ONLY 14 months after its launch on April 2, 2009, it is safe to say that the Jamaica Stock Exchange (JSE) Junior Market has been a huge success. The JSE established the JSE Junior Market with the goal of “encouraging domestic investment in entrepreneurship, employment and economic development” — and so far, it has done just that.

The three Junior Market Initial Public Offerings (IPOs) have been well received by stakeholders, as they take the opportunity to buy into companies that have the potential to grow at a faster rate than some of the mature main listings. They also foresee the significant value that the tax-free benefit adds to a company’s bottom line in the future.

Two out of the three Junior Market IPO subscriptions, Blue Power Group Ltd (BPOW) and Jamaican Teas Ltd, closed within two minutes of being open, and both were significantly oversubscribed. Year-to-date, the JSE Junior Market Index has advanced 63.3 per cent to close at 244.97 points on June 28, 2010. It comes as no surprise that many more potential Junior Market IPOs are on the table, as companies aim to take advantage of the 10-year tax holiday, the cheaper source of financing (equity financing) and the increased branding that comes with a public listing.

Access Financial Services Ltd (AFS) was the first Junior Market company to embark on the JSE Junior Market, listing in October of last year. Within three days of the opening, investors had taken up the 5.49 million shares offered, at a value of $100 million. After a month of trading publicly, the stock advanced 21.05 per cent to close at $23.00 on November 30, 2009, despite rarely being traded (only once every four days on average). Due to the stock’s lack of liquidity, AFS’ board of directors took the decision to split the shares 10:1.

When the company announced the stock split at a board meeting on February 22, 2010 the shares had only traded on 17 days since being listed with large volumes rarely traded — the most shares exchanged on any given day totalling 26,300 units. Before the stock split took effect, on April 26, 2010, AFS closed at $34.85, up 83.42 per cent from its IPO price.

AFS has provided an excellent return on investment for investors, not only in terms of capital gains but also as it relates to dividends. On March 30, 2010, AFS declared a dividend of $ 0.50 per share after reporting a 199 per cent increase in earnings for the first quarter ended March 30, 2010, with Net Profit of $39.16 million. For the year ended December 31, 2009, AFS earned $66 million, up from the $33 million it reported for the previous financial year (YE 2008). In addition, the company has opened three new branches, has a track record of strong earnings, and as such, is poised for future growth.

However, it is arguable that AFS is not a true representation of the Junior Market’s success as a majority of the IPO’s subscribers were affiliated companies or persons. BPOW, the second company to list on the exchange also had a very successful IPO. On March 25, 2010, BPOW’s offer opened at 9:00 am and closed by 9:01 am, as it received $122 million in subscriptions, $34.1 million in excess of the amount it sought. The results of this IPO are also somewhat misleading, as it was a very small offering with only 5.73 million ordinary shares available to the general public. The remaining 16.87 million were reserved for Directors and related parties.

Like AFS, BPOW has seen double-digit price appreciation within a few months of listing. The stock closed at $5.00 on June 28, 2010, up 28.53 per cent from its IPO price of $3.89. It has seen notable trading volumes since being listed on the Exchange, crossing the floor every day in its first three weeks of listing. The company, which holds 40 per cent market share in the soap manufacturing and distribution business in Jamaica (stated in BPOW’s prospectus), reported its YE 2009/2010 earnings for the period ended April 30, 2010. Net Profit almost doubled, increasing 96.15 per cent to $28.99 million, or $0.84 per share. Both the lumber and soap divisions performed well, with the soap division recording a 243 per cent increase in profits. BPOW is set to launch new products in the second quarter of 2010/2011, and the tax incentive will take effect in the next earnings period (starting May 1, 2010).

Last week, Jamaican Teas Ltd became the latest addition to the Junior Market hosting the most successful Junior Market IPO to date. It offered a significant portion of its shares to the general public — 22.73 million shares out of the total offering of 29.44 million shares. This, along with is detailed prospectus which clearly outlined its future expansion plans and use of proceeds from the IPO, resulted in an overwhelming response from investors. Its offer opened on June 17, 2010 and closed at 9:02 am with applications in excess of $180 million for an allotment of $99.2 million.

All three Junior Market IPOs have proven to be a success, and the JSE is well on the way to having a healthy and vibrant Junior Market. With AFS, BPOW and Jamaica Teas Ltd paving the way, many more Companies are expected to follow suit. In a continued low- interest rate environment, we can expect the Main and Junior equity markets to continue to perform well towards the end of 2010. Companies and investors alike should seriously look at the Junior Market, as a means to grow their businesses, as well as their portfolios. The benefits of going public are many and Stocks & Securities Ltd (SSL) will carry out the necessary due diligence, provide guidance on legal counsel and prepare your company valuation, as we walk you through the process of listing on the JSE Junior Market.

Michelle Hirst is the manager, Equities & Research at Stocks & Securities Ltd (SSL). You can contact her at mhirst@sslinvest.com