JMMB Research

Company Insights

Company Insights provide an analysis of the periodic performance of locally traded companies, These reports will be based on the companies' half-year results. Investors can use these publications as guidelines to make more informed investment decisions within the local landscape.

JMMB’S 2021 REVIEW AND 2022 OUTLOOK OF THE LOCAL AND INTERNATIONAL EQUITY MARKETS

Local Market Overview

In 2021, stocks trading on the Trinidad and Tobago Stock Exchange (TTSE) returned their best performance since 2011, despite lockdowns restrictions and lower economic activity as a result of the Covid-19 pandemic.

The TTSE measures its performance by four (4) indices:

The Composite Index measures the performance of all ordinary shares listed on the First Tier

market: -

The value of the Composite Index of the TTSE increased by 13.1% in 2021.

The All T&T Index measures the performance of ordinary shares for local companies only: -

The All T& T Index returned 17.61% for the period December 31^st, 2020, to December 31^st, 2021.

The Cross Listed Index measures the performance of ordinary shares listed on multiple stock exchanges: -

The cross-listed stocks are FirstCaribbean International Bank, which is based in Barbados, the Jamaica-based NCB Financial Group, GraceKennedy, Guardian Holdings Limited and the JMMB Group. This Index, returned 3% year-over-year.

The SME Index measures the performance of ordinary shares for all companies listed on the Small Medium Enterprises (SME) Market: -

The SME Index declined 33.1% for the period December 31^st, 2020, to December 31^st, 2021.

Source: Trinidad and Tobago Stock Exchange (TTSE)

Best and Worst Performing Stocks on the TTSE for 2021

Source: Trinidad and Tobago Stock Exchange (TTSE)

Local Outlook:

The pandemic-induced restrictions such as global travel constraints, social distancing and health and safety protocols continued in 2021. These restrictions led to a slowdown in economies resulting in major supply-chain disruptions across the world and consequently, leading to increased levels of inflation. Domestically, the T&T economy is estimated to contract by 1% in 2021 but is projected to rebound in 2022 by 5.4%. However, with the Omicron variant looming and the possible emergence of new variants, this has heightened uncertainty both locally and internationally. As such, JMMB Investments projects the overall direction of the TTCI and TTALL to be positive but more contained, increasing by 3.5% and 2.2% respectively.

By Sector:

Banking

This sector advanced 7.85% in 2021.
Earnings in the sector for 2021 was mostly positive, with the sector recording EPS growth of 40.8%.
Revenue for the sector improved by 2.2% year on year (YOY), operating margins improved marginally by 1.43%.
In August 2021, Republic Financial Holdings (RFHL) entered the Insurance space under the subsidiary Republic Evolve Limited, effective September 15^th, 2021, the Company’s name was changed to Republic Life Insurance Limited.
Additionally, The First Citizens Group strengthened its relationship with Barita Investments Ltd and its parent, Cornerstone Financial Holdings Ltd: -

Between September 2020 and September 2021, First Citizens Investment Services (FCIS), a wholly owned subsidiary of the First Citizens Group, acquired a total of 90,795,154 shares in Barita Investments Ltd, equal to 7.43% of the company.
FCIS spent an estimated US$40 million to acquire the shares that made it the second largest shareholder in Barita, after its parent Cornerstone Financial.

Furthermore, at the end of Q3 2021 Scotiabank Trinidad and Tobago Limited (SBTT) announced a special dividend of 85 cents per share to shareholders on record as at September 27^th, 2021.

Moving forward, we expect to see positive returns in this sector driven by further growth and expansion strategies. We project this sector to advance by 2.3% in 2022.

Conglomerates

This sector showed the greatest appreciation in 2021, advancing around 46.2%. Its performance was largely boosted by MASSY’s price appreciation which came off the heels of their announcements to cross-list the stock on the Jamaican Stock Exchange and engage in a 20-to-1 stock split. The stock’s price climbed over 70% in 2021.
MASSY’s cross-listing is set for January 2022 and the proposed Record Date for the share split is currently March 11^th 2022. Until both of these events pass, we expect further volatility for the stock. The cross-listing will likely continue to attract Trinidadian investors as they search for the opportunity to sell the stock on the JSE to gain USD, and the share split will likely follow the trend which has been seen historically where it causes higher demand for the stock due to investor psychology factors. However, later in the year, we expect its volatility will settle.
Overall, revenue, EPS and Operating profit margins for the sector improved. Moving forward, we expect the positive momentum seen for its fundamental metrics to continue. We project this sector to advance a further 4.7% in 2022.

Non-Banking Finance

This sector advanced 21.96% in 2021. Earnings in the sector for 2021 was positive, with the sector recording EPS growth of 19.1%. Overall, revenue and operating profit margins for the sector improved.
Ansa Merchant Bank Limited (AMBL) entered the commercial banking space through the acquisition of Bank of Baroda. Additionally, AMBL has entered into an agreement which will allow TATIL to own 100% of Colfire. Through this acquisition, AMBL is expected to be the market leader, by market share, in the T&T insurance market.
On March 9^th, 2021, Guardian Holdings Limited (GHL) announced its decision to pursue a cross listing of its shares on the Jamaica Stock Exchange (JSE), this cross listing was effected on May 5^th, 2021.
Additionally, the Directors of JMMB Group Limited (JMMBGL) approved the recommendation to execute a share buyback programme beginning on April 1^st, 2022. This programme is intended to be used as a tool for JMMBGL to support shareholder value and will be funded by the Company's cash flows.
Furthermore, National Enterprises Limited (NEL) share price appreciated 7% year-over-year. In 2021, NEL returned to profitability, driven by increases in the fair market value of NEL’s portfolio of investee companies which reflects the turnaround in commodity prices as markets recover from the impact of the pandemic, increased supply of natural gas and energy demand in key commercial and industrial sectors locally.
Moving forward, we expect to see positive returns in this sector driven by these initiatives. We project this sector to advance by 5% in 2022.

Energy

This sector advanced 22.94% in 2021. Overall, revenue, EPS and operating profit margins for the sector improved.
The improved performance in this sector was driven by higher Mont Belvieu natural gas liquids (NGLs) prices as energy markets recovered from the impacts of the COVID-19 pandemic.
Furthermore, PPGPL has successfully advanced its marketing efforts to renew key sales contracts in the Eastern Caribbean market. These efforts, coupled with favourable NGL prices and demand, will support shareholder value.
Moving forward, we expect to see positive returns in this sector driven by these initiatives and as markets continue to recover. We project this sector to advance by 5% in 2022.

Trading

This sector had the second highest advancement for 2021. Its 28.3% weighted average return was primarily driven by a strong price appreciation in AGL. While PHL’s price decreased around 7.9%, AGL’s increased 35.5% on the year. Also, LJWB advanced 22.7% but its low market cap compared to the other 2 stocks left its impact on the sector’s movement minimal.
In terms of performance, AGL and LJWB showed increases in EPS and operating margins, but PHL showed declines in both. Overall, the sector’s EPS shrunk 10.3% while its operating margin remained fairly similar.
Moving forward, we expect AGL’s business model to continue performing well if market conditions remain similar. PHL’s model has the potential to rebound, but that would depend on how citizens respond to their marketing strategies.
We project an advancement of 8.9% for this sector in 2022.

Manufacturing 1

Manufacturing 1 declined around 6.3% for 2021 primarily due to a strong price depreciation seen in WCO’s stock. Investors responded to the company’s marginal decline in earnings, as long-term outlooks on their business model weakened.

NFM also showed weakness in its fundamental metrics as the company dealt with rising costs of wheat and a variety of supply chain issues. In 2021, it maintained fixed prices and absorbed the brunt of the costs but there has since been an adjustment in the company’s approach. At the start of 2022, there were increases in the sale price of its products. While this will not eliminate the company’s challenges, we expect that it will lead to healthier margins.
The sector’s strongest appreciation came from Angostura Holdings Limited, which was spurred by the potential seen for their business model. In 2021, the company increased its revenue gained from exports through gaining ground in international markets.
Another company from the sector which showed strength in business model was UCL, with an approximate 57.7% increase in the company’s EPS YoY despite a decrease in their revenue.
Overall, the sector showed a decline in both EPS and operating margins, with the largest declines in both coming from NFM. We project some rebound for this sector and an advancement of 6% for 2022.

Manufacturing 2

TCL had price appreciation of around 34.1% in 2021. Its movement came after its primary competitor, Rock Hard Cement, was pushed out of the market through increases in tariffs.
Since then, the company’s majority shareholder, Cemex, has made some adjustments to its business model. Primarily, there was a new cost introduced for TCL and its subsidiary, CCC, that led to negative investor sentiments towards the majority shareholder. Moving into 2022, we expect that this negative sentiment will linger unless TCL shows an ability to produce value for minority shareholders.
In 2021, the company showed a decrease in its operating margin but an increase in its revenue. Moving forward, we expect that the resumption of public works in Trinidad and Tobago will support their revenue for 2022, but the company’s operating efficiency will likely be the determinant for whether they are as profitable as they can be.

International Market Overview

For 2021, the U.S. stock market showed a strong performance amidst the pandemic. The S&P 500 climbed 26.7%. The Dow Jones Industrial Average and the Nasdaq Composite climbed 18.7% and 21.4% respectively. This completed the third year of consecutive returns for U.S. stocks, with major indexes closing near record highs. Off the steep increase in oil prices, the energy sector showed the highest returns. Following energy was real estate and then tech, financials, and consumer discretionary.

Throughout the year, we saw investors exhibit confidence in the markets as they repeatedly brushed off news that in previous years would have caused significant declines in the markets. The S&P 500 hit a record of 70 all-time highs in 2021. Before 2021, the year with the closest number of all-time highs being recorded was 1995. What adds the most context to the spectacle of a performance may be that this record-setting year had a contested presidential election, an assault on the Capitol, historically high inflation, a range of supply chain disruptions and of course, a continuation of the pandemic.

International Outlook

Given no major macroeconomic or geopolitical event, we expect that the U.S. stock market’s spectacle-like performance will continue through 2022 to a lesser degree. Threats to its continuation will largely include the same threats seen from 2021. A sustainable performance in 2022 will need to be supplemented by solutions to the U.S.’ current inflation problems and some ease up in supply chains. The year ended with their Consumer Price Index showing its highest annual increase since the 1980’s, highlighting how much of a challenge it may be to deal with. The Fed will likely be key in this issue as their choice to keep interest rates low and pump billions of dollars into markets in 2021 led to the high inflation. Their strategy to reduce this inflation will be pivotal, as investors’ response to it will influence the trajectory for the markets in 2022. Wall Street analysts have made predictions for the US Equity markets in 2022 ranging from -5% to 14%. Below is a table showing the organizations and the implied movement from their 2022 S&P 500 targets, which averages at 7.2%.

Analysts Estimates for S&P 500 2022 Targets

SBTT Year-End Update

For the year ended October 31^st, 2021, Scotiabank Trinidad and Tobago Limited (SBTT) recorded a 15.9% increase in PAT to $603.5 million from $520.8 million in the prior period. This increase was driven by lower net impairment losses on loans combined with effective cost management strategies.

Notwithstanding this, total revenues fell by 2.7% to $1.73 billion from $1.78 billion in the prior period. This decline was driven by a $94 million or 7% decline in net interest income largely due to lower loan balances impacting both retail and commercial customer segments.

In September, JMMB’s Research Department assigned a Marketperform rating to the stock with a target price of $59.37.

In the coming year, we expect the Bank to report increased earnings and dividends. Therefore, we maintain our rating on SBTT at Marketperform and revise our target price to $65.58 with a fair value range of $62.30-$68.86.

Please see the attached report for more details.

UCL-Q3 2021 Update

For the nine months ended September 30, 2021, Unilever Caribbean Limited (UCL) realized Profit after Tax of $21.36 million, a 101.6% increase YoY. This improvement came despite a 26.8% decrease in revenue. A basic EPS of $0.81 was recorded at the end of the period.

Similar to the previous 2 quarters, UCL has shown significant bottom-line improvement. Their stronger profit margins were driven by the new Home Care business model, reductions in distribution and warehousing costs, and growth in Beauty and Personal Care sales. However, during the quarter, the company faced logistics challenges which led to some of their shipments being re-phased into Q4.

In April 2021, JMMB’s research department assigned an OUTPERFORM rating on UCL with a price target of $21.36. UCL’s price at that time was $16.33 and it has since increased to $16.35.

Due to their financial performance being in line with our expectations, we maintain our rating on UCL at OUTPERFORM and revise our target price to $21.28 with a fair value range from $20.22 - $22.35.

Please see the attached report for more details.

NEL - September 2021

For the six-month period ended September 30^th, 2021, NEL recorded an increase in profit before tax to $848 million from a $106.8 million loss position in the prior period. This improvement was primarily driven by an increase in the fair market value in some of NEL’s portfolio of investee companies. These gains reflect the turnaround in commodity prices as markets recover from the impact of the Covid-19 pandemic, as well as, increased supply of natural gas and energy demand in key commercial and industrial sectors locally.

In September 2021, JMMB’s Research Department issued an UNDERPERFORM rating on NEL.

However, based on NEL’s performance we revise our rating to MARKETPERFORM and our target price to $3.27 from $2.85 with a fair value range of $2.94 - $3.60.

Please see the attached report for more details.

NFM - Q3 2021 Update

For the nine months ended September 30, 2021, National Flour Mills (NFM) generated a revenue of $319.7 million. This was a 3.2% increase year over year. Profit after tax, though, decreased 79.7% and there was a decrease in EPS of 82.4% YoY.

NFM has continued to face the challenges of unfavourable market conditions. Year to date, they have dealt with supply chain issues and shortages in the global wheat market which have led to rising costs of production for the company. Their commitment to maintaining prices for Trinidad and Tobago’s citizens have resulted in the company bearing the brunt of these costs.

In January, JMMB’s research department issued an Underperform on NFM. Its share price has since decreased 11.7% to $1.87.

As our outlook remains similar, we maintain our rating on NFM at UNDERPERFORM with a new target price of $1.53 and a fair value range from $1.46 - $1.61.

Please see the attached report for more details.

NGL - September 2021

For the nine-month period ended September 30 2021, TTNGL recorded a 347.8% increase in profit after tax to $134.1 million from $29.95 million in the prior year. This translates into a basic EPS of $0.87 at the end of the period. According to the Chairman's statement, the improved performance for the period was due to higher profitability from TTNGL’s investment in Phoenix Park Gas Processors Limited (PPGPL). This enhanced performance of PPGPL continued to be driven primarily by higher Mont Belvieu natural gas liquids (NGLs) prices as energy markets recovered from the impacts of the COVID-19 pandemic.

With a revised target price of $19.79 and a fair value range of $19.81-$21.77, we maintain an OUTPERFORM rating on NGL.

Please see attached the NGL Valuation Report.

GHL - September 2021

For the nine-month period ended September 30, 2021, GHL recorded a 0.8% decline in PAT to TT$472.5 million from TT$476.2 million in the corresponding prior period translating into a basic EPS of TT$1.97. This performance reflects a US$10 million loss in Guardian Re, GHL's Bermuda based reinsurance company. However, Gross Written Premiums (GWP) increased 7.6% to TT$5.4 billion from TT$4.9 billion driven by the integration of the life insurance and annuities portfolio acquired by Guardian Life Limited from NCB Insurance Company Limited. Despite the increase in GWP, the Life Insurance segment in Jamaica and Trinidad and Tobago continue to experience pandemic induced challenges.

With a revised target price of TT$32.40/JM$734.18 and fair value range of TT$30.78-TT$34.02 (JM$697.47-JM$770.89), we maintain our rating on GHL at OUTPERFORM.

Please see attached the GHL Quarterly Update.

CIF - September 2021

For period ended September 30, 2021, Republic Financial holdings (RFHL) shares accounted for 90% of total assets in the Clico Investment Fund (CIF), the GORTT 2037 Bond accounted for 9% and the remainder of assets in the fund comprise interest receivables and liquid assets. Given the high level of concentration of RFHL shares in CIF, it is likely that any change in the fair value of RFHL shares will likely affect the fair value of CIF.

In August 2021, JMMB’s research department issued an Outperform rating on CIF with a price target of $30.06.

Given RFHL’s financial performance, we maintain a rating of OUTPERFORM with a revised target price of $29.60 and a fair value range of $28.12 - $31.08.

Please see the attached report for more details.

RFHL - September 2021

For the year ended September 30 2021, Republic Financial Holdings Limited (RFHL) recorded a 44.7% increase in profit attributable to equity holders to $1.308 billion from $904.1 million in the prior year. According to the Chairman's statement, this improved results reflect the impact of the Group's acquisition of the British Virgin Islands (BVI) operations, lower provisions for loan losses and general improvement in operating profitability in Ghana and Cayman.

In August 2021, JMMB’s Research Department, assigned a MARKETPERFORM rating on RFHL with a target price of $130.86.

We maintain our rating at MARKETPERFORM and adjust our target price to $128.48. The decrease in the target price is based on lower than expected earnings for the Bank for the year ending 2021.

Please see the attached report for more details.

A Glimpse at Responsible Investing

The 26^th UN Climate Change Conference of the Parties (COP26) was a significant effort by world leaders to combat Climate Change. In these times, we find greater importance in cutting methane emissions, reducing deforestation and moving towards net zero emissions.

While the world leaders act on a macro level, we can also act responsibly by choosing where we invest. “Responsible Investment” is a form of investing that considers environmental, social and governance factors, along with the long-term health and stability of the market as a whole.

At JMMB, we would like to offer you the opportunity to learn about and engage in Responsible Investment. Please see the article attached to learn more about its viability and utility.

Company Insights

JMMB’S 2021 REVIEW AND 2022 OUTLOOK OF THE LOCAL AND INTERNATIONAL EQUITY MARKETS

SBTT Year-End Update

UCL-Q3 2021 Update

NEL - September 2021

NFM - Q3 2021 Update

NGL - September 2021

GHL - September 2021

CIF - September 2021

RFHL - September 2021

A Glimpse at Responsible Investing

AHL Q3 2021

WCO Q3 2021

TCL Q3 2021

PHL Q3 2021

NEL Valuation Report

Budget Review FY2021/2022

WCO Q2 2021

PHL Q2 2021

SBTT July 2021

UCL Q2 2021

FCI July 2021

CIF Q3 2021

RFHL Q3 2021

FIRST Q3 2021

AHL Q2 - 2021 Update

NFM Q2 - 2021

TCL Q2 - 2021

MASSY - Q3 2021

NGL - Q2 2021

GHL AS AT AUGUST 2021

TCL VALUATION REPORT 2021

SBTT QUATERLY UPDATE