Today we at Bourse look to the local equity market and identify our stock picks for 2014. As highlighted in our article last week, the Trinidad and Tobago Composite Index (TTCI) would have presented several good opportunities for the local investor with a market return of 11 per cent and a market dividend yield of 3 per cent.
Against a backdrop of improving economic conditions and depressed interest rates the local stock market is set to produce positive returns in 2014.
Governmentís intention to list a partial shareholding of the Phoenix Park Gas Processors Limited (PPGPL) will likely be the major market initiative of 2014. PPGPL will be the first major energy sector listing on the Trinidad and Tobago Stock Exchange and could potentially add several billion dollars to the market capitalisation of the TTCI.
2014 Stock Picks
Notwithstanding the coming new stock listings on the stock exchange as proposed by the Government, including Phoenix Park Gas Processors Limited (PPGPL), our top stock picks for 2014 are:
1. Neal and Massy Holdings Ltd. (NML)
2. National Enterprises Ltd. (NEL)
3. One Caribbean Media Ltd. (OCM)
4. GraceKennedy Ltd. (GKC)
5. Clico Investment Fund (CIF)
Neal and Massy
Holdings Limited (NML)
The Group recorded earnings per share of $5.73 in the financial year 2013, 18 per cent higher than the prior year. The sale of Almond Resorts Inc and Casuarina Beach Club Ltd remove earnings-dragging item of losses from discontinued operations.
The company is well-placed to grow in the year ahead as it undertakes strategic growth initiatives, including the acquisition of an additional 63.3 per cent stake in the St Lucia registered Gablewoods Supermart Limited which operates in both St Lucia and St Vincent (giving the NML controlling interest) and the complete acquisition of Neal and Massy Gas Products Limited (NMGPL) to gain a 100 per cent interest in Industrial Gases Limited (IGL). At a price of $60.02, NML offers a dividend yield of 2.9 per cent and with a P/E of 10 times, is trading below its 5-year median P/E of 11 times. BOURSE recommends a BUY on the stock.
National Enterprises Limited (NEL)
Despite a drop in NELís year-on-year EPS from $1.00 to $0.87, NELís share price increased from $14.78 to $15.26 in the financial year ending 2012 and 2013 respectively as seen as Exhibit 1. At the current trading price of $17.60 as at 9 January 2014, NELís share price is up 15 per cent from the share price recorded in FY13 and offers a dividend yield of 4.3 per cent.
The attractive dividend yield on NEL, in a market in search of yield, along with its future growth initiatives (for example the holding companyís most recent initiative to purchase 10 per cent shareholding in Powergen), presents a good opportunity for increased earnings in NEL. BOURSE recommends a BUY on the stock.
One Caribbean Media Limited (OCM)
OCMís latest financial report shows an increase in its EPS by 11 per cent to $0.88 for the nine months ending September 2013. This translates to a trailing EPS of $1.20, 8 per cent higher than the full year EPS of $1.11 recorded in 2012.
The materialisation of economic growth forecasts will bode well for the OCM group in the year ahead, along with key events such as the 2014 World Cup. Looking further ahead, potential coverage of major local events (General Elections) as well as international events (London 2016 Olympics) should contribute to an upward trajectory in the Groupís earnings.
With a dividend yield of 3.9 per cent and reasonable trading at a trailing P/E of 15.4 times, BOURSE recommends a BUY on the stock.
GraceKennedy Limited (GKC)
For the nine months ending September 2013, GKC reported a 9.4 per cent increase in diluted Earnings per share (EPS) to J$5.92 from J$5.41 in the corresponding period of 2012. The trailing EPS of JMD11.02 is 4.8 per cent higher than 2012 and could increase as the Company aggressively pursues diversification away from the Jamaican market.
With a book value of $5.60 (TTD), GKC is currently trading at a 62 per cent discount to its book value based on its share price of $3.45 as at 9 January 2014. The stock continues to trade relatively cheap with a P/E of 5.1 times compared to its 5-year average of 7.8 times (Exhibit 2).
GKCís diversification initiatives and any recovery to the Jamaican economy following forecasts of 0.8 per cent GDP growth in 2014 could positively impact the company. The Group continues with its share repurchase programme, a programme which was announced since April 2013, in the belief that the Companyís share price is below its true value and there is an opportunity to enhance shareholders value. GKC also offers a relatively attractive yield of 3.9 per cent. Notwithstanding currency risks, BOURSE recommends a BUY on the stock.
CLICO Investment Fund (CIF)
CIF is (almost) a pure dividend play for the short term investor. Since its debut in January 2013, the CIF has been one of the most liquid stocks on the exchange offering a dividend yield of 3.96 per cent. As at 20 December 2013, the NAV on the CIF was $26.88 which is 18 per cent above the trading price of $21.99 (Exhibit 3).
Arguably, investors holding CIF units are gaining indirect RBL exposure at a discount relative to RBLís market price. For dividend yield and (longer-term) capital appreciation, BOURSE recommends a BUY on the stock.
Overall, 2014 presents selective opportunities on the local equity market for investors to gain. Investors should be vigilant under volatile market conditions and should consult a trusted investment advisor such as Bourse when making investment decisions.
For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100, email us at Research@boursefinancial.com or visit us at any one of our three offices located in Port of Spain, Chaguanas and San Fernando. Investors can also visit our website at www.bourseinvestment.com or Bourse Securities Limited Facebook page.