Thread by @marcgayle

My brief thoughts on the $JMMBGL.ja APO.

I went into much more detail with my class yesterday, so if you want access to the recording and the deck DM me.

I also discuss how this might (not) fit into your portfolio and other things to consider.

#FinanceTwitterJa

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PLEASE NOTE: Speak to a licensed financial advisor. I am not giving you investment advice. I am just sharing my thoughts on both the prospectus for this offer and how I see the landscape.

Also read the prospectus for yourself 👇🏾👇🏾

jm.jmmb.com/jmmbgl-apo

Generally speaking $JMMBGL.ja has been performing well. The one trouble spot I have seen is their proprietary trading desk. Income from that line item dipped in ‘18 & ‘19, which given the bull market is confusing. But all other biz lines have increased revenues.

Margins have been holding generally speaking. Div. yield has been dropping, but that’s primarily due to a significantly increased share price (as opposed to significantly diminished dividends). Nominal dividends/share has been growing, even if div payout ratio has slipped.

There are risks to their Fees & Commission income due to (a customer friendly & market matching) reduction in brokerage fees to 0.75%. But I am not sure if that will spur increased volumes of trades and make up the shortfall. It’s possible, but that needs to be watched.

The main benefit to this APO is for $JMMBGL.ja to raise funds to buy 22.2% of ‘New Sagicor’. Technically it is a new entity that will be listed on the Toronto Exchange (TSX), but that entity will own Sagicor group. $JMMBGL.ja wants to buy 22.2% of that entity (AQY).

When a company owns 20% or more of another company, it becomes an “Associated Company”. That means they can account for the proportionate share of the earnings/loss. If they own 50%, they can ‘claim’ 50% of the profits. So $JMMBGL.ja will be able to claim 22.2% of New Sagicor.

That sounds great and the math works out well, but there is a major asterisk re: Sagicor’s earnings (right now) due to the recently announced deal the Bajan govt announced with bondholders, where they get a 26.5% haircut on principal.

It’s not immediately clear how this will affect both Sagicor’s earnings and those of $JMMBGL.ja.

I have reached out to @JMMBGROUP about this and other matters, so I will update you all when I hear back.

gisbarbados.gov.bb/blog/barbados-…

That being said, assuming this doesn’t materially impact Sagicor’s earnings, then by doing nothing major $JMMBGL.ja’s earnings should increase.

I calculated the expected increase, but I won’t give it out here. DM me for more info.

I would have liked to have seen the offer priced a bit more aggressively (ie more of a discount) to incentivize more retail investors. As of when the details were announced, the $38.75 (for non-shareholders) only represented a roughly 16% discount which is the same...

...amount of dilution that existing shareholders will receive.

So it didn’t seem generous to existing shareholders (IMHO).

That being said, if you ignore the Barbados bond deal (which you shouldn’t if you plan to invest, but just for the sake of argument simplicity), the structure is actually a pretty good deal for shareholders. Mgmt won’t need to do much and they get an earnings bump.

Exactly how much the bump will be is up for discussion based on the Bajan bond deal. But the principle is sound.

It could also create additional organic opportunities for JMMB to continue growing their other lines of business.

Plus it diversifies their revenue...

...to now include insurance and other territories they never had a presence (US, Barbados, etc.) but it also adds risk (see Bajan Bond Issue).

Plus their dividend income will likely increase because Sagicor will pay $0.225US/share dividend (at their discretion ofcourse).

Once they weather the Barbados Bond storm though, I think this could be an inflection point for the company (in a good way).

They are aggressively pursuing growth. This is a big bet on the future. I love seeing companies make big swings, so Kudos to the mgmt team & BOD.

Generally speaking, I expect the offer to be fully subscribed (or potentially oversubscribed) for a few reasons.

$PROVEN.ja currently owns 20% of $JMMBGL.ja. So they get the same earnings benefits as JMMB will get with Sagicor. This offer will dilute...

them at least 16% (possibly more if they upsize), so they have a strong incentive to stay at 20%. They have already sold half their stake in $AFS.ja to participate so we know of the $10B JMMB is trying to raise, Proven already has $2B - $2.5B.

I expect others of their top 10 shareholders will also participate, if only to protect their claim on the increased earnings (and dividends).

$SELECTF.ja also needs to participate to preserve the proper weighting of JMMB in their index.

JMMB has 300,000 clients...

which they are pitching this to. Not sure how many will participate, but that’s a lot.

Plus they are planning to do this raise in TT as well.

So I think generally speaking they will do well with the offer. I would be surprised if they don’t.

Another angle you can consider, if you don’t necessarily want to participate is $PROVEN.ja will also see increased earnings and increased dividend income as a result of this transaction, so you may want to do an analysis on them and decide if they are a good fit for you.

$SELECTF.ja can generally expect their NAV to increase as they adjust their positions in both $PROVEN.ja & $JMMBGL.ja to reflect the adjusted market make up. So that’s also another angle you can consider.

If you have conflicting thoughts, please do share. What have I missed?

As I said earlier, these are just brief thoughts.

If you want to hear my more detailed analysis (including numbers), DM me.

Hope this helps anyone and I look forward to hearing your thoughts.

#FinanceTwitterJa

Btw, I dug into the Sagicor GoB (Bajan) bond issue a bit more and posted an update 👇🏾👇🏾

https://twitter.com/marcgayle/status/1186189430727626753?s=21