CVI Market Insights – June 2020
The COVID-19 Pandemic continues to adversely affect markets both locally and internationally. The recently concluded earnings season has given us a glimpse of the financial impact on most companies. We at Caribbean Value Investor have continued to assess markets and individual stocks in a bit to identify potentially profitable positions. This edition of CVI Market Insights highlights our opinion on a few feature companies. Please note that the information provided below is not meant to be taken as investment advice nor does it constitute a solicitation or recommendation for the companies discussed. The author of this article may have equity positions in some of the companies mentioned.
Value Plays
Grace Kennedy, Kingston Wharves, and Caribbean Cement Company have been seeing a slight recovery over the past few weeks. CCC has stated in a release that they expect the next quarter’s report to show the adverse effects on their business due to the COVID19 pandemic. We are of the opinion that it might be best to hold off adding further exposure to CCC until those results have been released.
On the other hand, KW in its last report stated that the company is prepared to weather the storm of the pandemic and is sufficiently capitalized for the next 2 years. In effect, they are saying they are prepared to handle a fall-off in business, to us, this is a sign of strength and makes KW a compelling offer at the current price.
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Grace Kennedy in its last report showed a strong balance sheet along with its highest numbers in recent times for both revenues and net profits. For the quarter ended March 31st, 2020, GK recorded revenues of 28.85 billion dollars, or 11% more than the same quarter a year earlier (2019). Net profits were up 435 million dollars or 43%. The earnings per share also showed improvements reaching $1.33 versus $0.90 for the same quarter a year earlier. Caribbean Value Investor estimates full-year earnings to be between $5.50 and $6.20 per share making GK a fairly valued stock at the current price.
Growth Plays
Despite the current pandemic, a few companies have been able to adjust and demonstrate growth amidst a crisis. ICREATE recorded its first profitable quarter in May for the quarter ended March 2020. The company completely reversed its $1.48 million loss and closed the quarter with a profit of $1.2 million. Furthermore, ICREATE was quick to respond to the effects of COVID-19, opting to move most of its courses online, and implement cost-cutting measures such as the temporary closure of its Montego Bay location. Caribbean Value Investor anticipates continued growth for ICREATE’s business throughout 2020. The stock currently trades within the region of $0.50 and $0.60, approximately 50% lower than its IPO price. Whilst not a bargain in our opinion just yet, iCreate represents one to watch.
Mailpac Group
MailPac has seen a near full recovery since its mid-March decline. The stock currently trades between $1.85 and $1.95 and shows signs of possibly inching higher over the coming months. The company is in a good cash position as well as having a strong balance sheet. MailPac has over $3.00 of current assets for each dollar of current liabilities meaning it is comfortably able to meet its short-term obligations. In times of crisis, investors want to be investing in companies with strong balance sheets that have the potential for growth. Caribbean Value Investor feels that MailPac meets both criteria.
