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Victoria Mutual Group President and CEO Courtney Campbell (left) and group chair Michael McMorris insert the Victoria Mutual Investments Limited strip on the Main Market of the Jamaica Stock Exchange. Looking on are VM Group director Sandra Shirley (right) and Devon Barrett, VMIL CEO and VM Group chief investment officer. (Photo: Garfield Robinson/Jamaica Observer)

Strong expectations for equities earnings this quarter

Victoria Mutual Group President and CEO Courtney Campbell (left) and group chair Michael McMorris insert the Victoria Mutual Investments Limited strip on the Main Market of the Jamaica Stock Exchange. Looking on are VM Group director Sandra Shirley (right) and Devon Barrett, VMIL CEO and VM Group chief investment officer. (Photo: Garfield Robinson/Jamaica Observer)

As the economic recovery picks up most listed companies are optimistic about continued improvement in performance, while some will continue to contend with external challenges that will negatively impact their operations and bottom line.

NCB Capital Markets equities analysts say electrical and solar company FosRich should continue to benefit from the housing boom and as such should expect to see strong revenue growth in the coming months.

NCB Financial Group’s headquarters on Trafalgar Road in New Kingston, Jamaica (Photo: Denis Brown)

At the same time, commodities conglomerate Seprod should continue to be impacted by higher costs in the coming months, as supply chain disruptions are expected to persist into 2022.

Key Insurance and Access Financial Services should continue to see an increase in the demand for their products as financial market activities rebound on the back of the relaxation of restrictions due to a reduction in COVID-19 cases. These expectations are more than practical, given the growth in Jamaica’s main trading partners, a gradual relaxation of COVID-19-related restrictions, and the continued roll-out of the local vaccination programme, which augurs well for domestic demand and employment.

(File photo)

However, there are downside risks to the optimistic expectation by equities analysts given the still-evolving pandemic, where the possibilities exist for a surge in COVID-19 cases, the presence of more contagious variants in the island, and the tighter lockdown measures that could be imposed if a spike recurs.

Early indications are that the September quarter was a profitable one for most listed companies, as companies report on their just-ended earnings season. A number of companies are seeing improvement in their performance, despite the no-movement days that were implemented in the quarter.

At the same time, some companies grappled with ongoing challenges. Seprod Limited, Key Insurance Company Limited, FosRich Company Limited, and Access Financial Services Limited reported earnings for the quarter ending September 2021. All except Seprod reported robust growth in earnings.

Signage for Seprod Group of Companies at its headquarters in Kingston, Jamaica (File photo)

While some distribution companies continued to see improvement in earnings, others are impacted by the ongoing external challenges. Case in point, Seprod’s bottom-line continues to be impacted by supply chain bottlenecks, which has accelerated direct costs (+27.5 per cent), significantly outpacing revenue growth (+8.7 per cent).

Against this background, for the nine months ended September 31, 2021, Seprod realised a 30.4 per cent decline in net profits to $1.76 billion (EPS: $2.40). FosRich saw a 21.2 per cent increase in direct costs, net income grew 138.2 per cent (or $103.97 million) to $179.21 million buoyed by a 21.2 per cent (or $294.45 million) increase in revenues.

According to FosRich’s management, revenue growth was supported by increased demand for product lines such as solar, hardware, control devices, and Polyvinyl chloride (PVC), aided by the boom in construction activity across the island.

In the financial services sector, both Access Financial and Key Insurance saw significant improvement in their performance due to rebounding financial market activities. Access realised a 191.8 per cent (or $118.06 million) increase in net profits to $179.61 million (EPS: $0.65) for the six months ended September 2021. This was driven by a year-on-year increase in net interest income (+13.6 per cent or $83.41 million) on the back of a surge in the demand for loans.

Access Financial Services’ headquarters in St Andrew, Jamaica (Photo: YouTube)

Key Insurance, on the other hand, reported a net profit of $7.51 million for the nine months ended September 2021, which is a turnaround from the loss of $23.81 million that was reported one year prior.

Despite an increase in claims (+7.5 per cent or $36.82m), the company was able to reduce its underwriting loss to $69.94 million, down from the $569.13 million loss that was reported a year earlier.

*Figures quoted are in Jamaican dollars unless otherwise indicated.

— Durrant Pate