As the local stock market continues to decline amid rising interest rates, Sygnus Credit Investments Limited (SCI) will be seeking to execute its share buy-back programme by mid-June to provide additional liquidity and shore up the stock price.

The JSE Index dipped by a tenth in 2022 and is down 6.41 per cent year-to-date to 333,066.14 points as of Tuesday. SCI’s Jamaican dollar share price is down 8.46 per cent to J$11.59 while its United States dollar share price is down 3.35 per cent to US$0.0909.

At its annual general meeting and second-quarter earnings call, co-founder and chief investment officer of Sygnus Capital Limited Jason Morris outlined in his presentation that there would be a US$1-3 million annual buyback target which translates to J$150-$450 million. It would last for a period of three years from its launch and would see up to 15 per cent of the net asset value (NAV) being repurchased. SCI’s shareholders equity or NAV up to December 2022 was US$68.77 million which translates to a US$10.32-million cap.

SCI was listed on the Jamaica Stock Exchange (JSE) on June 18, 2018, with its prospectus stating that an invitation for a share buy-back programme would begin after the fifth anniversary date of listing. If SCI does not repurchase shares in accordance with the programme, the ordinary shareholders can vote on a resolution to reduce the management fee payable to its investment manager Sygnus Capital Limited.

“Ultimately, this is to enhance shareholder value and we think that the stock price doesn’t reflect the reality of the company. So, that’s one of the reasons why we’re doing the share buy-back. As well as to provide liquidity and the fact that we think the shares are substantially undervalued based on where they have been trading on an average basis over the past year,” Morris explained, noting that the decision will be made at a future board meeting of when to begin the programme.

When asked by a guest on the earnings call about funding for the buy-back, Morris responded, “It will be a combination of cashflow that we generate from our expanding business as well as probably the use of some debt. We have said that this is going to be open market. We obviously internally have quarterly buy-back target amounts and we’re going to do this for three years.”

With the share buy-back to begin soon, SCI’s most recent dividend payment decreased from US$1.55 million to US$998,748.53 or US$0.00262 to US$0.00169 per share. The company is targeting a five per cent dividend yield in the coming years based on the additional public offering (APO) price of US$0.14/J$16.30 which translates to US$0.007 or J$1.0704. The dividend yield on the J$ shares was 5.68 per cent while the USD share yield was 4.74 per cent. The APO closed in December 2020.

SCI was able to improve its total investment income by 21 per cent to US$2.26 million for its second quarter (October to December) with net profit climbing by 29 per cent to US$1.23 million. This performance was driven by its larger credit portfolio and US$445,348 in investment income from its Puerto Rican fund.

For the overall six-month period, SCI’s total investment income climbed 23 per cent to US$4.53 million with net profit increasing 16 per cent to US$2.86 million which translated to a basic earnings per share of US$0.0048. This is not far from the US$3.82 million earned in the 2022 financial year (FY) which was impacted by a write-down of an investment and almost half of its peak US$5.03 million net profit performance in the 2021 FY.

With a new growth path in progress, SCI is aiming to have core revenue of US$12.5 million and a return on equity above 10 per cent. Its total investment income was US$8.2 million in the 2022 FY with return on equity at 5.67 per cent. To achieve this target, company is planning to tap into US$100 million in credit facilities and quasi debt opportunities within the next 12 months.

“We have already started on a good path and well north of US$100 million already, in terms of what our pipeline is. We’re negotiating with external partners for substantially larger credit facilities that may not necessarily be revolving. We will continue to work with our banking partners to try and get substantially larger revolving facilities locally. You’ll see a lot of movements on that in the coming weeks and months in the market,” Morris said as the St Lucian private credit company targets US$300 million in originations over the next three years.

SCI had a pipeline of US$20 million in approved transactions in December with a pipeline above US$100 million for the English and Dutch Caribbean in the near term. The fair value of its credit portfolio increased 11 per cent over the six months to US$136.07 million across 34 portfolio companies as of December. It expects to derive new revenue streams in the coming quarters to buttress its net interest income line.

Although Jamaica made up 40.3 per cent of the credit portfolio excluding Puerto Rico, Morris believes that the company is making the right bet on Jamaica whose debt to GDP (gross domestic product) ratio has been coming down over the last decade.

“Jamaica’s debt [to GDP] ratio is going down below 80 per cent and we expect the credit rating to improve. That means the long-term cost of debt for Jamaica will go down. When that happens, the economy will expand at a faster rate. So, we’re willing to take that bet on medium-sized firms that are in Jamaica over this time horizon that SCI has its strategy, they will grow fast and expand, and we’ll grow with them,” Morris added.

SCI’s total assets grew 12 per cent in the six months to US$153.60 million with US$10.81 million in cash and cash equivalents at the end of the period. Total liabilities rose 22 per cent to US$84.83 million with its notes payable closing the period at US$69.75 million.

“Right across the Caribbean region, English-, Dutch-speaking, Spanish-speaking, we see tremendous opportunities in private credit and the alternative investment asset class. SCI as a pioneer in this space is looking to really scale the business. We really want to come back here in three years and talking about a US$500-million balance sheet type of business. That’s what we’re pushing for and that is what’s guiding our strategy,” Morris closed.