Nigel Clarke, Chairman of lender Eppley which has its eyes set on capturing a bigger share of the loan market to corporates within the Caribbean, says while directors have not yet considered arguments for a stock split, they have not ruled it out.

Currently priced at $400, the lender’s stock is the most highly priced on the Jamaica Stock Exchange (JSE). Value improved only 5.26 per cent for the year 2015, significantly lagging behind the JSE Junior Market’s 161 per cent advance.

Analyst Devon Barrett, General Manager of Victoria Mutual Wealth noted in early January that Eppleys traded at a P/E of 6x trailing earnings — much lower than the JSE Junior Market average of 13x.

Despite return on equity of 16 per cent, Barrett states that the “under-performance of the stock has been attributed to the lack of adequate float of the stock in the market and the high nominal price of the stock ($400).”

He suggested that a ten to one (10:1) split in the stock price could “make it much more attractive to the market”.

However, Clarke told the Jamaica Observer that a stock split is not yet on the table for consideration.

“I can understand that there may be a pervading psychology of a stock being considered “cheap” or “expensive” based on its nominal price. Cheap or expensive should instead relate to price relative to the prospect for future cash flow generation. We have not examined the arguments but we won’t rule it out.”

Other analysts suggest that for such high-priced stocks on the Exchange, the introduction of B-class shares similar to that executed for the Warren Buffet-owned Berkshire Hathaway might enhance trading.

Buffett has gone on the record to say his class A share will never experience a stock split because the high share price attracts like-minded investors who are focused on long-term profits rather than on short-term price movements.

On Friday January 29, Berkshire Hathaway Class A traded at US$194,360.05 per unit on the NYSE.

In 1996, Buffett created Class B shares (BRK.B), offering investors the ability to invest in Berkshire Hathaway for, initially, one-thirtieth the price of a Class A share of stock. On Friday it traded at US$129.77 per share on the NYSE.

After the creation of Bershire’s B class shares, a subsequent 50-to-one stock split in 2010 sent the ratio to one-1,500th. Class B shares carry lower voting rights.

No trading has occurred on Eppleys since November 23 last year. But that is not an issue that worries its directors.

Clarke said Eppley has “scores of ordinary shareholders and hundreds of preference shareholders” when asked to comment on the shareholder base. He offered no comment on how illiquid the stock has become.

Shareholders, apparently, are willing to hold onto the stock which is the equivalent of the Berkshire Class A in Jamaica.

Eppleys has a reputation for paying dividends at a rate which is almost triple the performance of other equities.

It paid ordinary dividends of $9.00 per share in each quarter of 2014. This represented a distribution of almost all of its 2014 profit to shareholders, directors stated in the annual report. The company has 796,249 ordinary shares outstanding.

Clarke told the Business Observer, “Eppley will endeavour to continue to implement its business plan of providing tailor-made credit solutions to businesses while providing its investors with a fair return.”

The company outlined in its annual report for the year ended March 2015 that it is targeting corporates in Jamaica and the English-speaking Caribbean, where access to capital is limited.

The company notes in its reports that loans are tailor-made specifically to suit the needs of borrowers and involve structures that are not widely offered by traditional lenders.

“This dearth of capital generates investment opportunities for Eppley. At the same time, Eppley’s investments provide funding to businesses that would otherwise be starved for capital,” Clarke and managing director Nicholas Scott said in their message prefacing the annual report.

They stated, “Our objective is to provide shareholders direct access to a portfolio of credit investments. As a result, despite our corporate form we behave like a closed-end fund and distribute the vast majority of our profits to shareholders quarterly. While we continuously evaluate our strategy in light of market conditions, we do not anticipate that it will change.”

Eppley was originally founded in 1973 as Orrett and Musson Investment Company Limited. In 2013, the company raised private equity from institutional investors and subsequently launched 2018 and 2019 cumulative redeemable preference shares followed by listings of each of those securities on the Junior Market of the JSE. In this same year, the Company rebranded and changed its name to Eppley Limited.