Chief Executive of Courts Jamaica Limited Hayden Singh (right) addressing shareholders at the furniture maker's annual general meeting, at the Constant Spring Road store, St. Andrew, September 8, 2005. The man beside Singh is unidentified. - File

This week, Sunday Business brings you a new column to give a fresh view of events in the markets and how they affect business and investments, from the 'Vantage Point' of seasoned analyst Keith Collister.

Courts

Shareholders attending Courts Jamaica's annual general meeting (AGM) in Kingston were keenly interested in the status of the sale of Courts Caribbean business, particularly the quoted Jamaican company, as the fall in the furniture company's share price this year was, undoubtedly, partly due to investor impatience at the apparent lack of progress on the bid.

At the AGM, Courts revealed it had signed a new memorandum of understanding (MoU) with its "preferred bidder."

This is better news than it appears at first glance, as the competitive bidding process for Courts Caribbean business occurred last year when the main regional stock markets of Jamaica and Trinidad were much more buoyant than they are now, which no doubt positively influenced regional bidders at the time.

The signing of the new MoU means the top bidder is still looking to close the deal, while the required milestones for bank financing and regulatory approval hopefully mean the wait for shareholders will no longer be open-ended.

Even without the deal, longer-term Courts deserves more respect than it is getting at Friday's share price of $3.50.

According to its CEO Hayden Singh, internal surveys reveal it has gained three to four percentage points of market share (in an environment of declining consumer disposable income), and it is now debt free.

While the next financial quarter earnings are likely to be flat, the Christmas quarter is likely to be stronger as Courts sales are now more than 50 per cent electronic.

Carreras

Over the past couple of years, Carreras has successfully weathered Jamaica's vicious bear market, making shareholders very happy, particularly after dividends.

At its Tuesday AGM, Carreras said it had ceased brand sponsorship of all sports in December 2005, as part of its voluntary compliance with international standards for tobacco marketing.

However, those of us hoping that a consequent fall in its $422 million marketing expenses would translate directly into an improved bottomline were disappointed, as chairman Christopher Burton explained that electronic media was the most efficient way of reaching consumers.

Indeed, he argued the company might have to actually increase its marketing spending due to a forced reliance on more expensive point of sale marketing.

The new Carreras Limited (now no longer a group) is still awaiting the result of its latest appeal to the Revenue Court over $5.7 billion in taxes and penalties, which is expected before the calendar year-end.

This potentially precedent-setting case is likely to be watched closely by corporate Jamaica, and the chairman confirmed that Carreras will probably appeal directly to the Privy Council if (as many expect) its current appeal fails.

Carreras' foreign exchange gains quadrupled last fiscal year to $345.7 million, partly as a consequence of holdings of cash and repos more than doubling to over $4 billion in the year to March 31 and the company's investment policy of holding half of its investments in U.S. dollars.

After its AGM, Carreras hit a new high of $44.90 in Wednesday's trading, up almost $13 from its March 2005 price of $32, which is approximately when our local market peaked last year.

At 6.5 times earnings, it is likely that the market has already discounted the effect of the tax assessment, so a positive result should be beneficial to the stock. The stock high dividend yield is competitive with money market instruments, providing investors with insurance against a continuing bear market.

Seprod

Jamaica Money Market Broker's stockbroking arm held its third conference call on Wednesday, showcasing Seprod's managing director Byron Thompson. Part of Desmond Blade's Musson Group of Companies (its largest shareholder), Seprod is one of a select group of local companies showing sharply-increased net profits over the period of the bear market.

The market appears to have recognised this, as Thursday's last trade of $16.01 was only slightly below its high of $16.50. A portion, some $247.4 million, of its sharply increased $750 million net profit for 2005 is "negative goodwill" from the acquisition of Serge Island Dairies (and farms) Limited, representing the difference between the fair value of its net assets acquired and the purchase price of the company.

Seprod shareholders appear to be making the assumption that Blades, who is also Seprod's chairman, still has his "magic touch" for buying assets below their real value.

For some time, the formerly extremely "cash-rich" Mussons group has been astutely leading the way in the Jamaican corporate sector by moving into hard assets on the expectation that local interest rates would fall.

Seprod had an impressive 51 per cent increase in first-half profits, and has almost completed acquisition of the 2,000-acre Belvedere Farms. The impact of Seprod's part ownership in Facey in driving the important associated profits segment higher should not be underestimated as Digicel continues to expand its footprint across the Caribbean, increasing sales of Facey's mobile phones.

BNS and DB&G

After its suspension Thursday, BNS hit a high of $21.27 on Friday (or approximately two times its book value of $10.57 per share) before trading back down to $20 on high volume.

Investors should be cautious in chasing the price of DB&G too much beyond two times its book value as BNS is likely to be a disciplined financial buyer.

The caveat to this view would be if one of the other major commercial banks, such as a FirstCaribbean, stepped into the ring, and DB&G came to be seen as a "must have" on strategic grounds.

keithcollister@cwjamaica.com