Junior Market companies performing stronger despite pandemicWednesday, September 15, 2021
BY DAVID ROSE
Even with the novel coronavirus pandemic setting back many companies due to the varied impact on their businesses, several publicly listed companies on the Junior Market of the Jamaica Stock Exchange (JSE) have experienced positive fortunes as their businesses remain fortified from years of access to broader capital markets.
The Junior Market was formed in April 2009 with the intention of creating a new avenue for businesses to seek equity capital and support their growth in a contractionary economic environment where debt was expensive and hard to source. The average treasury bill returned 17.35 per cent and debt to GDP (gross domestic product) was above 150 per cent. Apart from creating stronger governance principles and the implementation of best practices, companies listed on the market benefited from a 10-year tax remission where they paid no income tax in the first five years and half the normal rate in the remaining five years.
After more than 12 years, 45 companies have successfully become listed through this avenue which has seen $15.12 billion being raised by these firms. This has resulted in numerous Jamaicans being able to grow their money and accomplish goals such as sourcing the deposit for their home or having a new avenue to become wealthy. This can be seen with the average price appreciation among these companies being 562 per cent with the biggest loss being a decline of 70 per cent, and biggest increase being 8,383 per cent.
“It's been a howling success! The Junior Market helped to start the shift away from using primarily debt in the capital total structure of Jamaican companies. The influx of equity capital has created more robust companies and we expect to see the trend of using more equity in the capital structure to continue for the foreseeable future. We understood the parameters of the Junior Market much quicker than our competitors which allowed us to present the best value proposition to prospective clients,” stated CEO of Mayberry Investments Limited Gary Peart. Mayberry listed the first seven companies on the Junior Market and has brought 19 companies public to date.
These sentiments were also echoed by assistant general manager of Trading and Treasury at JMMB Securities Limited Greig Lindo. “I think the Junior Market has been successful in achieving its mandate of opening up the local capital markets to small and medium sized enterprises (SMEs) for growth equity. The healthy number of listings is testament to the attractiveness of the Junior Market to SMEs. Most SMEs have used the Junior Market to grow and create value for all stakeholders, which is really the end goal of the Junior Market.”
Despite the fears that growth would slow for some companies once their tax break expired, this has been far from the truth. In contrast, most of the 11 companies who no longer benefit from that tax remission have seen record results even during the novel coronavirus pandemic. Some are currently on trajectory to record their best year on record from a revenue and profitability standpoint. These include firms such as Jamaican Teas Limited, Lasco Distributors Limited, Lasco Manufacturing Limited, Cargo Handlers Limited and Honey Bun (1982) Limited. This excludes tourism exposed companies such as Dolphin Cove Limited and Caribbean Producers Jamaica Limited, with the latter moving to the Main Market on July 13.
“With many firms well positioned above their pre-COVID-19 earnings, this speaks to the resilience of the companies who have used the capital raised and tax incentives of the Junior Market to enhance their balance sheets and to create buffers to withstand economic shocks due to uncertain times. Even if there is a fall-off in earnings in certain cases, prudent companies have sufficient capital to withstand economic shocks and position themselves for long-term recovery,” stated Lindo.
The advent of Jamaica's Junior Market also led to Trinidad and Tobago (T&T) creating the Small and Medium-sized Enterprises Exchange on the Trinidad and Tobago Stock Exchange (TTSE). Despite only providing five years of a reduced tax rate of 10 per cent, the Government reformed the structure of the tax incentive to mirror the Jamaican format. This was done as a way to further incentivise companies in the twin island republic to go public and list on the TTSE.
NCB Capital Markets Limited (NCBCM) has been on an expansive plan over the last three years to get more companies public on the Junior Market in Jamaica. NCBCM has removed arranger fees in a bid to encourage more companies to list. This listing initiative has been reflected in T&T through NCB Merchant Bank Limited which was recently admitted as a stockbroker to the TTSE.
“NCBMB recognises that its domestic environment is currently largely debt centric and going forward the narrative may likely make shifts towards more patient capital. Also happening at the same time is that in many instances, the 2nd-generation owners of family businesses in Trinidad & Tobago are retiring and the 3rd generation is coming to the forefront. We believe that our market entrance into the Equity Capital Markets space is timely as the patient capital agenda, family business transition challenges and the Government of Trinidad and Tobago's accommodative fiscal policy via the SME exchange, all make for the right environment. Going public allows family-owned businesses to solve for continuity issues born by the reluctance of 3rd-generation successors to operate family businesses,” stated Herbert Hall who heads NCBCM as its vice-president of Investment Banking in Jamaica and the Northern Caribbean.
Although 45 companies have been listed to date, there have been some interesting moments during that time as well. These include Blue Power Group Limited spinning off its lumber division as a separately listed company and GraceKennedy Limited acquiring majority ownership in Key Insurance Limited. There was also Derrimon Trading Company Limited's $4.22 billion additional public offering in February which was the first of its nature on the Junior Market. Sweet River Abbatoir and Supplies Company Limited was delisted in February 2020 with Caribbean Energy Finance Company Limited's initial public offering in April 2015 being the only company which has failed to raise the minimum capital requirement.
“Mayberry always has a positive outlook for Jamaica; we say we are high on Jamaica. COVID and government measures are a challenge, but Jamaica, Jamaicans and Jamaican companies will find a way to overcome these challenges and strive,” said Peart.
“We have a positive outlook for Jamaica despite the fact that we are going through a still ravaging pandemic and we have experienced loss of life and livelihood, but we are a resilient people and will recover stronger. It would be no surprise if we saw our SMEs leading this recovery as they are likely to emerge more agile and have more robust business models, given the fact that they would have had to get nimble to navigate the pandemic as well as having more support from market practitioners through various services. We should therefore see improved growth prospects from our SMEs in the near future,” observed Hall.