APO Analysis: Proven Investments Limited (PROVEN)
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January h.com53 Knutsford Boulevard, Kingston 5FINANCIAL PERFOMANCE SUMMARYUS ’000FYAPO Recommendation: PARTICIPATEStock Recommendation: OVERWEIGHTFY6M6M2018/192019/202018/192019/20Net Interest Income18,73111,1788,5861,542Net Revenue37,72070,23123,27314,042Operating Profit11,58732,3094,4136,844Net Profit to Parent6,84729,9794,79823,793Total Assets623,321612,982645,605612,900Total s’ Equity toParent90,72599,010113,942121,864Current Price: J 35.93/ US 0.2600Offer Price: J 33.50/ US 0.2300Price Target J 43.08 / US 0.3077DividendPolicyThe company does not have an approved dividend policy;however, tax-free dividends are paid quarterly due to thecompany being an IBC.Use ofProceedsThe company intends to use the proceeds from the sale of the sharesas outlined below:Pay its APO & Listing Expenses To pursue its pipeline of investments. Shares on Offer: 89,416,037 units-Shares Outstanding Pre-Offer: 625,307,963 unitsFinancial Year End: March 31ABOUT THE COMPANYOutlookWe hold a positive outlook for Proven as it continues to expand itsholdings in domestic, regional, and international securities withexposure to GOJ benchmarked notes, Global, Regional andCorporate Bonds. We expect robust growth in PROVEN’ssubsidiaries and affiliates to be driven by sustained growth in theRegion long-term. However, we expect the economic impact of theCOVID-19 pandemic to weigh on the performance of the companyin the coming fiscal year.ProjectionsandValuationAssuming that PROVEN can execute on its current growth initiativesand investments, we arrived at a 2022 EPS and BVPS of US 0.0140and US 0.185, respectively. By applying the comparable average P/Eand P/B of 18.88x and 1.90x to both multiples and taking the averagewe derived a target price of US 0.3077/ J 43.08 per share.Proven Investments Limited (PROVEN) is a publicly listedinvestment company that aims to maximize shareholderwealth by providing returns on diversified portfolios oftradeable securities which include fixed income securities,equities, structured products, and mutual funds.PROVEN was incorporated in St. Lucia as an InternationalBusiness Company, with its registered office at 20 MicoudStreet Castries. PROVEN has 4 wholly owned subsidiaries:PROVEN Wealth Management, PROVEN Fund ManagersLimited, Real Properties Limited, and PROVEN Real EstateInvestment Trust formerly known as PROVEN REIT Limited.In recent years, the company has taken stakes in associatedcompanies including JMMB and Dream EntertainmentLimited.Risks toOur price target may be overshot if the company experiences aPrice Target fairly muted impact from the economic impact of COVID-19 on itsoperations and investments on the back of greater thananticipated success with emerging vaccines and other treatmentmeasures within the region. On the other hand, risks remain fromthe emergence of new strains of the virus in other regions.1
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January 07, 2020ABRIDGE OFFER DETAILSISSUERLEAD ARRANGERLEAD BROKERISSUEOFFER PRICEMINIMUM APPLICATIONKEY DATESUSE OF PROCEEDSProven Investments LimitedProven Wealth LimitedProven Wealth LimitedTotal of 89,416,037 Ordinary Shares: Key Investors– 45,454,545 Existing Shareholders– 22,222,222 General Public – 21,739,270The Company reserves the right to increase the number of Shares in the APO by up to a further44,708,000 for a maximum total of 134,124,037.J 32.10 or US 0.2200 per share – Key Investors.J 32.80 or US 0.2250 per share - Existing Shareholders1.J 33.50 or US 0.2300 per share – Non-Reserved (General Public) Applicants1,000 shares with excess in increments of 100 shares.Opens January 8, 2021 at 9:00 amCloses January 29, 2021 at 4:30 pm Pay its APO & Listing Expenses (estimated at US 990,000.00). To pursue the company’s pipeline of investments.Table 1. Offer DetailsCORPORATE GOVERNANCEThe Board of Directors of Proven Investment Limited (PIL) comprises seven (7) persons, one of whom is directly involved in the businessoperations and is a part of the management of the parent company via PROVEN Management Limited (PML).PIL DIRECTORSPOSITIONHon. Hugh Hart, O.JIndependent Director & ChairmanRhory McNamaraIndependent Director & Company SecretaryYvor NassiefNon-Independent DirectorGarfield SinclairIndependent DirectorJohn CollinsIndependent DirectorJohn GellineauIndependent DirectorAvinash PersaudIndependent DirectorTable 2. PIL Board of DirectorsPML was incorporated in Jamaica and manages all aspects PIL’s investable resources, assets, and liabilities. PML is licensedand regulated by the FSC as a securities dealer and has entered into an Investment Management Agreement (IMA) withPIL, which affords them a 2% management fee2.PML DIRECTORSPOSITIONChristopher BicknellChairmanChristopher WilliamsPresident & CEOPeter BuntingDirectorMark GoldingDirectorGarfield SinclairDirectorJohann HeavenDirectorSherri MurrayDirector & Company SecretaryTable 3. PML Board of Directors12Shareholders on record at or before December 24,2020.2% per annum of the average net asset value of PIL as compensation.2
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January 07, 2020CAPITAL STRUCTURE AND SHAREHOLDINGThe company will be offering 89,416,037 shares divided amongst key investors, existing shareholders, and public applicants in twoclasses (J Shares and US Shares). The shares being offered will represent 12.51% of the post-APO total shares outstanding, whileexisting shareholders will own 87.49%. A further breakdown shows that reserved share applicants (key investors and existingshareholders) will be offered 75.69% of the shares on offer, while 24.31% will be allocated to public applicants. The Company reservesthe full, unqualified, and absolute right to increase the number of Shares in the APO by up to a further 44,708,00.ShareholdersShareholding (Pre-APO)Issued Capital (%)Shareholding (Post-APO)Issued Capital (%)Issued Shares625,307,963100.00%625,307,96387.49%Key Investors Applicants-0.00%45,454,5456.36%Existing Shareholders Applicants-0.00%22,222,2223.11%General Public .00%714,724,000100.00%Table 5. Capital Structure and Shareholding Pre and Post APO BreakdownCapital Structure and Shareholding Assumptions: All Shares in the APO have been fully subscribed. The APO is NOT upsized.FINANCIAL PERFOMANCEUS ’000FY 2015/16FY 2016/17FY 2017/18FY 2018/19FY 2019/20Net Interest Income13,72614,50320,39118,73111,178Net Revenue20,99624,82236,15037,72070,231Operating Profit4,1576,57312,58911,58732,309Net Profit to Parent2,3448,8505,6826,84729,979Interest Bearing Assets310,282591,492526,724467,238420,622Total Assets349,043633,330576,915623,321612,982Total eholders’ Equity to Parent59,97671,53685,09590,72599,010Earnings Per Share0.00370.01420.00910.01090.0479Book Value Per Share0.09590.11440.13610.14510.1583Net Interest Margin (%)4.422.453.874.012.66Return on Equity (%)3.9113.467.267.7931.60Table 6. Financial PerformanceHISTORICAL FIVE YEAR PEFORMANCE (2016-2020)Over the past five years Net Revenue has grown from US 21.0 million to US 70.2 million by a compounded annual growth rate (CAGR)of 35.2%. This has been fueled by the increases in interest income generated from the financial assets which have been expandingyear over year and by the gain on disposal of subsidiary from the sale of Access Financial Services shares. During FY 2020, emphasiswas placed on executing growth strategies across all business lines, however the realized results were offset by adverse marketconditions stemming from COVID-19 in the final quarter.Total Operating Expenses increased from US 16.5 million to US 37.9 million by a CAGR of 22.5%. This increase has been drivenprimarily by increases in the costs associated with administration and general expenses. Net Income has increased from US 4.2 millionto US 32.2 million or by a CAGR of 65.6%, primarily on the back of growth in fees and commission as well as gains in securities tradingand gains from the disposal of investments.3
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January 07, 2020Net Profit attributable to Owners of the Company (NPAO) for the year 2020 amounted to US 29.98 million (EPS: US 0.0479), whileNPAO adjusted for the extraordinary gain and associated charges amounted to US 11.04 million (EPS: US 0.0177), which representsa 61.26% increase in earnings moving from the US 6.85 million (EPS: US 0.0109) recorded in the previous year. PROVEN experiencedrobust organic growth resulting from the disciplined execution of its Private Equity strategy which focused on optimizing and extractingvalue created by its Portfolio Assets.Total Assets have increased from US 354.9 million to US 613.0 million by a CAGR of 15.1% mainly driven by increases in investmentsecurities and investments on associated companies; such investments include its 75% stake in BOSLIL bank, 49.72% in Access FinancialServices Limited (now 24.72%), 20.01% stake in JMMB Group Limited and 20% stake in Dream Entertainment Limited. Total assets asat March 31, 2020 (US 613.0 million), which declined marginally from the US 623.32 million reported as at March 31, 2019 resultedfrom a 13.5% reduction in the Investment Securities portfolio over the period along with shifts in Investment in Associates to accountfor the revised recognition of AFSL.Total Liabilities grew by a faster pace over the five years, 16.4%, moving from US 276.1 million to US 507.6 million due to a growthin Notes Payables over the period. Total Liabilities for the FY 2020 declined marginally from US 507.6 million to US 510.2 million asat March 31, 2019 despite a 13.3% year over year growth in Customer Deposits or Due to Customers to US 250.4 million whichdemonstrating represents a robust execution of growth strategy.Shareholder’s Equity Attributable to Parent grew by a CAGR of 13.4% moving from US 60.0 million (BVPS: US 0.0959) in 2016 toUS 99.0 million (BVPS: US 0.1847) mainly driven by an increase in retained earnings. Shareholders’ Equity Attributable Parent’s 9.1%to US 99.0 million as at March 2020 from US 90.7 million as at March 2019 was attributed to a significant increase in retained earningarising from core growth and net impact of activities associated with Portfolio Assets namely JMMB and AFSL.HALF YEAR ENDED SEPTEMBER 30,2020For the six months ending September 30, 2020, PROVEN’s net interest income, declined by 65.7% to US 14.04 million from theUS 23.3 million recorded twelve months prior. Approximately 11.0% of the company’s core revenue was comprised of net interestincome (US 1.54 million), down from 36.9% (US 8.60 million) and due to COVID-19 related impact on invested companies. Non-NetInterest Income accounted for 89.0% of Total Income, reflecting the company’s strategy to diversify revenue streams and reducereliance on the repurchase agreement business.Total operating expenses decreased by 70.6% to US 9.63 million from US 16.43 million over the reporting period. This decline wasprimarily driven by a 77.1% reduction in Administrative and General Expenses to end the period at US 8.92 million due to the costefficient measures from the COVID-19 outbreak.Operating Profit over the period was fell by 35.5% to US 4.41 million from U 6.84 million. Pre-Tax profit for the current period fell toUS 2.24 million from the US 26.8 million. Due to a sale of their 25% stake in Access Financial Services in September 2019 PROVENrecorded non-recurring gain of US 24.0 million. Net profit attributable to shareholders declined by US 19.99 million to US 4.80 million(EPS: US 0.0077) versus US 23.79 million (EPS: US 0.0380) recorded the comparable period.PROVEN recorded US 621.90 million in total assets, down 3.7% the US 645.60 million recorded twelve months ago. The fall in totalassets was primarily attributed to a 11.5% decline in Investments steered by efforts to capture trading gains, boost liquidity and reducedebt during the period. Total liabilities went in a similar direction falling to US 492.51 million for the reporting period approximatelyUS 33.0 million more than the US 525.81 million recorded last year. This is due to a US 18.0 million decline in other liabilities toUS 23.4 million despite a US 6.5 million rise in Notes Payable to US 150.4 million. Total shareholders’ equity was US 121.86 million(B.V.P.S.:US 0.1949) at the end of the period, versus US 113.94 million (B.V.P.S.: US 0.1822) last year.4
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January 07, 2020OUTLOOKCOVID-19 poses a threat to the global economyWe expect the economic impact of the COVID-19 outbreak to drag into the year-end, with the most affected sectors/industries beingtourism and travel, entertainment, shipping and logistics, industrial equipment and banking and financial services. PROVEN’s operationis spread across the Caribbean region, which in general is highly dependent on the tourism sector which is in the process of anunprecedented decline in activity, which is likely to ripple throughout the economies in the region, sending some into recession. Moredirectly, various investments held by PROVEN may experience a material decline in value as the broader market moves to lower riskassets amidst fears of potential credit stress among the bonds of highly leveraged companies and companies in the most affectedindustries. Additionally, PROVEN’s return from Dream Entertainment will be directly affected if the treat extends into the summermonths and beyond.Latin American and Caribbean countries may have to rely on domestic consumptionGrowth in the wider Caribbean and Latin America (LAC) fell from 1% in 2018 to 0.2% in 2019 but is anticipated to grow to 1.8% in 2020.Sluggish global economic growth, volatile capital flows and subdued commodity prices continue to drag on growth in Latin Americanand the Caribbean. LAC countries will have to rely on an uptick in private consumption and investments to accelerate economic growth.As such the general outlook for LAC countries remain skewed to the downside. In Barbados, the government improved its fiscal balanceto USD91.5million dollar surplus which was largely due to a reduction in interest payments. Real GDP is expected to be around 0.6%while inflation is anticipated to be around 1.8% in 2020 based on initial estimates. However, the impact of the COVID-19 outbreak maypush growth into negative territory.Inflation rate within BOJ’s target bandJamaica’s inflation rate (12-month point-to-point) is currently at 4.64%, which is now within the Bank of Jamaica’s target range of 4.06.0%. As inflation is now within this range, we do not anticipate that policy rates will increase significantly over the short-to-mediumterm. The IMF anticipates that Jamaica’s inflation rate will be around 4.6% and its GDP will be around 1%. Seeing that Jamaica iscurrently in an expansionary phase of its economic cycle and is projected to grow by 1%, while maintaining a healthy level of inflation,we hold a positive outlook as the country is expected to maintain macroeconomic stability. This will likely be a positive factor forassociated companies, specifically as Access Financial Limited and JMMB Group Limited to improve its profitability and add value toPROVEN’s investment holdings.Investment in Associated CompaniesThe company acquired a 20.01% stake in JMMB Group Limited in December 2018 which led to over USD 3 million in the form of shareof profits from associated company. As JMMB maintains its positive-growth trajectory PROVEN will reap the benefits of future inflowsfrom its resources. Despite being a relatively small investment, PROVEN’s 20% stake in Dream Entertainment in February of this yearfurther diversifies the company’s portfolio and will add economic value as the company grows long-term with the entertainmentindustry, despite short-term headwinds. Although difficult to quantity it has been evident that there has been an increase in demandfor night life entertainment.INVESTMENTS POSITIVES: High dividend yield relative to comparable companies.PROVEN maintains a diverse portfolio which may help to mitigate unsystematic risks.Geographic diversification provides some degree of insulation from downturns in any one marketThe company has been more aggressive in its acquisition strategy which has led to increased income and gains.Booming domestic real estate market may provide opportunities for the company to further expand its investment propertyportfolioStrong and experienced management team5
APO Analysis: Proven Investments Limited (PROVEN)VMWM Research January 07, 2020INVESTMENT NEGATIVES Sluggish Global Economic growth.High weight of regional bonds on investment portfoliosHighly competitive operating environmentExpensive pricing relative to local peers as measured by its P/E ratioLong-term horizon for investment in associate companies drags on liquidityCONCLUSIONDespite being heavily weighted in fixedincome securities that are exposed to asluggish global economic recovery andgeopolitical uncertainties, the associatedrisks with this company are skewed to theupside as it stands to benefit from its robustpipeline and diversification long-term.However, in the short-term the company islikely to face headwinds from the economicimpact of the spread of COVID-19 on itssubsidiaries and associated companies. Thecompany continues to focus on its strategy togrow its off-balance sheet wealth andadvisory management business and is alsoheavily focused on improving its operatingefficiency aided by leveraging digital solutionssuch as its Proven Wealth App, IPO Pro andGlobal Trading Platform.Based on our assessment of the health of thecompany and our expectation of what is likelyachievable based on our analysis, we haveestablishedapricetargetofUS 0.3077/J 43.08 which is above thecurrent market price of US 0.26/J 35.93 andoffer price US 0.2300/J 33.50, i.e., the stockis undervalued at current levels. As such werecommend investors OVERWEIGHT bothPROVEN JA and PROVEN US and PARTICIPATEin this offering.SOURCESProven Investments Limited Annual Reports, Jamaica Stock Exchange (JSE),The Gleaner Company, Loop News Jamaica, The Jamaica Observer, and theFinancial Services Commission (FSC)DISCLAIMERThis Research Paper is for information purposes only. The information statedherein may reflect the opinion and views of VM Wealth Management inrelation to market conditions and does not constitute any representation orwarranties in relation to investment returns and the credibility of the sourcesof information relied upon in the preparation of this report, without furtherresearch and verification. Before making any investment decision, pleaseconsult a VM Wealth Management Advisor.DEFINITIONS OVERWEIGHT - Security is deemed to be undervalued and is expected tooutperform compared to the average market return and/or return ofcomparable securities in the same sector or industry. MARKETWEIGHT – Security is expected to provide similar returnscompared to the market in general or at the same pace as comparablecompanies; neither strongly positive nor negative. UNDERWEIGHT – Security is deemed to be overvalued and is expectedto underperform compared to the average market return and/or returnof comparable securities in the same sector or industry. ZEROWEIGHT – This security is substantially distressed or at risk of ashock which may significantly impair its value.6
APO Analysis: Proven Investments Limited (PROVEN) VMWM Research January 07,2020 876-960-5000 wealthinfo@myvmgroup.com vmwealth.com 53 Knutsford Boulevard, Kingston 5 Price Target J - Current Price: J 35.93/ US 0.2600 ABOUT THE COMPANY We hold a positive outlook for Outlook
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