By RICHARD COULSON
Cable Bahamas is a strong company, with positive growth prospects, one of our best-known and most actively traded equities. Yet the share price quoted on BISX gives the impression of a severe loser, with a decline of about nearly 40 percent in the last year, from $3.68 to $2.29. Why?
Surely not because the recession has caused mass liquidations to meet household expenses or feed the kids. No - the real reason is Bahamian shareholders are uneasy about any company that does not pay a dividend, even during a period of capital growth when cash is needed for investment. Unlike in more sophisticated markets, we have no tradition of funding new ventures requiring long-term commitment. Until a few years ago, Cable’s initial price of $1.00 rose gradually towards $5.00, then began to fall as soon as the investments in ALIV and Summit Broadband in Florida were initiated, even though these new projects were essential for Cable’s success. Without them, Cable would have become a relatively stagnant business with minimal growth potential.
Instead of looking at the potential, it seems shareholders have focused exclusively on the metric of net income, which has declined from $14.1 million in 2013 to a loss of ($52.5 million) in 2018, with no consideration given to the increases in revenue to $224 million and EBITDA to $33 million (It should be noted that any direct comparisons between 2017 and 2018 fiscal years are not feasible since the former covered 18 months and the latter only 12 months) Clearly, the corporate objective is continue to raise revenue and reduce cash spent on investment, so that “the corner will be turned” to profitability, and net income will permit paying dividends once again, which should happen this year or next.
Although the 2018 Annual Report and the AGM held on January 15 portrayed a well-run company operating with imagination, management could have done more to explain these financial realities to shareholders. They could have put more emphasis on details of the various divisions, rather than just “Segment Information” buried in the auditor’s footnotes. They could have played up that over the last eight quarters revenue has increased from $45 million to $59 million, while net income and EPS were down.
In future, for a company as complex as Cable, shareholders need more frequent and more explanatory reporting than just the bare figure of quarterly statements. As with public companies in the US, periodic sessions should be held with securities analysts and the public, as arranged by a pro-active Investor Relations Department. This might well stimulate more BISX trading that would better reflect market value and improve liquidity.
Within a year or two, management must be prepared to report to shareholders a major change in Cable’s structure. Government has indicated it will make a public offering of its 81.75 percent of ALIV’s equity shares, as soon as ALIV is showing a profit and can meet all the requirements for an IPO governed by the Securities Commission and by BISX rules. The total value of the placement may well be more than $100 million, and all the detailed terms of disclosure, pricing and distribution will have to be carefully negotiated between Government, ALIV, Cable and the investment bankers handling the deal (with plenty of lawyers and accountants involved). At the end of the day, ALIV will be a separate company with its own BISX listing and management cadre. Its financials will no longer be consolidated with Cable but simply a major investment with a fluctuating market value. The Cable shareholders will be left with a security whose value is heavily determined by the market value of ALIV shares. Of course Cable shareholders will be free to buy ALIV shares, and vice versa, giving many arbitrage opportunities.
In our view, these pretty revolutionary changes could justify commencement of planning at an early date.
Disclosure Note: Richard Coulson is an owner of ordinary shares of Cable Bahamas.
Better Path towards WTO
It is now the official position of our Government that The Bahamas should join the World Trade Organization, following the rules for accession as soon as we are formally invited. This was made clear to me by reading the 16-page document published by our Ministry of Financial Services under the rubric “wtobah”. Terms of the Goods Offer and the Financial Services Offer from The Bahamas have already been presented to the WTO Secretariat. Although further consultations with private-sector stakeholders are in order, it’s expected that any serious sticking points will be resolved to allow Government to sign on without massive public disagreement.
The next WTO session for approving new members has just been delayed until March, probably because of the profound trade dispute continuing between China and the USA, a bilateral power struggle outside normal WTO procedures. This will allow more time for cultivating public awareness, a vital task for our Bahamas Chamber of Commerce and Employers’ Confederation (BCCEC), which recognizes that many Bahamians remain ignorant of WTO and its probable impact, or even hostile to it.
Therefore, I urge BCCEC take a new approach, serving as impartial educator rather than apparent advocate. The multi-member body, with its own budget, is in no way dependent on Government or obligated to follow the accepted party line. While I personally believe that our country will benefit from joining WTO, I speak to many Bahamians, often successful business owners. who are deeply sceptical. They deserve a venue where their views will be heard.
In past public seminars about WTO, BCCEC has presented the lead negotiators (originally accountant Ray Winder, now former Finance Minister Zhivago Laing) who described all the plus features, followed by a few comments or questions from the floor, often by people uneducated on the issues. Instead, the Chamber should adopt the role of moderator of a formal pro/con debate between articulate teams taking both sides on WTO. For the negative, we might hear from retail emporiums like Kelly’s Home Centre, or financial gadfly Paul Moss, or a struggling poultry breeder This procedure will allow a full and fair hearing on several prominent issue on which Bahamians need further clarification, such as
• How will Government fund the revenue shortfall resulting from the decline in the average import duty rate from 30 percent to 15 percent?
• Which of our many industries really deserve protection from foreign competition: Lawyers, by restrictive work permits? Farmers, by high agricultural tariffs?
• How can our retailers defend against vast marketers like Amazon, who have full internet access without ever opening a store here?
• Does the cumbersome Dispute Resolution process work fairly for small nations?
In answering these questions, Bahamians must be disabused of the opinion that we are not an exporting nation, with nothing to gain from WTO membership—a serious misconception. Although low on manufactured items, our goods and services external account provides about $400 million annually (mainly in agriculture and financial services), plus the millions of local expenditures by tourists and-resident foreigners. In economic terms, we are in effect exporting our invaluable climate, beaches and tropical way of life.
By giving all doubters and naysayers a formal opportunity to be heard and answered, the BCCEC will be rendering a major service towards democratic decision-making.