JNFM fumes over false Barita report

Brokerage house JN Fund Managers Limited last week recommended that its clients participate in the Barita Investments Limited additional public offering of new shares, or APO, but controversy brewed online when a series of tweets implied that the company reversed its recommendation on the same day.

The change of position never occurred, but initial confusion spread online with persons believing JN Fund Managers changed their assessment of the APO.

“We have never issued any other written or verbal report on the Barita APO,” said JNFM Managing Director Allan Lewis in response to Financial Gleaner queries.

The confusion stemmed from an image which circulated online that implied that there was a second assessment. The documents shared side by side in the image showed one assessment concluding that clients “not participate” and the other showing the offer as a “buy”.

Both reports came out within hours of each other and were then pieced together in an image and shared. This resulted in a series of queries online and confusion in some quarters.

Lewis acknowledged that a false report exists but said the matter was dealt with and the document removed from the page of at least one Twitter influencer.

“I understand – I didn’t see the original post myself because it was taken down – that someone suggested on social media that JN Fund Managers had issued a previous report. This is false,” Lewis declared.

“The only report that JN Fund Managers has ever issued on the Barita APO is attached for your reference,” he said.

That report recommends the APO as a ‘buy’. JNFM gave it that rating based on its assessment that the stock was valued at $76, above the APO price.

Comparatively, the Barita stock is trading at around $53; and the APO is priced within a range of $49 to $52 per share. Were Barita to achieve the JNFM valuation price, it would mark a return to values it was trading at last year.

Barita’s stock price has grew more than tenfold from $7 in August 2018 when it was acquired by private equity firm Cornerstone United Holdings, to $100 in July 2019.

The stock subsequently retreated to the $70 band last year, and fell further into the $50 band in March when the overall market hit bottom due to the pandemic.

JN Fund Managers’ assessment that the stock would increase in value was based on a price/earnings-to-growth or PEG valuation. But its report did not specify a timeline for when the stock would hit its valuation price.

The brokerage said Barita was growing at a much faster rate than its peers and, therefore, would grow into its relatively expensive price to earnings ratio at 18.7 times, compared to its peers at 14.6 times earnings.

“If Barita grows at 1.5 times its peers’ projected growth, its projected earnings per share growth equates to 24.37 per cent. When applied to the industry PEG of 1.13 times and trailing earnings of $2.77 the stock is valued at J$76.08,” the report stated.

Barita is seeking to raise between $9 billion and $13.5 billion from the APO for branch and organic expansion. The offer closes September 16.

steven.jackson@gleanerjm.com