Wed | Sep 20, 2017

Financially Speaking | Riding high on Red Stripe

Published:Friday | October 23, 2015 | 10:00 AMLavern Clarke

Last week, a wave of optimism washed over the Jamaican stock market.

And the tide is yet to turn.

In the largest one-day gain ever, the market soared by 8,692 points at midweek. It didn't similarly set an all-time record for the JSE Main Index when trading closed that day. That happened 48 hours later when the main index locked up at 120,593 points on October 16.

It meant that a lot of stock market investors just got a bit richer.

The combined index, which includes the junior market stocks, also closed the week at a historic high of 125,133.

Before the junior market existed, the main index last peaked at 120,385 in April 2005.

Typically, big market gains can be pinpointed to a few stocks. This time, Red Stripe appears to be the trigger. The transactions that produced that near 8,700-point gain on October 14 were moderate trades - it's just that there were a whole lot of people in the mood to buy up shares on that day.

Eighteen stocks advanced as a result. Only three lost value. Three others traded flat. That mood persists a week later.

The historic movement in the index last week also happened at the same time that the beer stock posted a $10 or near 67 per cent gain on trades that amounted to just over 61,000 units or 0.002 per cent of all listed Red Stripe shares. Hardware & Lumber, whose sale is pending, also ratcheted up 30 per cent.

No, investors didn't suddenly fall in love with hardware? It was definitely the Red Stripe effect. Not drunkenness, but a pass-through of the good vibe that have floated through the market since the brewery's parent, Desnoes & Geddes, was acquired by Heineken.

Red Stripe is now trading at $30, which is pretty close to the offer price that Heineken will eventually make to minority shareholders. The stock by itself now represents 16 per cent of the market.

The wealth that resides in companies on the Jamaican stock market is not trivial.

In the trading arena, market capitalisation now sits at around $540 billion. The beauty of the market is that anyone can tap into that wealth through the buying and selling of shares on the exchange.

That's not to say everyone is rich. In fact, the stock market can be schizophrenic. Today's market mover may be tomorrow's market killer. The market is known to be inconsistent in what it treats as good or bad news at particular points in time.

This type of investment is not for the impatient, nor the overly complacent.

Measured by assets, the value sitting on the balance sheets of listed companies last year amounted to $1.997 trillion - and it keeps growing because companies are reinvesting capital year after year. Thank you GraceKennedy, Jamaica Broilers, Red Stripe, Flow Jamaica, JPS, the banks and others that regularly pump more than a billion dollars back into their businesses each year.

To be clear, we are talking about just around 60 companies that populate the exchange, not hundreds.

That $2 trillion of assets is under the care of CEOs and their deputies. As primary stewards, executive directors - those who hold management positions but also sit on their company's board - were paid around $2 billion combined last year to keep their companies humming. That compensation figure does not take in all perks and fees, so the final figure is likely much higher.

That same year, they delivered $55 billion of profit, net of lossmakers, and their companies paid out $24 billion in dividends.

There is a whole lot of wealth swirling through the exchange.

The executive director corps, CEOs included, amounted to just about 90 people. Among the 60 bosses for companies whose accounts are disclosed on the exchange, last year, 11 of them were women.

Two of those women - Jacqueline Sharp and Kelly Tomblin - oversee one fifth of the $2 trillion of assets that reside in listed companies. They have muscle. Sharp runs the No. 2 largest company. Tomblin is in charge of No. 5.

Another is the boss of the exchange, the general manager of Jamaica Stock Exchange Limited. Marlene Street Forrest is indefatigable in her push to broaden the market and open it up to more and more investors. Online trading platform - done! USD market - done! Bond market - done! But let's face it, that last one hasn't exactly taken off.

An American Depository Receipt or ADR market that will allow locals to trade in foreign stocks is on the way.

On the downside, Street Forrest is about to lose $84 billion of JSE's capitalisation when Heineken NV takes Red Stripe private. But that's to come.

Right now, the main index is at 122,670. And still rising. Right now, it's time to gloat. Historic records and beer-induced highs demand it.

lavern.clarke@gleanerjm.com