Equity Investment Analysis - Scotia Group Jamaica

The name Scotia has been synonymous with banking in Jamaica for over a century. The Scotia Group Jamaica Group Ltd. (SGJ) is one of Jamaica’s largest financial services group, with total assets valued at J$549B as at October 31, 2019.

Competitive Analysis

The competitive landscape will be analyzed utilizing the Porter’s Five Forces model. Porter’s model focuses on five competitive forces that shape every industry, and attempts to assess an industry’s strengths and weaknesses by assessing the competitive intensity of the operating landscape and utilizing that information to determine the attractiveness, and by extension the potential profitability, of a company operating in that particular industry.

Analyst’s Opinion

After three (3) consecutive quarters of decline in profitability for the 2019 financial year (FY 2019), the Scotia Group Jamaica (SGJ) was able to reverse its fortunes. At the end of the financial year, SGJ saw a strong performance in its fourth quarter that resulted in net income surging to an all-time high of J$13.19B, which is 3.28% improvement year over year (YoY).

Scotia continues to be a well-known brand locally and within the region. In a bid to recapture its market share, SGJ has bolstered its loan books by J$23.02B or 12.61% YoY, while reducing its non-performing loans (NPL). Coinciding with this increase in loans, SGJ has continued to restructure their operations, all while reducing operating expenses from its branch operations.

Given its history and its size within the industry, we are of the view that Scotia can easily position itself for greater growth in the 2020 financial year (FY 2020) and beyond. Based on our forecast for FY 2020, we arrived at a fair value of J$77.34. Relative to the closing price of J$55.99, the fair value would represent potential capital gains of 38.13%. Therefore, at this time we (iDEAL) are recommending Scotia Group Jamaica as a BUY.

Check out full analysis here.