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JM | Nov 17, 2020

Sterling Investments hunts for undervalued securities

/ Our Today

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Good financial out-turns for September quarter as net interest income rose to $80.59 million for past three quarters

Charles Ross, director of Sterling Investments Ltd. (Photo: Facebook @SterlingAsset)

Having posted good financial returns on its September quarter, investment company Sterling Investments Limited (SIL) is on the hunt for undervalued securities to enhance shareholder value.

This investment strategy wgAill see SIL profiting in the future from securities bought now, whose value has been depressed because of COVID-19, which has seen many companies losing shareholder value and posting poor financial returns. The publicly listed company reports that it is well-positioned to benefit from the global economic recovery from COVID-19.

“SIL’s exposure to the developed countries suggests that it will be among the first companies on the local stock exchange to benefit from a global economic recovery.”

Sterling Investments Ltd

This is based on the fact that “SIL’s exposure to the developed countries suggests that it will be among the first companies on the local stock exchange to benefit from a global economic recovery” the company states in its latest quarterly report. SIL pointed to evidence suggesting that developed countries will lead the global economic recovery, noting that Jamaica’s economic recovery is likely to lag behind the recovery in discretionary consumer spending in the US, Europe and China.

As the fallout from the COVID-19 pandemic persists, SIL continues to perform enhanced due diligence as it monitors the credits held by its investments portfolios

REAPING SUCCESS DESPITE COVID-19

SIL’s investment continues to reap success for its shareholders, despite the challenges being faced by other companies during this time of the global pandemic with net interest income increasing by 30.8 per cent to $80.59 million for the nine-month period ended September 2020. For the same period last year, the company posted net interest income of $61.61 million.

The increase in net income this year is due to a combination of lower interest expense and continued growth in the size of the portfolio. SIL is now generating more income post COVID-19 than it did before. SIL reports that its investors will continue to benefit from the US dollar income its portfolio generates through dividend payments.

The investment company has increased the dividend pay-out ratio by 60 per cent to shareholders in the third quarter. SIL increased the dividend payout ratio from 50 per cent to 80 per cent from its previous dividend cycle.

The company pays dividends twice a year in hard currency as a result of its holdings of US dollar denominated assets. SIL is providing US dollar liquidity to its shareholders at the height of the pandemic.

ENHANCED DILIGENCE AMID COVID-19

As the fallout from the COVID-19 pandemic continues, SIL continues to perform enhanced due diligence, as it monitors the credits held by its investment portfolios. As it regards the foreign exchange portfolios, the returns have been good, resulting in gains of 24.84 per cent from J$80.28 million for the period under review compared to the $64.31 million recorded for September 2019.

Total revenue for the first nine months of 2020 was $170.31 million, 20.84 per cent higher compared to $140.94 million for the same period in 2019. This was driven by higher interest income and unrealized foreign exchange gains.

Sterling Investments Ltd Chairman Derek Jones (left), and directors Charles Ross (centre) and Michael Bernard.

SIL’s net interest margin continues to improve as interest rates remain low. Net income decreased by 5.81 per cent from $100.21 million for the nine months ended September 30, 2019 to $94.39 million for the same period last year. The decrease in net income was primarily due to an increase in unrealised held for trading revaluation losses $21.65 million, compared to a gain of J$8.79 million for the same period in 2019.

LOWER OPERATING EXPENSES

Other operating expenses for the period under review totalled $27.94 million or 3.23 per cent lower than the $28.87 million of same period in 2019. At the same time the Jamaican dollar depreciated against the US dollar by J$9.54 or 7.19 per cent for the nine-month period ended September 30, 2020, relative to the same period in 2019 when it depreciated by J$7.44 or 5.83 per cent.

This led to an increase in unrealised foreign exchange gains for the nine months ended September 30, 2020 of J$80.28 million compared to J$64.31 million for the corresponding period in 2019. Total equity decreased by 0.29 per cent from $1.22 billion as at September 2019 to J$1.21 billion as at September 2020.

This is due to a reduction in the fair value reserve due to a brief market sell-off in global markets that occurred at the end of September. Total assets increased by 7.1 per cent from J$1.59 billion as at September 2019 to $1.70 billion as at September 30, 2020. 

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