Vantage Point with KEITH COLLISTER

Last week I strongly recommended the shares of National Commercial Bank, and I was, therefore, gratified to note that this was the only stock in the portfolio of the current leader of the Masters' competition, Pan Caribbean's top analyst Audrey Williams. At John Jackson's investment seminar last week, manager of Pan Caribbean's market-leading Sigma Optima Equity Fund, Stephen Gooden, also endorsed NCB as one of his top eight picks for 2007.

His other picks were DB&G, Supreme Ventures, GraceKennedy, Jamaica Producers, Trinidad Cement Limited, Lascelles and Hardware and Lumber. As a subsidiary of Life of Jamaica, the combined group controls the largest pool of equity money in the country, so it's worth paying attention to what they think.

Upon reviewing their seven picks, I see a great deal of similarity with some of my own stock picks as previously expressed in this column.

Cross-selling

DB&G appears a better bet at about 9.5 times earnings than the nearly 11 times earnings of its parent BNS (which I also like), particularly if you believe that DB&G will benefit from cross-selling through BNS's enormous customer network. DB&G is also likely to benefit from having products, e.g., equities, unit trusts etc., sold through BNS's banking network. NCB's branch network was a key element in the growth of NCB Capital markets, and this would not have gone unnoticed at BNS. In addition, in similar fashion to what Sagicor plans for PCFS (another one of my picks), there is a possibility that DB&G may be used as BNS's vehicle to expand its wealth management arm regionally.

Good export prospects

We have also previously recommended Trinidad Cement Limited, Jamaica Producers (JP) and Lascelles as 'real-sector' stocks with good export prospects, with the latter two 'asset-rich' companies also being very good 'value' plays. However, I would like to buy these less liquid stocks a little cheaper as our local market has been trading relatively weak, and unusually, is slightly down for the month of January. Moreover, investors need greater clarity on the earnings outlook from JP's future plans, while the price of Lascelles is not really 10 times earnings as this includes last year's significant pension surplus.

Mr. Gooden also appears to believe that GraceKennedy (with projected cost savings of $300 million) and Hardware and Lumber are potential 'recovery' plays, although like me he is concerned that GraceKennedy's final quarter for their fiscal year will also be poor.

The pick that I am most uncertain about is Supreme Ventures, which has missed every profit forecast made for it, including the last forecast made by its broker NCB of 11 cents per share for its year end of October 2006 (when it reported six cents per share). While this is likely to be its earnings low, as it should realise very significant savings in GTECH fees this financial year, and more next year, there are real questions as to the correct multiple that it should be valued at. At its current price of $2.32, the company is trading at just under 39 times earnings, and even using PCFS's earnings projection of 14 cents, for this year the company is trading at nearly 17 times forward earnings, in a market where many stocks are being valued only on historical earnings.

NCB itself would appear to be a much better buy, although as we said last week, its performance is dependent on the state of the local equity market, which in our view is currently somewhat lacklustre.

Mild weakness

One of the reasons for the mild weakness in the local stock market is probably concerns over macroeconomic stability, in particular, the exchange rate which has moved significantly over the past few months. However, the situation is unlike 2003, which saw very substantial capital flight, as the recent currency weakness is believed to be driven mainly by hedging by some large financial sector players.

While the most recent fiscal numbers for December were poor, making it likely that the final fiscal deficit for the full year will be closer to 3.5 or four per cent of GDP, rather than my previous projection of just under three per cent, Bear Stearns believes the market is very forgiving right now, with a lot of new money being put to work internationally after Wednesday's Federal Reserve meeting.

Unlike the clear fiscal slippage in 2003, their view is that the likely fiscal miss this year is more a function of the lack of the sale of JPS shares, and an overly generous first year of the MoU.

Although next year should be better, the missed target this year is disappointing and makes a balanced budget next year unlikely, which may also delay any rating upgrades that might have come on the back of a balanced budget.