Monday, 26 August 2013

JSIL - Freeing up cash flows

JS Investments

A behemoth in the golden age of Asset Management, with PKR 30 billion plus in assets under management and a management fee of PKR 500 million a year, the company is yet to regain its past glory. Thanks to the global financial crisis (Pakistani style) it faced significant redemptions, shriveled in size, resulting in decreased AUMs that have yet to get back up. The company’s AUM don’t matter however and this is not the story. The investment portfolio is.

As we all know, for a company, the income from an investment portfolio takes three forms. Dividends, realized gains and unrealized gains. Only the realized gains and dividends pass through the income statement affecting the EPS while the largest component, which is the latter, goes directly into equity. Due to the latter, the unrealized gains for JSIL have balooned, and BVPS is almost 2x the MVPS and is PKR 16 per share. The company is trading at a pesky PKR 8 per share.

So what if the company has so much gains. It would not do us any good (for us) unless it realizes them and converts them to cash right?

Well as a matter of fact, it has been cashing in those gains albeit a little bit. For instance the dividend is already cash and the company liquefies its investments from time to time for the realized gains. So it does have a cash flow from its investments and has been having so since long. But what does it do with them? The following excerpt from the income statement of FY12 explains:

And a little more from the latest march q accounts:

And we see that debt has fallen from PKR 1,050 million to PKR 520 million during the same period in a gradual way. 

The company will continue to have cash coming in as before. However there will be no debt to pay off any more. The only question is, what will it be doing with the money? A dividend should be easy since only PKR 100 million are needed for a PKR 1 per share dividend (13% dividend yield) given the company earns around PKR 400 million from operations and investments per year and already has sizeable investment gains. ThusDPS can turn out to be even more than PKR 1.

So whats will the company do?

Will it invest in its own units? Will it give out a dividend? Will it invest in some other stocks? Will it build a casino? I would place my bet with the former. 

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