Barita recommends PBS preference share offer
A scatter plot showing Jamaican Dollar yields on fixed income instruments.

Barita Investments Limited is recommending investors overweight their portfolio in Productive Business Solution Limited's US$11-million ($1.69-billion) perpetual cumulative redeemable preference share offer in a recent analysis published last Thursday.

The offer, which opened last Friday, will see the company issuing a United States dollar (USD) preference share at 9.25 per cent for US$10 per share and a Jamaican dollar (JMD) preference share at 10.50 per cent for J$1,000 per share. One million USD preference shares and 150,000 JMD preference shares are being initially issued subject to the company upsizing the offer by an additional 500,000 USD preference shares and 150,000 JMD preference shares for a raise of US$17 million ($2.61 billion).

In its analysis of the offer, Barita, which is a selling agent, pointed out that PBS' 10.50 per cent yield on the JMD preference share was much higher than the yield currently offered by J$ securities in the market at similar maturities in 2037. Due to the illiquidity of the US$ bond market in Jamaica, Barita examined corporate credits throughout the Caribbean and compared them to the preference shares. It deemed that the 9.25 per cent yield on the USD preference shares offered was significantly above the average yields offered by comparable fixed income securities in the 2030 period.

It also noted that after the issuance of the preference shares which have a nominal value of US$20 million, PBS would still be able to cover the incremental preferred dividend obligation and interest by 3.7 times its projected 2022 EBITDA (earnings before interest, taxation, depreciation and amortisation). Barita also mentioned that the preference shares offer the opportunity for investors to lock in relatively high interest rates for the next 15 years before the possibility of the call option being exercised by PBS.

A scatter plot showing United States Dollar yields on fixed income instruments.

PBS perpetual preference shares have no maturity date but the company will have the option to call the preference shares early and redeem them by the end of the first 15 years after issuance and every three years after that period. However, if redeemed, it will be redeemed at the market price or issuance price depending on which one is higher. No ordinary dividends will be paid unless PBS has paid dividends on the USD and JMD preference shares with respect to any single payment period or cumulative payments. The preference share dividends are to be paid quarterly to investors.

Overweight as defined by the report is that an investor should increase exposure to an asset between five and ten per cent of their total portfolio.

PBS is projecting that it will earn US$300 million in revenue for the 2022 financial year, US$45,000 in EBITDA and US$10 million in net profit. It also projects that its debt to equity will decline from 1.70 times to 1.10 times and its debt service coverage ratio will increase from 3.16 times to 3.82 times. Its finance costs are expected to be US$11.77 million, debt at US$135.87 million and equity at US$117.21 million by the end of 2022.

PBS also released its second quarter financials on the JSE last Wednesday which showed that its revenue moved up 69 per cent to US$91.23 million with its EBITDA also improving from US$5.21 million to US$11.81 million. Its operating profit also grew by 320 per cent to US$7.42 million with the company turning its prior year US$580,000 net loss attributable to shareholders into a US$1.68 million net profit attributable to shareholders.

For the six months period, PBS' revenue grew 53 per cent to US$157.59 million with operating profit climbing from US$3.97 million to US$12.71 million. EBITDA stood at US$21.66 million for the half-year with finance costs coming in at US$8.15 million. Net profit attributable to shareholders stood at US$2.32 million relative to the US$294,000 loss in the same period.

PBS total assets rose year over year by 95 per cent to US$362.67 million largely due to the acquisition of PBS Technology Group Limited in September 2021. Total liabilities increased by 81 per cent to US$277.64 million inclusive of total debt at US$146.15 million. Shareholders equity grew by 165 per cent arising from the US$48.47 million ordinary shares related to the PBS technology acquisition last year. Equity attributable to shareholders closed the period at US$84.07 million.

Former Bank of Jamaica governor and director Brian Wynter was appointed as an independent member of the company's audit committee on August 8.

PBS stock price remained unchanged during the week at US$1, but its listed 9.75 per cent JMD preference shares grew by 43 per cent to $156.05 and leaves it up 50 per cent year to date. The par value of these preference shares is J$100 with a redemption date of July 2024. This means investors have paid 56 per cent more than what the shares will be redeemed at along with the fact that the semi-annual dividend of $0.0483 or $124.74 million was paid on July 29. The value of the shares at redemption will be $2.58 billion (US$16.28 million) and not the $4.03-billion market capitalisation.

The current preference share offer closes on September 9 with interested investors able to apply on lead broker JMMB Securities Limited's Moneyline platform or on baritaboss.com. The minimum number of USD shares which can be applied for is 50 units with increments of 10 units while the JMD shares has a minimum number of 1,000 units with increments of 50 units.

BY DAVID ROSE Observer business writer davidr@jamaicaobserver.com

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