Junior stocks go higher on earnings catalyst

Investors rallied junior market shares higher on the release of March-quarter results this week.

Most are generating faster sales and profit than last year. This included Stationery and Office Supplies (SOS), which sells furniture and supplies, posting earning per share (EPS) of $0.23, up from $0.15 a year earlier.

Fontana, which operates a chain of pharmacies, posted EPS of $0.02, compared with $0.01 a year earlier, and Fosrich, which sells wiring and lighting fixtures, with EPS of $0.07, up from $0.06 a year earlier.

Elite Diagnostics, which offers medical imaging services, reported EPS of $0.05 versus $0.02 a year earlier. Derrimon Trading Limited, which operates supermarkets and holds a majority stake in Caribbean Flavours and Fragrances Limited, earned $0.025, compared to $0.019 a year earlier.

Those with mixed results included Jamaican Teas, which reported lower March second-quarter operating revenue but higher gross profit and net profit for the quarter, with EPS of $0.079 compared to $0.060 a year earlier. Everything Fresh and Caribbean Producers Jamaica (CPJ), which both sells goods to the hotel trade, posted higher revenue but lower profit. Everything Fresh reported EPS of $0.04 versus $1.54 a year earlier, while CPJ reported EPS of $0.02 versus $0.08 a year earlier.

Companies slowing on both revenue and profit included Ironrock Insurance and Jetcon in the March 2019 quarter.

The junior market gained over 2.3 per cent by mid-week or some 70 points to close at 3,089 points on Wednesday. This compared with the main market which dipped by some 8.8 per cent or 3,991 points to close at roughly 408,750 points.

Between Monday and Wednesday, SOS gained roughly 25 per cent to close at $8.75. Fontana gained 3.0 per cent to close at $4.53. Fosrich gained 7.0 per cent to close at $4.98. Elite increased 8.0 per cent to $3.31.

“SOS has had an amazing start in 2019,” stated the management in its financials, adding that it posted the highest revenue in a month at $125 million. The sharp rise in profit is directly related to the 23 per cent increase in sales which was bolstered by exports to the Caribbean and a fitting of 700 new seats at an outsourcing firm.

Near all-time high

During the week, SOS traded at $9.50, which meant that it inched closer to an all-time high of $10 which it equalled in May, October and November 2018. The market likes whole numbers and investors will see whether it can surpass this line of resistance.

SOS revenues totalled $343.5 million from $279.1 million, or 23 per cent higher than a year earlier. Pre-tax profit grew to $57.5 million or 30 per cent higher. SOS also increased its cash and equivalents position at the end of the period to $55 million from $19.2 million a year earlier.

Fosrich benefited from increased distribution for its wires and wiring devices, control devices and panels. Its revenues grew 39 per cent in the March quarter to $378.6 million from $272 million. Increased staffing for anticipated new projects, however, resulted in lowering the pre-tax profit from what would have been double-digit profit growth. Profit totalled $33 million or roughly 7.0 per cent higher year-on-year.

Fontana continues to earn from its five locations while financing the buildout of its sixth store on Waterloo Road in St Andrew. The chain made $951 million in revenues for its March-quarter or 6.8 per cent higher than a year ago, while its pre-tax profit was $29.8 million compared to $19.7 million a year earlier.

Its latest financials reveal that it secured a $112-million bridge loan from Bank of Nova Scotia at an interest rate of 6.0 per cent. It also classified some $250.3 million as a deposit on assets, which represent funds that were advanced in the development of the new location at Waterloo Road.

Elite earned $107 million for the quarter compared to $78.2 million a year earlier, while its profit totalled $16 million, up from $6.7 million a year earlier.

“While the demand for imaging services remains strong and still maintaining steady growth, the company is increasing their focus on interventional procedures. Elite being the only company in the English-speaking Caribbean to offer endoscopic ultrasound, the company is well positioned for growth in these types of procedures,” stated management in the financials.

Elite added that construction of its planned new location in St Ann is under way with an expected opening in its September 2019 first quarter.

Overall, on Tuesday 27 junior stocks traded, nine advanced, 14 declined and four traded firm. The Junior Market Index declined by 27.93 points or 0.90 per cent to close at 3,070.49.

steven.jackson@gleanerjm.com