Wed | Nov 14, 2018

JSE still on top - Eight stocks achieve triple-digit growth

Published:Sunday | October 7, 2018 | 12:00 AMSteven Jackson
The Jamaica Stock Exchange, at Harbour Street, Kingston.

Eight stocks have made triple-digit returns since January on the Jamaica Stock Exchange.

And it's not over yet. Analysts are predicting that Jamaica's near four-year bull-run will continue into next year in the context of declining interest rates and, therefore, reduced returns on bonds and other fixed income investments.

JSE so far is outperforming 92 other exchanges worldwide, according to new reporting last week, that looked at international market performance over a five-year timeline.

Investors who put money in the eight stocks would have made gains between 100 per cent and 255 per cent over nine months ending September. For the stocks that generated returns of 50 per cent or more, the list expands to 20.

The overall market grew by 24 per cent to the end of September, and has added seven more percentage points since then to 31 per cent growth as of Friday.

At least two brokerage houses see these gains as sustainable, having noted that overall the market is fairly priced. They however acknowledge that some stocks are aggressively priced and need to grow into their earnings.

The top eight comprise five juniors and three main market stocks: Derrimon Trading, up 255 per cent to $2.81; SSL Ventures, up 233 per cent to $1.70; Palace Amusement, up 154 per cent to $1,425; Barita Investments, up 150 per cent to $18.69; CAC 2000 up 130 per cent to $14.98; Kingston Wharves up 127 per cent to $73.74; Indies Pharma up 121 per cent to $3.32; and Express Catering, up 96 per cent to $8.21.

"I expect the market to continue its rally in 2019 because several large cap stocks such as NCB Financial Group and Jamaica Broilers Group remain undervalued," said Nicole Thompson Adamson, manager of research and stockbroking at VM Wealth Management Limited.

"However the pace of the rally could slow because some stocks have already had significant price to earnings multiple expansion to over 40 times," she reasoned.

Adamson indicated that some main market stocks are trading at prices which are 21 times what they earn in a year, a key measure of value. A multiple of 21 times is seen as fair because it comes on the backdrop of record low interest rates and overall economic improvement.

Other stocks are trading at double that amount. Those companies either have to grow their earnings per share to reflect their present valuation, or their stock price could fall to align with their value.

Executive director of Stocks & Securities Limited, Mark Croskery, expects the JSE Combined Index to continue climbing for the remainder of 2018.

Croskery notes that a number of junior market stocks have plateaued in price and will need to seek growth via acquisition, but that there were bargains to pick up among main market stocks.

He adds that the dividend yields for main market stocks are higher than risk free rates in a number of cases, which provides increased incentive for investors.

Jamaican treasuries are currently yielding 1.71 per cent on the three-month bill. Dividend yields meanwhile are averaging 4.02 per cent.

"We are bullish and continue to feel positive on Jamaican stocks for a number of reasons - assets continue to diminish in Jamaica, whether stocks, bonds or real estate; and, in particular, stocks continue to be thin or illiquid on the supply side. Also on the overall picture, 'Brand Jamaica' is getting more and more popular and this is carrying overseas investors to Jamaica to invest more heavily in indigenous brands and to seek them out. The listed Jamaican stocks are a huge and growing Avenue for this," said Croskery.

Within the international context, over the past five years, the JSE has increased by 233 per cent, which "dwarfs" the 86 per cent rally in the second-top performer, Vietnam's Ho Chi Minh Stock Index, and the

73 per cent rally in the S&P 500 index, according to a Bloomberg article published last week.

The JSE rally really gained momentum in 2015, when the island's stock market topped the world. It has remained within the top 10 globally since then.

The rapid movement in the market is most notably seen in individual stocks rather than the JSE Combined Index, which closed at 386,499 points on Friday, up from 295,534 at the top of January.

steven.jackson@gleanerjm.com