BOURSE SECURITIES LIMITED

Weekly Market Review

January 10th, 2011

Dividend Stocks in 2011

The year 2010 was one for dividend stocks as local investors gravitated towards higher
yielding instruments in the wake of the low interest rate environment. Investors should
not expect any significant turnaround in the economy in the year ahead. Corporate
earnings could continue to feel the pinch in 2011 as economic activity remains slow and
consumer spending tightens. In addition to this, investors’ lack of confidence in the
market could limit investment opportunities in the stock market for 2011. Bourse
projects the TT Composite Index to decline 5 to 10% this year. Despite this, there are
still a handful of equities with positive prospects this year.

Economic Outlook

The economic environment in 2011 may be a challenging one for consumers and
businesses alike. The weak credit demand combined with high food inflation and low
interest rates in 2010 may continue to haunt investors in this coming year. According to a
latest Central Bank report, private sector credit fell by 2.7% in the twelve months to
September 2010 with consumer lending dipping 0.4%, while business lending was down
6.8%. The relatively subdued demand for credit combined with large fiscal injections has
kept liquidity quite buoyant. Excess liquidity in the system is around $1.4B. For 2011,
Bourse expects liquidity to remain high initially, with gradual absorption as state
borrowing increases. Interest rates are expected to remain low in the coming year. Repo
rates are expected to be between 3-4%, while TTD Mutual Fund interest rates should
remain in the range of 2-3%. In 2011, the cycle of stagnant GDP growth should continue.
Driven by a weakened construction sector, the unemployment rate continued to rise in
2010. The latest official statistics show that the unemployment rate was 6.7% in the first
quarter of 2010, the highest since June 2007.The weak prospects of market activity and
the general slowdown in the economy limit the chances of improvement in employment.

Equity Market Impact

Given the subdued domestic economic activity ahead, companies across the range of
sectors, from banking to manufacturing, will continue to be confronted with challenges in
growing both revenue and net profits.

Local conglomerates and construction companies should continue to feel the pinch in the
coming year. In 2010, the local construction industry remained relatively inactive. The
recent change in Government has presented few stimulus measures that can boost
economic growth.
If early trading activities on the local equity market are an indication of things to come,
investors can expect another year of low volumes and values as demand remains weak.

In terms of market valuations, the weighted average market multiple of 13.5 times at the
end of 2010 is in line with the ten-year average of 13.6 times as seen in Exhibit 1.
However, when compared to the last three years market valuations in 2010 was
expensive.

Continuing the strategy of 2010, investors should continue to keep a close eye on the
dividend stocks as this may be a positive way to generate returns. Dividend yields
for a few stocks continue to be higher than that of money-market and deposit rates.
It should be noted that for some stocks there exist the potential for capital
appreciation, despite the muted outlook and challenges ahead. Other stocks to
consider would be those which are relatively undervalued with positive earnings
potential.
Stock Picks

National Commercial Bank of Jamaica (NCBJ)

NCBJ was one of the best performing stock of the cross-listed Jamaican companies on
the TTSE in 2010. NCBJ must be commended for the growth in Net Interest Income in
the wake of the Jamaica Debt Exchange (JDX) and lower interest rate environment.
NCBJ’s Risked-Based Capital ratio remains relatively “healthy” at 16.5%. The bank
reported earnings growth of 8.17% in 2010 and this was reflected in the share price which
gained 40.1% for 2010. Going forward, NCBJ should be able to maintain earnings in the
New Year.

Based on valuations the stock is quite attractive at the current price of $1.46. The
company is trading at a trailing P/E of 4.4 times on the TTSE, at a discount to its five
year P/E average of 5.9 times. NCBJ has a market-to-book ratio of 1.0
times.Traditionally NCBJ has had a high dividend payout ratio of around 30%
contributing to a healthy dividend yield. The potential for capital appreciation and
dividend yield make this stock one of our top recommendations for this year.

National Enterprises Ltd (NEL)

NEL remains one of the attractive dividend yielding stocks, with a dividend yield of
around 6%. Although the company suffered from declining energy prices in 2009, in the
last few months commodity prices have picked and this can be reflected in the
improvement in its share of profits in 2010. In addition, operations at NFM have returned
to profitability. In the second half of the financial year, Ammonia prices have jumped
16% over the average prices in the first half.

The dividend yield of NEL is expected to remain above that of deposit and money market
rates, and many of the other listed companies. NEL is trading at relatively cheap
valuations to the market, at a forward P/E of 9.3 times and dividend yield of 6.0%.

Prestige Holding Ltd (PHL)

PHL’s T&T operations should continue to outperform its provincial counterparts.

Regionally, the Group expects performance of its operations in Barbados to improve after
completion of construction at the Marriot Hotel. PHL may continue to achieve growth in
its profits, as it appears to have “cleaned-up” its major unprofitable business units and
outlets, with the most recent closure of the Long John Silver’s business unit.

At the current price of $4.55, the stock is trading at a forward P/E multiple of 9.1 times
based on earnings from continuing operations, which is relatively cheap when compared
to its 10-year average of 15.7 times. The dividend yield of almost 4% is also attractive.
Unilever Caribbean Ltd (UCL)

UCL was able to improve on the efficiency of its operations in 2010 in the face of a
slowdown in top line growth. EPS was up 25% at the end September 2010, while revenue
grew a mere 3%. In the New Year the company may be challenged to grow earnings at
current pace but it should be able to outperform many other listed companies.

Going forward, its top line revenue may continue to be challenged due to the sluggish
economic conditions ahead.UCL could expect marginal, if any, sales growth if consumers
change their preference towards more economical brands of home and personal care
products.

Over the years, UCL has been an attractive investment because of the high dividend
yield. Given the conditions of the market ahead, investors may choose to keep stocks that
offer a reasonable dividend payment. In the last three years, the Group dividend payout
averaged 66.0% and dividend yield has averaged 5%.

At the current price of $22.55, UCL is trading at a trailing multiple of 12.3 times at a
discount to its 5-year average of 13.7 times. Taking into consideration the fair valuation,
a dividend yield of approximately 5% as well as the potential of capital appreciation,
makes this stock one of Bourse’s top picks for 2011.

Guardian Holdings Ltd (GHL)

The recent transaction between GHL and the IFC should strengthen the company’s ability
to execute its strategic expansion plans as the Group benefited from a lower debt to
capital ratio stemming from the transaction. Cash and Cash equivalents amount for 8.8%
of the total Assets of the Group. The economic downturn over the last two years and
continued uncertainty in the next year should provide attractive investment opportunities
for the cash rich company.

From a valuation standpoint, at a current price of $13.00, GHL is trading at a market-to-

book of 1.03 times, comparatively favorable with its 5-year average of 1.3 times. The
investment opportunities that lie ahead for GHL combined with the potential of capital
appreciation and a fair dividend yield of around 3% make GHL one of the stock picks for
2011.

This report is for informational purposes only and does not constitute an offer or solicitation to buy or sell
any securities discussed herein. The information and any data contained herein have been obtained from
financial data provided to us by the issuers of the subject securities. Investors wishing to purchase any of
the securities mentioned should consult an investment adviser. Projections and estimates are those of
Bourse Securities based on current available information.
E-Mail us at admin@boursefinancial.com or phone 623-0415/0416/9360