Barita sees bright spots in the market, to buy into NCB APO

Securities dealer Barita Investments Limited has said it is among the investors looking to score shares in NCB Financial Group Limited, NCBFG, under the banking conglomerate’s additional public offering of shares that will close in a matter of days.

“Our institutional position is to participate in the additional public offering. I believe we have a buy recommendation with a $81-plus price target,” said Barita’s newly appointed CEO, Ramon Small-Ferguson, at the investor briefing on Wednesday.

Comparatively, the NCBFG APO is priced at $65 per share. Barita, which is a selling agent for the APO, has put a substantially higher valuation on the stock.

Small-Ferguson did not disclose the size of Barita’s share application.

NCB Financial’s approach to the market for $5 billion to $7.5 billion of fresh capital comes amid a continued downturn in equities.

The JSE Combined Index is down 2.2 per cent year to date, at 330,000 points, a level that is even lower than the market’s landing during the great rout at the height of the pandemic. The index then had fallen new lows, hitting 337,500 points on March 25, 2020.

Small-Ferguson said, however, that in general, the Jamaican stock market performed positively in the March quarter. This reflected the relatively favourable financial results posted by listed companies.

“There are bright spots on the market from a fundamental perspective,” he said.

He added that in terms of investor sentiment, things are improving, pointing to the initial public offering by Omni Industries as well as the NCBFG APO, both of which are currently on the market. The NCBFG offer closes on May 27, while Omni’s IPO closes on May 31. NCB Capital Markets Limited is the lead broker for both transactions.

“From an investor sentiment perspective, there appears to be an appetite for opportunities,” said the Barita CEO, adding that companies are trading below their highs and have strong fundamentals.

NCBFG plans to raise $5 billion from the sale of 78.5 million shares, with an option to upsize the offer to $7.5 billion by adding 39.25 million more shares to the pool.

The fundraise came in the wake of board approval last year for NCB Financial Group to offer up to 300 million new shares, which is equivalent to 12 per cent of its current 2.54 billion issued shares.

The NCBFG stock is currently trading below the APO price, the shares having closed at $62.50 on Wednesday.

Barita in its latest analysis of the conglomerate indicated that NCB Financial’s shares were trading at book value in a market in which other stocks are trading at higher multiples. Additionally, while NCB Financial is trading at a heavy discount to its recent highs, the banking conglomerate’s income generation hovers at near record levels.

“Given these assumptions, along with the cost of equity of 12.2 per cent, we arrive at a multi-stage residual income model valuation for NCB of $83.12,” Barita said in its valuation of the financial stock released this month.

Barita anticipates that NCB Financial Group will grow its profit this year towards a price that is seven times its annual earnings, down from 20 times earnings in its previous financial year, beset by one-off restructuring costs. The conglomerate’s top two assets are its Jamaica-based commercial bank NCB and regional insurance group Guardian Holdings Limited, which is headquartered in Trinidad & Tobago.

As for Barita, the investment house made quarterly profit of $1.4 billion, down from $1.5 billion in the comparative second quarter of 2023. Its terminal accounting period is end-September.

Barita achieved quarterly revenue of $3.65 billion in March, up 17 per cent from $3.1 billion. This performance was driven by gains in its treasury, trading, and brokerage business lines which, collectively, accounted for 40 per cent of revenue. Investment banking contributed nine per cent to revenue.

Over six months, revenue fell shy of the outturn in the previous period at $5 billion compared to $5.5 billion. Profit amounted to $1.9 billion, down from $2.6 billion.

Barita is a member of the Cornerstone group, which is currently being restructured to meet regulatory requirements for financial groups that own banking operations. As part of that process, Barita Investments and its sister company, Cornerstone Trust & Merchant Bank, will become subsidiaries of a holding company.

“We are pretty advanced in the process, and we expect that by the next investor briefing, we would have concluded our reorganisation,” said Dane Brodner, CEO of Cornerstone United Holdings Jamaica, in an update at the investor briefing.

business@gleanerjm.com