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Barita Investment Limited's signage is displayed on the edifice that serves as its headquarters in New Kingston, Jamaica (File photo)

Ja’s Barita Investments cautious about economic rebound

Barita Investment Limited's signage is displayed on the edifice that serves as its headquarters in New Kingston, Jamaica (File photo)

Barita Investments Limited Chairman Mark Myers, in remarks attached to the company’s latest financials for Q1 ended December 31, 2020, is sounding a note of caution as the new fiscal year proceeds.

In context, he outlined that on December 8, 2020, Standard and Poors (S&P) affirmed its ‘B+’ rating on Jamaica’s long- and short-term foreign and local currency credit, but later changed its outlook on the sovereign to ‘negative’, citing the continued risks and uncertainty from the ongoing COVID-19 pandemic.

In that regard, S&P noted that there is a one-in-three likelihood of Jamaica being downgraded if economic conditions worsen in the second half of 2021, against current expectations, or if the pandemic is more prolonged. 

“Within the context of COVID-19, Jamaica’s fiscal position has deteriorated,” Myers stated.

Barita Investments Limited Chairman Mark Myers (File photo)

Still, he added, fiscal prudence has been maintained as the overall deficit is 31 per cent below the level budgeted and the primary balance improved to a surplus of JM$17.5 billion as at December 2020, relative to a budgeted surplus of JM$12.1 billion. 

“…The general macroeconomic backdrop also remains supportive with most advanced economies continuing to provide both monetary and fiscal policy support.” 

However, he stated, “While we welcome the improving macroeconomic fundamentals, we are still mindful of elevated valuations in equities markets and the all-time low yields in the fixed income space. 

Deploying capital

“Consequently, as we deploy capital, we will do so in a prudent manner with a focus on achieving optimal risk adjusted returns while protecting against downside risk.”

In introductory comments attached to the company’s first quarter results, ended December 31, 2020, Myers outlined, “Having closed our landmark $13.5 billion additional public offer (APO) in Q4 of FY20, the group quickly pivoted to begin the process of deploying this capital efficiently during the first quarter of the 2021 financial year. 

However, he pointed that investors need to consider Barita’s performance within the context of the ongoing pandemic and the attendant monetary and fiscal policy initiatives. 

“The policy response from central banks and governments has significantly increased liquidity in major financial markets, which, in conjunction with other factors, has buoyed risk-asset price levels. These said policy measures have, however, also potentially enabled a widening divergence between the state of underlying economic fundamentals and risk-assets prices, which has introduced an additional layer of risk for our asset managers.”

“Having closed our landmark $13.5 billion additional public offer (APO) in Q4 of FY20, the group quickly pivoted to begin the process of deploying this capital efficiently during the first quarter of the 2021 financial year” 

— Mark Myers, chairman, Barita Investments Limited

Consequently, Myers said, the investment company has deployed its capital with extreme caution and within the context of a robust risk management framework.

To this end, Barita will continue focusing on growth initiatives aimed at expanding its capital market capabilities, broadening product offerings, and improving the ability to serve an expanding client base. 

“We will also continue to fortify our traditional business lines such as trading and asset management, being mindful of elevated risk levels resulting from the continued effects of the COVID-19 pandemic,” Myers added. 

First-quarter analysis

For the first quarter of the financial year 2021, which ended December 31, 2020, Barita reported net profits after taxation of JM$1.0 billion, registering a 103 per cent increase relative to JM$503 million, for the comparable period in the prior financial year 2020. 

This net profit for Q1 FY21 translated into earnings per share (EPS) of JM$0.94, relative to JM$0.61 in Q1 FY20. 

Net operating revenue of JM$2.0 billion in the first quarter of the financial year 2021, representing 76 per cent surge, or JM$862 million increase, above the outturn for Q1 FY20. 

Revenue during the period included net interest income, which recorded a JM$159 million (76 per cent) rise over JM$367 earned in December 2019. 

Non-interest income grew by 76 per cent or JM$703 million to JM$1.6 billion, relative to JM$923 million reported for December quarter 2019. 

Gain on investment activities, a business segment related to managing the company’s proprietary trading portfolio, closed the period with a 165 per cent or JM$417 million uptick, compared to JM$670 million. 

Fees and commission income declined by 20 per cent to JM$466 million relative to the corresponding December 2019 result of JM$578 million. 

Higher operating expenses, management said, was due to increases in staff costs (38 per cent) and administrative expenses (32 per cent), while the group’s expected credit losses rose to JM$73 million, up from $40 million in December 2019.

Balance sheet performance

The group’s efficiency ratio for Q1 FY21 was 34 per cent versus 43 per cent for December quarter 2019. 

On-book assets of JM$69.9 billion as at December 2020 represents a JM$24.7 billion or 55 per cent increase over December 2019. This increase is largely due to a JM$26 billion growth in investment assets throughout the period. 

Total liabilities rose by 33 per cent or JM$10.3 billion over JM$41.4 billion when compared with December 2019. At JM$36.6 billion, repurchase agreements represent the single-largest liability and represent a 29 per cent increase relative to December quarter 2019.

Equity rose by 102 per cent or JM$14.4 billion year-on-year to close the reporting period at JM$28.5 billion, arising from the JM$13.5 billion APO; and an increase in retained earnings, net of dividends declared during the period.