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Sterling predicts stock will find ‘true value’ under new share programmes

Published:Wednesday | August 31, 2016 | 12:00 AMSteven Jackson
Charles Ross, President & CEO of Sterling Asset Management Limited.
Charles Ross, President & CEO of Sterling Asset Management Limited.

The managers of listed company Sterling Investments Limited (SIL) say the stock will find its true value with increased liquidity expected from two share-buying programmes launched for existing shareholders.

Gleaner Business reported in May that SIL, which is managed by Sterling Asset Management Limited, would offer a dividend reinvestment programme, or DRIP, and a complementary share purchase programme, referred to as COMP.

Both programmes will offer shareholders the option to boost their holdings.

Owners of the stock at times describe SIL as an illiquid stock which rarely trades on Jamaica Stock Exchange. The stock first listed on the JSE in October 2014, and has since cross-listed on the exchanges' USD platform.

Charles Ross, Chief Executive Officer of Sterling Asset Management, indicated that the programmes would create increased liquidity for the existing 55.8 million ordinary shares of SIL. It would obviate the need for another stock split or rights issue.

"There are no plans to split the split because the price of the stock at the moment is about US$0.01. We did a stock split when listing on the Jamaica Stock Exchange and the complementary share-purchase programme will really allow existing shareholders to buy the stock. So it will solve the liquidity problem ... and over time the demand for the stock will exceed the supply," he said at a press briefing last Thursday.

The company trades at an annual price to earnings ratio of roughly 5.9 times, while some investment and other companies trade at double-digit PE.

"I don't know how long the market will sit down and allow the stock to trade at a price to earnings of less than six times," said Ross.

SIL is currently trading at $13 per share. Its six-month EPS amounted to $1.13.

Sterling Investments paid dividends totalling $17.5 million in 2015, and has so far distributed $8 million in the first quarter of 2016.

The dividend programme, DRIP, will allow Sterling investors to automatically convert their dividends into new share purchases. The COMP will give shareholders the option every quarter to buy shares directly from Sterling. In doing so, the transaction will become free of broker and other related fees.

But given expectations that the programmes will lead to increased trading of the SIL shares, they are also expected to eventually lead to business for brokers.

"The programmes also offer an opportunity to the brokers because now they can offer a [wider] market for these shares. Someone can take fees on either side," said Marian Ross, a director of Sterling Asset Management. "Liquidity is a problem, but it's not a problem that only SIL can solve. We have given you good performance, a stock split, and we are introducing these two programmes. We are doing everything in our power but now the broker community may wish to investigate an option in making a market of these shares," she said.

The programmes are not popular in Jamaica, but at least one other company is known to utilise them.

"We have had a lot of investors coming to us saying they are not able to get more shares and they want it. So this is our way of creating a little bit of liquidity and putting more shares out there to facilitate more trading," said Yanique Leiba-Ebanks, assistant vice president of trading and business development at Sterling.

SIL's net profit for the three months ended June 2016 grew to $44 million, almost double the $22.3 million earned during the same period last year. Over six months net profit increased to $63.2 million, up from $32.7 million a year earlier. The company benefited from improvements in global bond prices during the first half of the financial year, despite the decline in asset prices around the time of the vote by Britons to leave the European Union.