While understandable, it is very surprising that the Jamaica Stock Exchange (JSE) main index performed as badly as it did in 2008.
Just as happened in 2007, the market pulled back on disappointed Q1 earnings in February. The index however held above 100,000 for the first three quarters of 2008 and by mid September the slippage of the local currency against the US dollar started to accelerate. On November 18th new monetary policy measures (significant increase in interest rates) were introduced by the Bank of Jamaica to mop up liquidity by which time the index began hitting a series of lows for the year. The Christmas Rally came too late to save the year; the index closed down 25.8% (70% of that decline in the last quarter alone), the lowest close since 2003.
2008 Review
On the bright side, a few stocks did extremely well. The following table list ordinary stocks and selected preference shares using their 52 weeks high and year-end close as the measures of performance:
 |
| JSE stock performance in 2008 |
Coincidentally, the five best performers gained over 100% returns (same as 2007) three of which (2007- four) maintained their positions relative to each other under both methods. With the exception of one, all the winners were early gainers that held throughout the year. The price of Montego Freeport fell as expected, just prior to its ex-div. date.
Our stock selection for 2008 yielded the following results:
Salada Foods Jamaica 240.9%
Montego Freeport 118.8%
Pegasus 111.3%
First Caribbean Jamaica 3.7%
2009 Picks
While we still like First Caribbean Jamaica, it will not be included in our pick as too much uncertainty surrounds the direction that the majority owners might go.
-Pan Jamaica Investments
This conglomerate is one of the oldest companies listed on the JSE. Its primary activities are property investment, real estate development, insurance and merchant banking.
In 2004 the price of the stock surged 183% to $53.00 and for the next three years traded sideways, in 2008 it lost 25% of its value to close at $25.00. This performance does not reflect the fundamentals of a company with a price to book at 0.60 and earnings per share (eps) in 2006 and 2007 of $4.80 and $5.82 respectively. It has consistently paid dividend and seems to have an implicit (payout) policy of about 20% of basic earnings.
Eps for 2008 is projected at $5.50 and price earnings (p/e) at 7.5; our target price is $41.25 for capital appreciation of 65%.
-Palace Amusement
There is nothing amusing about this company except to the Grahams in the Palace. It reminds me in a way of that telephone entity that was “Liming” when the Irish came and nyam the cell food.
The management lacks vision and direction. Where were they when the cable market was raging and why are they just awakening to 3D Movies in theatres?
With that said, at Q1’09 its net book value was $174.02 while the stock closed 2008 at $61.00 per share, making the price to book 0.35. The cash per share at the end of this period stood at $75.86. On December 19, 2008 there was a dividend payment of $1.50, the first since 2005. The risk reward for this company is low, but so is the growth prospect. We place the target price at $100 per share.
Market prospect
Historically, devaluation translates into higher stock prices though with a lag. Given the steep fall in the value of the local currency against the US dollar between September and December 2008 (11.6%), we expect to see a market rally in the second half of 2009.
The best time to position in stocks is during the period of devaluation, taking incremental lots on each pull back.
Source: Jamaica Stock Exchange
