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Jamaican Teas to consider stock split, rights issue

Published:Thursday | February 4, 2016 | 11:02 PM
John Mahfood, CEO of Jamaican Teas Limited.
Rudolph Brown/Photographer Director Suzette Smellie-Tomlinson discusses an item in the Jamaican Teas annual report with fellow board member Marcus Dabdoub at the Jamaican Teas Limited annual report meeting, at Jamaica Pegasus, New Kingston on Wednesday, May 27, 2015.

Jamaican Teas to consider stock split, rights issue

Camilo Thame

Senior Business Writer

Jamaican Teas' directors will next Monday decide on resolutions calling for a stock split and a renounceable rights issue to be considered at the company's annual general meeting in March.

The board is also looking at a second tranche of stock options for directors.

Stock splits tend to result in improved share prices given that increased liquidity stemming from additional units available for trading is generally accompanied by the psychological impact the lower share price has on investors.

A two-for-one stock split would double the issued shares of the tea maker, retailer and real estate developer to 337.4 million, and put the company's share price at $2.75 a share, based on its closing price on Wednesday. A three-for-one split would put the price at $1.83.

Jamaican Teas already realised tremendous market gain in 2015, when the share price moved from $2.51 - below the 2010 listing price of $3.37 - to $5.10 at the close of the year. It closed at $5.50 on Wednesday.

Presently, the tea maker has 81.3 million shares which are authorised but not yet issued, giving the company enough room to raise just over $360 million at the current trading price, after accounting for the existing 15.1 million shares set aside for stock options to directors or shares that can be purchased by staff members.

Up to December 2015, just 880,000 shares were issued through the existing scheme. Options for 7.1 million shares expire this June, which is likely why new options are to be considered at the upcoming AGM.

Pricing for the remaining directors' options under the current scheme will be also be determined at the meeting, while staff members will be allowed to purchase shares at a 10 per cent discount to the last stock market selling price and the date the offer is taken up.

Jamaican Teas Limited did not provide the Jamaica Stock Exchange with any further details on the pending resolutions, nor did company executives speak to any new expansion plan.

Previously, however, CEO John Mahfood spoke about spinning off the company's real estate subsidiary and separately listing it on the junior market. Then, in 2013, he said that the property company, H. Mahfood & Sons, would seek to raise $200 million through an initial public offering.

Focus on core strengths

The separation would allow the real estate and the beverage business to focus on core strengths, while fund raising would capitalise the property development company.

Jamaican Teas instead opted to raise $100 million through a corporate bond issue for building out its St Thomas development.

Its real estate division is yet to properly take off. 2013 was a good year in that the business segment, which realised $21 million of operating profit from $185 million in sales from rental and development, but it returned $2 million profit from $26 million in sales in 2014, and incurred a $9 million loss from $82 million in revenue the following year.

For the first quarter ending December 2015, JAMT generated $42 million in revenue, up from $2 million in the same quarter a year earlier, and saw an operating profit of $1.5 million, up from $230,000.

The company finally received the splinter titles for phase one of its ongoing development - an 11 acre property comprising 71 two-bedroom houses located in Yallahs, St Thomas - in late January, according to company directors John Jackson and John Mahfood, in the latest financial statements.

"This will allow us to complete a number of sales in the second financial quarter," wrote the directors in a statement to shareholders.

Five of the 29 units in phase one were booked during the first quarter. Construction on phase two, which consists of 580-square foot units set in the $7 million selling price range, also began during the quarter.

"We received quite a number of serious enquiries due to these units being priced lower and the higher loan limit offered by the National Housing Trust of $5.5 million," added the directors.

The manufacturing division saw a 16 per cent increase, or $14 million increase in domestic sales, while export sales rose by $6 million, or six per cent. In US dollar terms, exports were flat at US$910,000. The division, which makes beverages such as teas, instant chocolate and bottled water, was also responsible for the lion's share of Jamaican Teas' profit, which rose from $28 million for the three months ending December 2014, to $37 million in the comparative quarter in 2015.