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 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.
