Ashford Meikle, Business Reporter

William Clarke, president and CEO of Scotiabank Jamaica is all smiles as he greets Peter Bunting (left), executive chairman and CEO of Dehring, Bunting and Golding Limited. Also in the photo are DB&G's Gary Sinclair (second left) and Mark Golding.

There have been mixed reactions from analysts on the pricing of the Scotiabank's C$85-90 million offer to purchase 75-80 per cent of the shareholding in Dehring, Bunting and Golding, and at least one analyst says that the price should be closer to $30.

The offer was made at $21.08 per share, representing a 5.4 per cent premium on the opening price of $20 per share on the day the deal was officially announced, October 20, and eight per cent premium on the October 13 price. DB&G rose 50 cents on the news.

A week later on October 27, a day after the parties appeared jointly in a press conference to sell the offer as a good buy for investors, the stock closed trading down 50 cents at $20. BNS, whose stock price has remained flat since the announcement, traded firm at $22.10.

constrained going forward

"On one part, you are looking at a company whose potential for growth in net profit earnings - given the current state of the market - will be constrained going forward, and if you expect profits to start declining going forward then the decision to sell at $21 is a good one," says research manager at Mayberry Investments, Rex Shettlewood.

But, reasoned Shettlewood, the decision to sell is not just based on historical facts, since investors must also look at the future prospects of the company.

"Investors have to look at where they are and their overall risk outlook and really evaluate both ends. In my rationale mind, why would I want to sell the stock for $21 when the possibility of it being worth far more exists?"

One investment manager, who is also a DB&G shareholder, expressed some doubts. "Honestly I don't know if it is a good price," he said.

"I am thinking real hard about accepting the offer," said

the executive who asked for anonymity.

But financial analyst and stock market guru, John Jackson was more forthright in his views.

"I don't think it is a fair price," said Jackson who was highly critical of the argument that BNS was really paying a 31 per cent premium for the stock atop the $16.10 that DB&G traded at before the story of the pending deal was leaked to the media.

"That is total rubbish," said the investment analyst.

"A lot of the stocks in the market have actually rebounded from their all-time lows in the [June/July] months," commented Jackson, who is also publisher of the Investors Choice magazine. He listed a few examples.

"Lascelles, when DB&G was at $13, was at $170. It has moved up from there to where it is now (Lascelles traded at $241 at the close of trading on Friday). NCB was selling at $13 and its now roughly at $20."

Jackson also pointed to stocks such as Jamaica Producers, PanCaribbean and Cable and Wireless, which have experienced price appreciations of 20-40 per cent since hitting their all-time lows during the Summer months.

"Stocks generally have rebounded from their lows, so that argument that they are paying a premium - to suggest that it is because of their pending takeover why the stock has appreciated - is a non-argument," Jackson insisted.

They are paying seven times historical earnings for a company where the median of the market is closer eight so they are paying a discount to median for the best performing market among its peers by far. There is no other company that has delivered the way Dehring, Bunting and Golding has delivered in the market. The rate of return on assets have been spectacularly higher than everybody else," said Jackson.

But some analysts argue that DB&G is facing a future of flat profits in a shrinking market.

"The future of the non banking financial sector is the inherent risk from reducing spreads," said Shettlewood.

"Assuming a stable economy gong forward, DB&G like other players will be looking towards - maximising revenue streams, as the market will be shrinking," noted Shettlewood.

But Jackson disagrees, saying there was no expectation that profits would have continued to grow at the expansive levels of past years.

"Nobody expects profits to keep growing at the same rate - 50 per cent per annum - in a small country where the company is already spread out. Yes it is going to be more difficult É, but I think the foundation is there and the fact that BNS finds this an attractive bid for them suggests that they have seen the value there," said Jackson.

He argues that the market is "artificially" depressed, saying the price earnings ratio and the values on the market result from disequilibrium

"The market is coming out of the bearish mood and there is a huge gap between the prices at which buyers want to buy and the prices that are available in the market," said the analyst.

- ashford.meikle@gleanerjm.com