QWI optimistic about equities as interest rates fall
After a roller coaster 2024 in which investments delivered mixed results, QWI, a part of the Jamaica Teas investment group is now hoping for a better year in 2025 as interest in equities revives.
In the first quarter report for the period ended December 2024, management noted “Jamaican Market Overview Company earnings were mixed based on third-quarter results. However, local interest rates, particularly for 30-day Bank of Jamaica CDs, have dropped over 500 basis points from their peak earlier in 2024.
“This decline in rates is promising for future gains in the local stock market, as investors are likely to shift funds from lower-yielding fixed income investments to equities, resulting in higher price earnings multiples.”
Notably, however, they state that the expectation of higher local share prices to hold in 2025 are dependent on better profit reports for companies in which QWI is invested.
Some have been showing declining profits. Moreover, while rates in the United States are also trending down, inflation in that nation is being watched closely.
Directors concluded, “The trend in earnings growth is generally positive, making us cautiously optimistic. However, this optimism may change if USA inflation rates do not continue their downward trend. Additionally, if the partial reversal of the long-term interest rate decline seen in 2024 continues, it will negatively impact US stock valuations.”
Q1 results
For the first quarter ending in December, the company reported an after-tax loss of $7 million, compared to a net profit of $18 million a year ago. The Company achieved an unrealised gain of $6.8 million in its Jamaican portfolio, a significant recovery from the $30.8 million unrealised loss in the same quarter last year.
The Company’s investments in Caribbean Cement, Scotia Group Jamaica and TransJamaican Highway yielded price gains in the quarter but these were largely offset by declines in the value of holdings in Access Financial Services and Dolphin Cove.
During the quarter, long-term interest rates in the US increased, leading many market participants to significantly lower their expectations for interest rate reductions in 2025. This shift caused a decline in the prices of several of QWI’s major holdings in construction and home building companies.
However, directors note, much of this decrease has been reversed so far in January 2025.
The Net Asset Value (NAV) of the Company's shares declined 2.2 percent from $1.33 in September 2024 to $1.30 at the end of December 2024, attributed principally to dividend payments made in December.
Administration costs fell to $13.3 million (Q3 2023 -$23.3 million) while interest expense increased $6.0 million this year from $5.0 million in the year ago quarter. The reduction in administration costs arose primarily from lower accruals for investment management expenses during the quarter.
QWI ended the period with equity capital of $1.77 billion, down from $1.81 billion in September 2024, largely reflecting the $34 million dividend paid to shareholders in December. Total Investments amounted to $2.12 billion, with 64 percent represented by Jamaican listed stocks and the majority of the balance invested in the US market.
Portfolio adjustments
Portfolio Adjustments We have made several changes to the local portfolio, focusing on stocks that showed positive profit performance in 2024 and others expected to perform well in 2025. Since the end of the calendar year, several stocks in our portfolio have demonstrated increased gains in both local and overseas markets. The Company will be guided by these trends in the coming financial year and remains optimistic about the future.”
During the quarter, QWI transferred a portion of its Trinidad portfolio for sale in Jamaica. At the end of December 2024, the Company held US$4.9 million in equities listed in the USA and Trinidad and Tobago.
This portfolio includes positions in stocks including some in information technology and aerospace companies as well as entities involved in housing and construction.
Non-current margin loan borrowings at the end of December 2024 were $143 million while current margin loans totaled $86 million. Total borrowings were $229 million.
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