There seems to be depressing news everywhere we turn -the US economy is arguably in a recession, Goldman Sachs predicts that oil prices could very well hit US$200 per barrel, the world is facing a food crisis, UK inflation is at its highest in six years - I could go on and on. However, we don't have to look too far to see that good things are actually happening at the same time - we just need to turn our attention to the local market.

Firstly, Salada shocked us all by releasing outstanding earnings results for the second quarter. Investors were concerned about the Company's weak first quarter performance and their overall lack of innovation in previous years. However, Salada certainly showed us all up, proving that their revamping initiatives are paying off.

The Company's revenues soared 34 per cent to $112 million from $83.5 million which it attributes "to increase in the efficiency of production which led to greater yields from raw material inputs and the resulting reduction in cost of sales."
As a result, Net Profit increased by 72.9 per cent to $25.5 million from $14.3 million which is an impressive increase even though the actual figures are still low. Earnings per Share jumped 77.5 per cent to $2.45 from $ 1.38 in the previous year. The Company has managed to recover from the 2007 bottle shortage crisis which forced production and sales to be depressed. Salada has agreed to remove the serrations from their signature bottle so that the bottles can be mass produced to avoid any further shortages.

Salada increased its selling and promotional expenses by 29.7 per cent to $ 4 million from $ 3.1 million, which is a great surprise as the Company expressed no plans to expand marketing at the Annual General Meeting. The Company is doing more to market its products and this comes at the perfect time as global coffee demand is booming.

The Company has so much unfulfilled potential and it seems that they are beginning to realize this. The brand itself has many opportunities present in the local market, as many Jamaicans are tremendously loyal to the Mountain Peak Brand. The Company should consider creating an instant coffee dispenser to compete with Nescafe and also explore getting Fair Trade Certification which companies like Dunkin Donuts and McDonalds have done abroad to increase their popularity. Investors are now seeing the value of this stock and so they are holding unto it -during Tuesday's trading buyers outnumbered sellers 13:2.

News for Salada does not end here. There is also an anticipated stock split for the Company. A stock split is when a company's existing shares are divided into multiple shares, however the total dollar value of the shares does not change. For example, if Salada did a 1:1 stock split, its 10,388,330 shares trading at $ 105.00 each (if we use Tuesday's closing price) will double to 20,776,660 million shares at $ 52.50 each thus the total value of the stocks will remain the same.

However the Company has not confirmed that the stock split is going to take place or divulged the details of the ratio of the split (whether it will be a two-way split or more). The aim of the split is to push the stock price down so that is doesn't become so high that investors are no longer able to afford it, and to also increase its liquidity. Currently Salada is the third most illiquid stock listed on the Jamaica Stock Exchange behind Palace Amusement and Mobay Ice Ltd. Its stock price has appreciated 132 per cent to $ 105.00 on May 13th since January 4th when the stock price was $ 45.30.

Other exciting local news is the listing of the Jamaica Stock Exchange Preference Shares. The offer is open from May 16 and closes on May 30 and the shares are being sold for $ 2.00 each. These shares are very attractive because they will have a variable interest rate unlike other preference shares which have fixed rates. Currently, the effective interest rate on these preference shares is approximately 18.93 per cent for individuals and 21.30 per cent for institutions. This is eye-catching to investors because its return is higher than that of repurchase agreements and other listed preference shares currently on the market. This investment is a great opportunity for investors who believe that the interest rate is going to remain stable or increase in the medium term.

And finally there is mention of a Real Estate Investment Trust (REIT) based in Trinidad, held in St Lucia and registered in Jamaica. These are real estate securities backed by mortgages held by a manager. At last, we have given thought to the listing of a real estate trust on the local stock exchange. The Financial Services Commission and the Companies Office of Jamaica have not yet approved the REIT but a prospectus has been submitted.

This is attractive for institutions primarily pension funds. Hopefully, the REIT will expand to include properties in Jamaica and the Caribbean, particularly in Montego Bay and as its real estate markets are on the rise.

So though on most days, everything seems like doom and gloom on the international front, great things are happening in Jamaica that we should not overlook.

Michelle Hirst is a research analyst at Stocks & Securities Ltd (SSL).
e-mail:mhirst@gostocksandsecurities.com

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