ACCESS stock has climbed from $18.35 or $1.835 (after the recent stock split) when it offered shares to the public the latter part of 2009 to $5.70 now — a gain of more than 200 per cent. Profits rose astronomically in support of the rising stock price.

This development comes in the aftermath of a barrage of negative comments about the value of the stock at the time of the public issue. One is reminded about the tendency amongst Jamaicans to condemn persons without having the facts just because we feel strongly about an issue.

At the time of the issue, there was a major piece in the Caribbean Business Report section of the Observer in which the writer not only said that the price was severely overvalued but it was that the offerers were using voodoo financing in arriving at the offer price. Strong words indeed. My response to the article received online a mouth full of negative comments. Now that the profit and stock price have vindicated those who took up the offer it is interesting that there is not a single comment from those who berated the issue price and the quality of earnings.

It is useful to look back at the main comments I made in response to the argument that the stock was highly overvalued.

Share valuation is not about looking back at pass earnings but at likely future earnings. At the time, naysayers seemed to have placed no focus on the impact of the removal of the tax on profits and the growth in earnings last year, making the earnings on a performance basis better than reported.

First off, the shares are not overvalued. An honest comparison with other listed companies will show that there are none that have the potential to grow as fast. The Observer writer made some unfortunate comparisons with Jamaica Money Market Brokers and Scotia Group. The former has no chance of growing anywhere close to Access while Scotia Group’s possible growth is around 15-20 per cent per annum. Those who fully understand share valuation know that the higher the growth rate the higher the valuation.

The market targeted provides very high profit margins that not even credit cards offer. The history shows that the company has had very little bad debt even while lending to the riskier clientele. The market here is huge.

Most importantly, Access earnings for 2008 was arrived at after writing off funds lost due to theft amounting to $17 million. When the earnings are adjusted for such losses and the tax free profits are factored in the earnings is around $3 per share. At $18, the PE is 6, a little higher than the market average. But look what is happening in 2009. For the six-month period from January to June 2009, the company recorded total revenue of $151 million, an increase of 47 per cent over 2008. Pre-tax net profit for the period was $37 million, a 205 per cent increase over the previous year. These 2009 figures clearly indicate that earnings for the full year should jump sharply — all things being equal. By my recognising, earnings for the full year could exceed $100 million or $4 to $5 per share. At just over $18 per share, a PE of 3 or 4, the shares are far from overvalued.

Investors need also to be aware of the small number of shares that will be in the public’s hands that will exert upward pressure on the price once the company delivers.

If management continues to keep bad loans at bay the way they have done so far, the sky is the limit. Investors in the stock will be extremely happy as the return on their investment will far exceed any other stock on the market.

Investors who refrain from buying the stock are making a grave error if they really think it is vastly overvalued as the article suggested.

Those were my thoughts then. While the 2009 earnings never matched my figures as I assumed that there would be no tax for the entire 2009, there was in fact tax for the period prior to listing. Earnings for the 2010 first quarter, without tax show beyond doubt the potential I mentioned last year.

I would just like to hear from those persons who wrote scathingly about my defence of the value and felt that the price would fall after the issue.