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News : National Last Updated: Jan 6th, 2021 - 02:04:22

JSE stocks pick 2021
By Marston Gordon
Jan 6, 2021, 01:58

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2020 Review
The main and junior market indexes declined by 22.42% and 21.07% respectively; the average price of each fell by 3.07% and 22.77%.

The outcome of our 2020 selection was:

138 Student Living 14.15%
AMG Packaging (25.12)%
Jamaica Producers (22.94)%
Pulse Investments 222.00% (1st place- main market)
Seprod 27.30%

2021 Picks
Pulse Investments is the only main market stock to make it into the top 10 again in 2020, this is the fourth consecutive year it has earned a spot there and the second time in four years as number one.

A common fallacy by investors is to sell winners and buy losers in an attempt to so call average down when the better choice is adding more to the winning position, averaging up is less risky.


Net book value on the audited 2020 accounts stand at $10.94 down significantly from $13.38 in 2019. The single culprit for the drop in value is the change in fair value of the financial asset. The assets are professionally valued every three years (latest September 2018) and by directors in the intervening years. The directors have made a habit of not recognizing the change in value during the first three quarters of the year and lump it all in the fourth quarter. Then with the audited accounts significant revision is made to the value; the write down moved from $566.3m to $1,328.0m in 2020. The change in value of the financial asset is pandemic related and is pure math the value will be reversed in as soon as COVID-19 is contained. On the flip side the 90% occupancy guarantee will secure revenue with steep utility cost reduction (down 54% in 2020), the risk is with the collectability of accounts receivable from UWI Mona.

2012 was the last time this company was rated by us as a buy, and after much hesitation we are recommending it. COVID-19 should be a game changer in terms of profitability the problem is that the company is too big and diversified to make an impact. Some divisions should be sold.

It is well managed but needs new equity injection as itís too dependent on bonds and notes to finance its loan portfolio. The shares are tightly held with 97% held by top 10 shareholders. A stock split is in order to make the stock more liquid, followed by a rights issue or additional public offering (APO), saving on interest cost of approximately $30m per annum. Staff costs seem to be permanently contained dropping 43.5% in Q3í20 over corresponding period last year.

The stock trades at a 33% discount to book $1.14 at December 18, 2020. The overseas investment portfolio is doing well but the Jamaican equities are a drag, especially the overweight position in Access Financial (18.8%). The US investment offers more opportunity to profit and should be increased from 24% of the total investment to at least 50%.

The execution went well in 2020 and there is tremendous potential for the company to deliver for investors.

Source: Jamaica Stock Exchange

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