November 13, 2019

Sterling Investments Limited (SIL) reported a 5% growth in total revenue to $140.94 million compared to $133.89 million recorded for the corresponding period in 2018.

Revenue for the second quarter rose 14% to $64.16 million compared to $56.05 million reported for the third quarter of 2018. Of total revenue:

• Interest income for the nine months closed the period at $71.44 million, up 14% from the $62.62 million for the comparable period in 2018.
• Gain on disposal of available for sale securities for the period amounted to $3.32 million relative to a loss of $339,777 twelve months earlier.
• Unrealised gain on quoted equities for the period amounted to $1.87 million relative to an Unrealised loss of $1.93 million in 2018.
• Foreign exchange gain amounted to $64.31 million, a decrease of 13% compared to the gain of $73.54 million booked the prior year’s period.

The company experienced a 41% increase in total expenses for the period to close at $34.90 million (2018: $24.77 million) for the nine months ended September 30, 2019 and a 79% increase for the second quarter to $15.68 million (2018: $8.78 million). The breakdown of total expenses are as followed:

• Interest expense totalled $9.83 million, 26% above last year’s corresponding period’s total of $7.79 million.
• Other expenses totalled $28.87 million, an increase of 37% (2018: $21.01 million).
• SIL booked a loss of $5 million for impairment on available for sale securities relative to a gain $4.02 million recorded twelve months earlier.
• The Company booked unrealised fair value loss on equity investments securities at FVTPL of $8.79 million relative to nil the prior year.

The Company noted, “Net Interest income totalled J$61.6 million for the nine months ended September 2019; 12.4% higher than the $54.8 million recorded for the corresponding period in 2018. The company has successfully taken advantage of intermittent market selloffs to purchase undervalued, high quality securities. The company has also effectively used low cost funding to purchase high yielding assets, thereby increasing the return to its investors. This is reflected in the company’s robust net interest margin of 86.2%. At 71%, the company maintains one of the highest net profit margins on the stock exchange due to its efficient corporate and organizational structure.”

SIL highlighted that, “expenses grew due to increases in the charges associated with the purchases of local equities, audit fees and management fees.”

Operating profit recorded for the period closed at $106.04 million relative to $109.12 million booked for the prior year’s corresponding period, a 3% decrease year over year. Operating profit for the third quarter amounted to $48.48 million compared to $47.28 million reported for the same quarter of 2018.

Other income for the period grossly improved from $103,490 booked in 2018 to $324,790.

Preference dividend expense for the nine months amounted to $5.34 million compared to $18.29 million recorded in 2018.

Pre-tax profit totalled $101.02 million, 11% above the $90.95 million reported for the nine months ended September 30, 2018. Tax charges of $812,293 (2018: $545,356) was booked for the period, and as such, net profit amounted to $100.21 million (2018: $90.40 million), a 11% or $9.81 million increase. Profit for the third quarter amounted to $43.08 million relative to $38.65 million booked in 2018.

Total comprehensive income for the nine months amounted to $199.29 million compared to $95.66 million booked for the similar period of 2018.

Earnings per share for the nine months period and third quarter amounted to $0.27 (2018: $0.24)  and $0.11 (2018: $0.0.10) respectively. The trailing twelve months earnings per share amounted to $0.117.  The total number of shares used in the calculations amounted to 374,792,612 units. Additionally, SIL’s stock price closed at $3.02 as at the end of trading on November 13, 2019.

Sterling noted, “SIL’s portfolio has benefited from the rise in global asset prices (in USD terms).  Prices of the assets in SIL’s portfolio have increased considerably since the start of 2019. The manager has strategically positioned the portfolio to take advantage of changes in the economic cycle.  The portfolio has generated attractive capital gains and income levels. The portfolio has also benefitted from a series of opportunistic equity investments on the Jamaica Stock Exchange. The team continues to look for profitable fixed income or equity opportunities in the global and local markets.”

Balance Sheet Highlights:

As at September 30, 2019, the company’s assets totalled $1.59 billion, 25% more than $1.27 billion a year ago. This resulted mainly from an increase in ‘Investment Securities’ which closed at $1.53 billion, 25% higher than the $1.23 billion booked as at September 30, 2018.

Shareholder’s equity as at September 30, 2019, stood at $1.22 billion compared to $922.12 million in 2018. The book value per share amounted to $3.24 (2018: $2.46).

Disclaimer: Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.