Balance in Performance
In a year when the economy reportedly grew by 2.6 percent, many private businesses seemed to have lost value. This loss of value by major private businesses in Guyana is consistent with the feelings many Guyanese have about how poorly the economy did last year. To the extent that market capitalization, the value of outstanding stocks at market prices, could be relied on as evidence of performance, Guyanese would have another source of proof to justify their feelings. The Guyana economy exchanged over G$200 billion in goods and services from among the items and services produced within the country last year. The economic report to the nation in the 2010 budget disclosed that almost all the sectors that make up the Guyana economy participated in the expansion, some at substantially higher rates than others. It would appear, though, that many of the entities that should have contributed to the expansion were themselves struggling to avoid regression and to maintain balance in their performance.
So it seems from the behavior of their stocks on the Guyana Stock Market. Altogether, the more than dozen companies whose stocks are listed on the Guyana Exchange lost nearly two percent of their value in 2009. Until we are able to see all the annual reports of individual companies, Guyanese would not know for sure how much of the loss in value was self inflicted and how much could have come from the condition of the Guyana economy. But, this is the first time that the companies on the Guyana Stock Exchange, as a group, lost value within a national budget cycle since trading began in July of 2003.
Ample Evidence
Despite the information constraints, there is ample evidence in the market data to identify the winners and losers in the year long trading period for 2009. The major standout among the winners is Citizens Bank whose stock price ended the year 238 percent higher than where it was in December 2008 when it fetched a price of G$13.30. The performance of this stock is more than spectacular when assessed against the reported performance of the company. Assessments of the company’s annual report for 2009 reveal that Citizens Bank experienced a decline in profits of 11 percent during the year. Many assets with significant value were impaired and expenses rose sharply when compared to the income generated by interest, the primary source of revenue. The return on its stock at G$2.7 per share is in the lowest 25 percent of the dividend range offered by other companies whose stocks also trade on the Guyana bourse. While there is no doubt that investors have an interest in the stock, the stock of Citizens Bank traded less than eight percent of the time during the 52 trading periods to December 2009. That this stock managed to leap above its competitors in the banking industry in just four trades and offering lower returns on its shares places it in a special category that deserves careful attention.
Flat or Disappointing
Except for Demerara Tobacco Company (Demtoco) and Guyana Bank for Trade and Industry (GBTI) whose stock prices showed positive gains, the performance of the other companies were either flat or disappointing. The stock price of Demtoco increased by 8 percent while that of GBTI increased by one percent over its December 2008 close. On the other hand, several companies saw their stock prices decline. The largest decline in price was experienced by Demerara Distillers Limited (DDL) whose stock price fell by 17 percent from its December 2008 end. The other four companies which saw declines in their stock prices had less dramatic falls than that of DDL. Republic Bank saw a nine percent decline in its stock price while Sterling Products witnessed a seven percent decline in its price. The stock price of Banks DIH fell by five percent while that of Caribbean Container Incorporated (CCI) fell by four percent. The stock price of Demerara Bank, Guyana Stockfeeds and Property Holdings Incorporated (PHI) remained unchanged from their December 2008 close.
Return on Investment
The behaviour of the stock prices is not insignificant because it reflects a level of performance by these companies that most observers would not consider as flattering. Stock price changes are often viewed as an indicator of the level of confidence that investors have in the companies listed on an Exchange. There is no reason to look at the performance of companies listed on the Guyana Stock Market any differently. The mixed performance of their stocks was no ringing endorsement of the set of companies on the Exchange. Yet, many of these companies offer comparatively good returns and represent good investments. With the investment risk spread over the nine companies that provide dividends to their shareholders, investors would have received a return that averaged 7 percent last year. This level of return was three times greater than the interest received on a savings account and higher than the yield on Treasury Bills. Those investors lucky enough to hold the shares of Demtoco and Property Holdings Incorporated (PHI) would have earned as much as 17 percent on their investments, whether part of a limited or broader portfolio of investments.
Economic Importance
Even at that level of return, the performance of these major Guyanese companies would have been disappointing without the phenomenal contribution of Citizens Bank. Without the spectacular increase in the share price of Citizens Bank, the decline in the market value of major Guyanese companies would have been much steeper. The decline could have been as high as five percent over the value of the companies that prevailed at December 2008. Apart from being major producers in the economy, the value of these companies make up a significant part of the GDP. In 2004, the market value of the stocks on the Exchange was 19 percent of GDP. With a 42 percent increase in value in 2007, the market value of these companies represented one-third of the Guyana economy.
Undervalued
In 2009, the value of the companies with shares listed on the Guyana Stock Exchange represented 29 percent of GDP. While this downward movement points to a weakened economic position for many of these companies, their measure against GDP provide some indication that the stocks on the Guyana Exchange might be undervalued. Many analysts hold the view that a market capitalization that exceeds GDP is an indication that stocks might be overvalued.
At the same time, World Bank experts posit that a market capitalization to GDP of 50 percent or below is indicative of undervalued stocks. In Guyana’s case, the market value of companies is way below GDP and could signal that many companies have a long way to go to reach their full potential. Given the influences of globalization, Guyanese companies would require help to improve their performance. It remains to be seen what steps these companies would take to get to the next level and how much help they would obtain while trying.