QWI weighs on Jamaican Teas’ earnings
Jamaican Teas Limited, JAMT, stumbled to a first-quarter loss of $44 million, despite a 15 per cent improvement in sales.
The group’s descent into red flowed from the performance of its spin-off investment company QWI Investments Limited, which booked a near $95-million loss in the same quarter ending December 2019. The tea company made quarterly profit of $61 million in the prior year.
Jamaican Teas said QWI experienced unrealised investment losses on some of its Jamaican equity positions “primarily on a large holding of shares in a financial company acquired at a significant discount to its then market value in September 2019”. That was a reference to the acquisition of shares in microfinancing firm Access Financial Services, which JAMT and QWI Chairman John Jackson says were acquired at a deep discount.
“We acquired Access shares at $32 towards the end of September, at a time when the value was $45. This would have pushed up our values,” Jackson told the Financial Gleaner. Access traded above $30 on Wednesday.
The subsequent decline was exacerbated by a revaluation of the Jamaican dollar in December, which resulted in a foreign exchange translation loss on the company’s overseas investments, he said.
The performance of the Access stock comes amid a downswing in the market, but Jackson expects the trajectory to gradually shift back north.
“As far as we’re concerned, both the main market and the junior market are going through a period of consolidation. In fact, as regards the junior market, it is more like a correction, since it is down 16 per cent since the peak in August 2019. My suspicion is that it may come to an end soon,” he said.
In the meantime, having seen the impact QWI can have on the out-turn for JamTeas, the QWI board has decided to pursue a two-pronged de-risking strategy: portfolio diversification to smooth out the concentration risks associated with having too much of one stock; and increasing the number of instruments held in markets such as Trinidad & Tobago and the United States.
Jackson also feels that QWI can benefit from bargains in the local market.
“We will be attempting to take advantage of short-term opportunities if they present themselves, especially as it relates to those stocks that we consider undervalued,” he said.
For the December quarter, sales at Jamaican Teas rose to $433 million, up from $378 million in the 2018 period.
The company reported that under its tea-making operations, domestic sales increased by two per cent and exports rose by 37 per cent – lifting total manufacturing revenues by more than 17 per cent. Jackson says he expects the trend to continue.