Thread by @marcgayle

I have been seeing a lot of comments and responses to this IC Insider article.

There are a few things I want to address, so thread time.

The first thing is that $TJH.ja represents a maturing of our equity markets.

//Thread

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icinsider.com/trans-jamaican…

$TJH.ja is the first asset being brought to market whose core business has both an inflation and JMD depreciation hedge built in, and it also has a damper against the effects of economic recession.

In other words, revenue & profits will not be meaningfully eroded by inflation..

and depreciation because $TJH.ja has the right to apply for toll increases.

During an economic recession, there are many things that are cut back significantly — specifically our “wants”, but assuming you still have a job you have to go to work, still have to eat, etc.

You may not eat out, go to the movies or go to parties as frequently, but you will likely still go to work, church and other “mandatory” things that don’t stop during an economic recession.

No doubt some will stop driving because they may lose their job...

but barring a major economic downturn, the majority would likely still have a job.

They may take less trips via the toll road, but they are likely to continue taking trips.

So that’s the baseline of my main point of contention.

IC Insider used a P/E valuation method to determine that $TJH.ja is “overvalued” at the current price.

Yes, I get that many analysts and investors love P/E and our local market is a “P/E” market but that doesn’t mean it is always right. Our market is changing and our analysis..

needs to keep up.

P/E is most useful when there is a comparable to compare it against.

If there is another company in the exact industry, it’s a great tool to quickly compare the valuation of one versus the other.

It’s also a great tool to use to compare vs the market.

This is usually good in MOST cases, but there are exceptions.

One such exception is when there is an asset class that bears unique characteristics that the rest of the market doesn’t — eg recession, inflation & depreciation resistant.

There is no other company listed on any of the local exchanges that has all three characteristics. So given that’s the case, how can comparing it to the entire market be a useful & accurate valuation method to use?

There are others more suitable like:
- Dividend Discount Model
- Discounted Cash Flow Model

The primary reason this is the case is because for infrastructure assets that generally produce stable cash flows for investors, it has a lower risk profile than other equities.

Infrastructure assets also throw off “real returns” in cash, which can help to balance your portfolio or provide a “semi-stable” income if you need it.

So I fundamentally disagree with the approach that IC Insider took to come up with their analysis that it is “overvalued”.

Also, the article seems to have been written for one particular type of investor — one trying to get high gains on an IPO ‘pop’.

More ppl are investing in local equities and are looking at $TJH.ja. It isn’t responsible (in my view), to paint with a broad brush and say it is “highly overvalued” without qualifying the type of investor it may be “highly overvalued” for.

To further confuse matters, it correctly concludes that it may be better suited for long-term investors and goes on to say that the growth prospects “could be very positive going forward”.

If the growth prospects could be “very positive”, how could it be overvalued?

It could only be overvalued if the growth only materializes outside of the desired timeline of said investor.

All of that being said, I definitely do agree with the conclusion that many investors may be disappointed with the stock price movement shortly after IPO.

This very well may be true as ‘IPO poppers’ liquidate their positions perhaps disappointed which depresses the price and potentially pushes it below IPO price.

But that may not materialize due to the structure of the allocations. There is a heavy institutional slant.

I am saying all of this to say that this is why we need to be careful about pronouncements about buying or not buying an offer in a broad way, because it all depends on your circumstances, your goals and your risk profile.

There are many investors this won’t be right for...

But there are many that it could be a steal of a deal for.

Which are you?

This is why I push education and teach people how to think about these things so they can make the decisions for themselves and just buy/don’t buy based on what someone else says (including me!!).

It is precisely because of this nuance why I try not to talk in too detailed a way about any offer or about buying or not buying any equity on Twitter.

I prefer discussing it in a class like setting where I can walk you through the analysis and you can have all of the info.

That’s exactly what I am doing on Saturday, Feb 15, 2020 for this IPO.

If you are interested, you can see the details below.

https://twitter.com/marcgayle/status/1225952334381043712

After the class, you may decide that this is not for you based on your investment strategy & goals and that’s fine.

You may decide that after considering everything it is for you, that’s fine too.

At least you would have gotten a full analysis that 1 article can’t provide...

and hopefully it gives you a broader perspective and set of tools that allows you to keep making informed decisions about your investment choices.

Look forward to seeing some of you on Saturday on the stream.

Also, to be clear, I am a big fan of IC Insider. I love the work they do. I just disagree with this particular article for the reasons highlighted above.

I am also not saying that $TJH.ja is not overvalued/undervalued/fairly value for some investors.

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