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Note that no BSE listed company made the cut.
@ David
I concur with your sentiments. Over the years i have notice that our stock exchange has had pretty flat performance. Also we have profitable companies which have share values not reflecting that profitability.
several questions come to mind.
1. Are our citizens educated enough about investing and the stock exchange?
2. Is wealth creation taught to our people as a routine part of our education process?
3. Do companies put enough information out there to keep us informed?
4. What is the roll of the brokers. Do they ever provide any analysis on the little information available and what it means?
5. Do we need these many stock exchanges in the Caribbean as apposed to a single entity?
6. Is it time for us to move to an e-currency for ease of transactions across the region?
@Snipes
You have asked some hard question, the kind of questions which we need to answer. See BU’s responses in bold.
1. Are our citizens educated enough about investing and the stock exchange?
The answer is no. However one just has to look at the relative success of mutual funds where the private sector has benefitted from huge incentives. An investment of a different colour but maybe there are some learnings to be gained.
2. Is wealth creation taught to our people as a routine part of our education process?
No, financial management is encountered at higher learning and even at that stage one would have though internship programs which count as credits would be the way to go. Tax breaks could be offered to participating companies. 3. Do companies put enough information out there to keep us informed?
Companies in Barbados declare on a need to know basis. One only has to attend an AGM to observe the difficulty of extracting basic information from company directors. One needs to be on the inside track to get the low down.
4. What is the roll of the brokers. Do they ever provide any analysis on the little information available and what it means?
Most of the brokers who trade are about placing bids and making offers based on instructions from clients. Many of them are complicit in all that is happening.
5. Do we need these many stock exchanges in the Caribbean as apposed to a single entity?
The Stock Exchanges were probably rolled out to facilitate cross border trading/capital movement in a CSME context. Wither CSME?
6. Is it time for us to move to an e-currency for ease of transactions across the region?
How will this happen when Barbados can’t even implement a decent information portal? We understand senior civil servants of the ancient kind have been blocking government’s project for the last 10 years.
For a variety of reasons there is very little trading on the Barbados Stock Exchange. As a result stock prices hardly ever move, and with modest dividend payments, shareholder returns are low except in the event of a take-over.
One factor may be the type of investment products available. For example, our Communications and Utilities Index tracks the performance of a portfolio of the following stocks:
Gleaner, Radio Jamaica, One Caribbean Media, Cable and wireless Barbados, Jamaica and St. Kitts, The electricity companies of Barbados, Dominica, Grenada and St. Lucia, the cable company of the Bahamas and a water company in the Bahamas.
I have a feeling that a well provided fund of this type could be attractive to investors and start to inject some energy into the regional markets.
Our hope is to stimulate interest and the provision of such products, or encourage people to build their own regional portfolios.
First of all let’s start with population size, a population maximum of 300,000 is just too small to have a viable stock market that will be subject to frequent activity.
Even in countries like the USA and Canada many investors do not invest directly in the stock market thorough direct investments but through retirement funds e.g. 401Ks or RRSPs.
Many people are also risk averse and do not want to go through the volatility of the stock market e.g. How many of you could take it if you drove to work this morning with a balance of $10,000 in your bank account but when you returned home your balance was $7500 or even less, of course it could be $12500 but many people think of worst case scenarios rather than positive outcomes.
As a very small investor (emphasis on small) and not a very active one but I maintain a simple portfolio of what I consider to be blue chip stocks. My investment strategy is very simple when the Oil companies gouged me at the pump with their prices I decided to invest in their stock, similarly when the Banks jacked up their fees and interest rates I also invested in their stock that way I could get some of my own back. So far it has paid dividends (pardon the pun) but it is not for the faint of heart.
If I was in Barbados and had a few shekels to throw around, I would invest in Real Estate like some Bajans I know, recession or no recession those prices remain keep going up.
Real Estate going up, Sarge?
Don’t think so.
Have you the figures?
actually it does seem to be back on them mend
@Straight Talk
Don’t have access to any figures but I base my assumptions on the properties I see advertised (B’dos) on the net or when I see the ads in the newspapers. I didn’t see any appreciable drop in value in the midst of a recession.
Plus the family home recently had a valuation and it was a bit of an eye opener when we were told of the value.
Hey Sarge:
The word from the professionals on the ground is 25% down in the last two years and expecting a further 15% this year.
If you have a surprisingly beneficial valuation, go for it and help the market to move on.
Are the stock exchanges in the region meant to encourage participation by everyone?
Why is there so little trading on the Barbados Stock Exchange? Why are the mutual funds and insurance companies not rebalancing their portfolios more often.
@OLD SCHOOL
Who would be responsible for ensuring mutual funds and insurance companies rebalance their portfolios in Barbados
I am not sure anyone is responsible for this, but as money managers this is what they should do as part of their job.
What bajans compnaies don’t seem to realize is that you only 51% of the shares to control a company. Why hold on to all the shares and take al the risk when you can diversify and still control the company.
For mutual fund. It would be the funds portfolio manager has overall control with his/her subordinates being able to also change the portfolio of the fund but only less that certain percentage value of the fund normally somewhere between 5-0.01 %. For insurance companies would also be handle for by the portfolio manager. I not sure sure if his/her subordinated can change the fund portfolio in such case. Most likely not with them only giving advice on monetary items they analysed and suggest diversification with some buying of the stock/mutual fund/bonds or selling of the stock/mutual fund/bonds to go else where
While real estate is obviously a great investment it is not that practical for many small investors given the level of property prices in Barbados. For most property one is looking at a sizeable down-payment and a mortgage to service.
Also, one should try to have a portfolio including various asset classes such as Stocks, bonds, commodities and real estate. So one investment should not preclude the other.
One of the things we are trying to achieve with the report is to encourage investors to take a regional perspective on stocks given the relatively small size of any one market.
Personally, I find a number of the Guyana companies interesting as they seem to provide opportunities in the area of commodities.
With our strong currency we might want to begin to exercise our muscle as investors in the region.
An investment climate which is receptive to cross border investment cannot be divorce from the current political realities.
Money overcomes many a political barrier. Caribbean countries have removed the legal barriers to many cross border investments.
Most persons seem to agree that the Light and Power shares are worth more than the $25.7 being offered by Emera. Asd an investor in barbados you probably want to have some Light and Power shares in your portfolio. However, I think a major temptation for many investors to sell comes from the way our stock exchange works or does not work.
The experience witht he stock exchange is that however well the company does the share price hardly moves. You are therefore stuck with the dividends. Now the current Light and Power dividend per share is around forty cents per share. Now even if Emera increased the dividend to $1 per share, if the stock price on the market behaves as in the past, a crude calculation could suggest that it would take you several years (15 to 20 maybe) of collecting dividends to get the same amoumt of money per share as the current offer. It is therefore tempting for an investor to grab at this offer. With the current share price on the stock exchange at $12 per share (light years removed from reality)many investors are simply asking when will I get the chance to extract value from this investment at anywhere close to its true value. They are asking when will we see a $25 per share opportunity again.
A fundamental issue in Barbados is how do you as a minority shareholder extract value from your investment on shares on the BSE. If the share price does not move to reflect the performance of the company, you are left with dividends, and dividends are set by management appointed largely by the majority shareholder.
Now shares prices can only move if there are trades. Trades by well informed institutional investors (mutual funds, insurance companies etc..) usually set the market prices in most markets? It would be interesting to hear from the horses mouth as to why is there so little trading by institutional investors in Barbados.
The Stock Exchange needs to become a better pricing mechanism for shares or it may be doing more harm than good.
My understanding is that no one entity currently controls Sagicor Financial Corporation. If and when a move is made to gain control, what quality of representation can the shareholders really expect from the Board of Directors? Recent events suggest mediocre:
– Recent sale of Sagicor shares to one entity rather than a rights offering to existing shareholders
– Recent convertible debt financing secured by Banks Holdings Limited rather than a rights offering to existing shareholders
– Recent move to have Barbados Dairy Industries Limited delisted, while shares are still held by minority shareholders
– Recent recommendation to shareholders to sell Light & Power Holdings shares below the assessed fair value
– Possibly other instances as well
Are the CEOs and Directors of our major Corporations mediocre at best, able to be tough with only the employees and their unions?
Why do Barbadians prefer to place their money on bank accounts for less than 2% interest?
One of the structural problems with the Stock Exchange that affects the level of trading and by extension pricing is that, what financial economists call the “Float Ratio” is very small for companies listed on the exchange.
The public float or simply the “float” of a public company is the number of outstanding shares in the hands of “public investors” as opposed to company officers, directors, or controlling-interest investors. In financial circles a 20% or greater shareholding is typcially seen as a controlling interest.
The float is calculated by subtracting such shareholdings from outstanding shares, and is meant to reflect the actual number of shares available for regular stock market trading.
The underlying notion is that shares held by such shareholders are typically only sold as part of a major corporate ownership restructuring and are not available for the normal trading that sets the price on the exchange.
As part of their annual reports, companies listed on the stock exchange are required to disclose shareholders who own more than 5% of the company’s shares. The information shows the closely held nature of the companies listed on the exchange and the relatively small number of shares available for regular trading and pricing.
However, there is some trading one the exchange and it would be helpful if the trading that took place did so at places that seem realistic. It may help if the exchange regularly published the book value per share, which usually serves as a floor for share prices.
The exchange may want to insist on a minimum float for any listings as well.
Without a bit of economic democracy though, and an expansion of the shareholding in listed companies, the exchange is likely to continue to struggle.
Freeman, the questions is how does that 2% compare with the returns investors get on the BSE.
With a dividend payout of 40 cents and a flat share price your return is around 3% on light and power.
In barbados when you buy shares its almost like buying a bond where you collect a regular payment, the dividend, and you then hope there is a takeover bid and you get an offer for your shares close to their true value.
The emera offer is less than the book value of the company, but more than twice the share price on the exchange. Whats an investor to do?
Hi, david is there any space to posu our weekly stock market update?
Justin, the CEOs and Directors of companies listed on the Barbados Stock Exchange do a very poor job “managing” the share price. There is little visibility associated with the release of interim results. This should be a high profile event, used to communicate the results and management’s outlook, as well as highlight positive aspects of the corporation. Adverse news should be promptly communicated to avoid speculation and ensure that all shareholders have the same version.
Stock splits appear to get very little consideration. A 3:1 or 2:1 LPH stock split would have likely resulted in the total value of the company being reflected in the share price. Have a look at the history of Cave Shepherd’s share price before and after the stock split.
Dividend payout appeals to potential investors. The LPH dividend is, I believe, less then 50% of its earnings per share. If the market does not have the number and nature of participants to move towards efficiency, unnecessarily retaining earnings may disadvantage shareholders, as the value may not be conveyed through the share price. Therefore, pay the highest dividend, all things considered.
Given current discussion on Brasstacks, LPH at December 31, 2009:
– Share capital: $115,571,000
– Retained Earnings: $278,114,000 (would have increased by 2010 earnings less 2010 dividends)
– Other reserves: $228,109,000
– Shareholders’ equity: $621,794,000
– 2009 income was $27,455,000
I think a potentially important point is the fact that majority shareholders have others means of extracting value from their investment than dividends or capital gains.
Dr. Robinson
Feel free to email, this is important stuff.
Given your concerns about the inability of the BSE to reflect better share pricing for investors and the float ratio issue, it all begs the question what has been the role of the oversight bodies.
If that is the case, the companies are being “managed” by the major shareholder and not the Directors. Better legislation is therefore needed to protect minority shareholders.
@A.Freeman
Who is accountable in such a situation to lobby for legislation change?
David, in my opinion, minority shareholders have a role, but they need to be properly organized. The Securities Commission, I imagine, can also play a role in promoting legislation to ensure a fair market and protection for all investors. Also, Government is desirous of promoting a culture of investment and should therefore seek to create the right environment.
@A. Freeman
Here is the big question, can the Commission headed by the same person who heads the Fair Trading Commission possess the appetite to accomplish the required change?
David, I honestly do not know much about the Chairman of the two organizations. However, if fairness is the genuine objective of the decisions of the two organizations, the effective execution of both roles is possible.
Freeman and David, my question to you both is that as a shareholder of light and power, and given the way the stock exchange tends to perfrom would you sell your shares to emera.
If your answer is yes then we really need a national discussion on the stock exchange. To me it seems that the exchange leaves barbadian companies dangerously undervalued and vulnerable to takeovers.
Maybe the exchange should mandate listed companies to hold a quarterly press conference to update investors and potential investors on company performance and prospects for the stock price.
Doug Skeete and his organization could spearhead a shareholder movement for some portion of senior management compensation to be linked to the share price.
These are some of my thoughts.
.To me it seems that the exchange leaves barbadian companies dangerously undervalued and vulnerable to takeovers.
I would agree with you but how exactly are going to get share pushed to their real value ? are you going to do a share bid for 10 shares at true book value. they would get snapped up immediately and net worth would change to be in line with book value now how is the market going to trade after that? is anyone really going to look to buy at the true book value ? you can put shares up for sale then no one wishes to buy and you will be bound to lower your price. realistically i don’t see much use of a share market until their great understanding by people of how it should work
Well we already have a share market and we are dealing with some of the consequences of the way it currently works and we are looking for ways forward.
Is understanding as big an issue as we often seem to suggest? Share prices are usually set by institutional investors making portfolio decisions. Are our institutional investors such as Sagicor, Signia, Fortress and other mutual funds really that ignorant about shares and trading?
We might be dealing more with structural issues like closely held shares, a corporate governance culture that does not place any pressure on share price maximization which may itself be linked to the ownership structure.
How do we possible move forward?
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Are our institutional investors such as Sagicor, Signia, Fortress and other mutual funds really that ignorant about shares and trading?
Of course they not, but given the daily volume or I should say the lack there of maybe we just do major stock splits and issue so that the shares be revalued so that we have reinvestment into at maybe sub dollar region so that shares could be traded more actively and more diversely. of course to facilitate this we would also need a e-trade mechanism to lower brokerage cost.
The stock exchange in Barbados has often been described as a club. Laud the effort of Dr Robinson to demystify an area which average Barbadians have shied away. We can’t have CSME unless there is a mechanism to engage in vibrant/robust crossborder exchanges. Anthony the e-trade is a good idea because it provides the convenience factor which would appeal to the middleclass segment.
Could you say a little more on the etrade Anthony.
Currently far as I know the market you must put issues trade through the bse via brokers. Now these broker ideally trade any amount of share but then there is the fee onto that makes trading low volume of share really not feasible to consumers. Trading may also take place out side of bse but you must inform the company of share transfer so they would get fincial statement and be invited to the shareholder annual meeting. Now with the advent of ecommerce for the most international trading market i can now go place order and buy and trade share no matter how large or small the amount with brokerage fee way less than some firm. Now these market by themselves have way more capita plus way more share option but also way more risk and let not forget way more people willing to invest. the risk of course drives money “creation”. Now for us to drive the market to be unstagnated we a few things. Ontop of the normal stagnation Mutual fund will undoubtedly see a decrease in purchase this year due to removal of the tax saving benefit for them.
1 We need relatively easy way to get money into the market and low cost to consumer so there they see most of the money going to market
2 We need either a low cost broker ( not seeing this happening ) or electronic broker which people can then use to buy, trade, sell, hedge shares, mutual funds, bonds.
3 We need share issue so new share can be place on the market and stock splits so the price is very attractive to new investors. For mutal funds this would see alot of micro investing in them. Fortress High interest fund currently returning 2-3 times the deposit rate currently.
4 We need to go and highlight the bse as an investment option that wouldn’t require much cash buyin.
Note the following (http://www.bse.com.bb/index.html) :
The Barbados Stock Exchange(BSE) is an association of Member-Brokers, operating a Central Marketplace for trading securities…
@anthony
Good stuff!
For an update on Banks Holdings Limited, see Patrick Hoyos’ “Sale of Barbados Inc.” in today’s Sunday Sun. Is this the start…?
That should be “Barbados Inc. sale continues”
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