’ Sigma and the Trinidad-based Guardian group. Interestingly, the only tourism-related business specifically named was Margaritaville. Neither did any of the leading security firms come up. Both of these featured in our previous survey in 2000. It’s possible that our analysts are waiting to see what the upcoming winter season will bring before applying any optimism to the tourism sector.
The industrial security sector is also having something of its own “winter” with a few of the better-known entities either consolidating or scaling back their operations. This, despite continuing high levels of violent crime and robberies.
It should be quite interesting to watch the developments in the market for 2003.
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