HIGHLIGHTS

AGL Q1 2022

• Earnings:  Earnings Per Share 39.7% higher, from $0.63 to $0.88
• Performance Drivers:
  • Continued Segment Growth
  • Improved Operating Margin
• Outlook:
  • Growth from Acquisition Activities
  • Expanding Valuations
• Rating: Assigned at MARKETWEIGHT

GHL FY 2021

• Earnings: EPS up 0.9% from $3.34 to $3.37
• Performance Drivers:
  • Higher Net Income from Investment Activities
  • Fair Value Gains from Regional Market Equities
  • Decline in Net Income from Insurance Activities
• Outlook:
  • Application of IFRS 17 that would impact Insurance Accounting Activities
  • Rebalancing of Portfolios
  • Economic Uncertainty
• Rating: Assigned at MARKETWEIGHT

This week, we at Bourse review the financial performance of Agostini’s Limited (AGL) for its first quarter ended 31^st December, 2021, with the Group growing both revenue and operating margins. We also review the performance of Guardian Holdings Limited (GHL) for the year ended December 31^st, 2021. GHL benefited from gains driven by favourable investment activities. Can both groups maintain positive earnings momentum? We discuss below.

Agostini’s Limited (AGL)

Agostini’s Limited reported an Earnings Per Share of $0.88 for the three months ended December 31^st 2022 (Q1 2022), 39.7% higher than $0.63 reported in the previous period. Revenue expanded 17.4% to $1.14B from a previous $968.4M. Operating Profit rose a noteworthy 35.1% to $136.8M, compared to $101.2M in Q1 2021. Finance Costs rose marginally by 4.2% to 8.5M. Profit Before Taxation climbed 37.9% from $93.1M in Q1 2021 to $128.3M in Q1 2022. Taxation expense was $37.9M relative to the prior $27.5M. Profit Attributable to Owners of the Parent stood at $60.8M, 38.7% higher than $43.8M reported in the prior period.

PBT Expands

Fast Moving Consumer Goods (FMCG), which accounted for 64.0% of PBT, grew 38.9% while revenue generated by the segment rose 10.4% year-on-year, supported by continued growth in exports.

Pharmaceutical & Health Care, (29.8% of PBT) improved 29.4%, aided by increased sales along with synergies created from the Group’s recent acquisitions of Smith Robinson, Oscar Francois and Intersol Limited.

Industrial, Construction and Holdings, which contributed 6.2% of PBT, expanded a noteworthy 80.8% over the period. According to the Group, the acquisition of Process Components Limited is expected to be accretive to earnings in 2022, with the company well-positioned to meet energy services needs in Guyana and Suriname.

Margins Improve

AGL’s Operating Profit and Profit Before Tax both garnered continuous upward momentum, accompanying revenue growth in the current quarter. Operating Profit Margin advanced to 12.0% in Q1 2022 from 10.3% in Q1 2021, reflecting the Group’s continued efforts to improve its operations and maintaining its cost management initiatives. This was filtered into its Profit Before Tax Margin which moved to 11.3% relative to 9.4% in the prior period. The Group continues to expand their acquisition pipeline in each of their three core business segments, as their assets increase 9.2% YoY.

The Bourse View

At a current price of $46.00 and having appreciated 41.5% year to date, AGL trades at a Price to Earnings Ratio of 19.8 times, relative to its historical P/E multiple (average trailing P/E 2018-2021: 15.2 times) and above the Trading sector’s average of 13.1 times. AGL currently offers shareholders a trailing dividend yield of 2.0%, relative to a sector average of 2.3%.

On the basis of acquisition activities and improving margins but tempered by elevated valuations, Bourse assigns a MARKETWEIGHT rating to AGL. 

Guardian Holdings Limited (GHL)

Guardian Holdings Limited (GHL) reported Earnings per Share (EPS) of $3.37 for the financial year ended December 31^st 2021 (FY2021), up 0.9% from $3.34 recorded in FY2020. Net Result from Insurance Activities contracted 24.9% to $1.06B relative to a prior $1.41B. Net Income from Investing Activities increased 62.9%, moving from a previous $988.6M to $1.61B in FY 2021, attributable to an improvement in regional financial markets. Fee and Commission Income from Brokerage Activities stood at $144.6M, 0.2% higher. Cumulatively, Net Income from All Activities advanced 10.6%, amounting to $2.82B in FY2021 (FY2020: $2.55B). GHL recorded Net Impairment Losses on Financial Assets of $136M in FY2021, relative to $15.7M in the prior period. Operating Expenses and Finance Charges amounted to $1.50B and $199.7M, respectively. Consequently, GHL reported an Operating Profit of $979.3M in FY 2021, 2.5% lower relative to a prior $1.00B. Share of Profit of Associate Companies increased 92.1% to $34.0M in FY2021. GHL recorded a 0.9% drop in its Profit Before Taxation (PBT) which amounted to $1.01B (FY2020: $1.02B). The Group’s Taxation Expense was $215.0M. Overall, Profit Attributable to Equity Holders of the Company rose 1.0% to $782.3M, compared to a previous $774.5M.

Investing Activities Drives Growth

GHL’s Net Income from all activities grew 10.6% YoY to $2.82B in FY2021. Net Income from Investment Activities, 57.2% of Net Income, advanced by 62.9% attributable to improvements in regional equity markets. Net Income from Brokerage Activities (5.1% of Net Income), increased marginally by 0.2% from $144.3M to $144.6M in FY 2021.

Net Income from Insurance activities, which represents 37.7% of Net Income, declined 24.9% in the period under review. The decline in insurance activities was attributable to a US$10M loss from GHL’s Bermuda-based reinsurance company, Guardian Re, after incurring larger than expected pay-outs related to non-regional risk (floods in Germany). The operations of the Property and Causality Business segment declined 48.5% YoY. GHL’s Life Insurance operations were also affected by policy lapses and an increase in mortality claims as a result of the current environment. Notwithstanding this, the Group grew its Gross Written Premiums and Net Written Premiums, 7.2% and 5.6% respectively.

GHL’s earnings per share continues to trend upwards from $1.75 in FY2017 to $3.37 in FY 2021, representing a compounded annual growth rate of 14.0%. Despite increased earnings, the Group’s Price-to-Earnings (P/E) ratio expanded from 6.3 times in FY 2020 to 8.9 times in FY 2021. This would have been partially as a result of GHL’s cross-listing initiatives, which contributed to a significant increase in its stock price over the course of 2021.

GHL is currently priced at $30.00 and trades at a price to earnings ratio of 8.9 times, just above the Non- Banking Finance Sector average of 8.4 times. The Group announced a final dividend of $0.52 payable on April 1^st 2022 to shareholders on record by March 10^th 2022. This brings the total dividend paid by GHL to $0.70. The stock offers investors a trailing dividend yield of 2.3%, above the sector average of 1.8%. Investors will have an eye on the increased volatility in financial markets and its potential impact on the Group’s Income from Investing Activities. On the basis of relatively fair valuations, financial market volatility and continued regional economic uncertainty, Bourse assigns a MARKETWEIGHT rating to GHL.

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