| HIGHLIGHTS GHL Q1 2021 Earnings: Earnings Per Share of $0.76 from Loss Per Share of $0.16 Performance Drivers: Increased Insurance Income Improved Investing Income Outlook: Growth from NCBIC Acquisition Stabilizing Financial Markets Economic Uncertainty Rating: Maintained at NEUTRAL AMBL Q1 2021 Earnings: Earnings Per Share of $0.54 from Loss Per Share of $0.49 Performance Drivers: Improved Financial Markets Lower Impairment Losses Outlook: Stabilizing Financial Markets Growth from Commercial Banking Operations Economic Uncertainty Rating: Maintained at NEUTRAL |
Guardian, ANSA Merchant Earnings Up
This week, we at Bourse review the performance of Non-Banking Financial sector stalwarts Guardian Holdings Limited (GHL) and Ansa Merchant Bank Limited (AMBL) for the first quarter ended 31st March, 2021. GHL benefited from a recovery in financial markets and the consolidation of NCB Insurance Company Limited’s operations in the last quarter of 2020. AMBL, meanwhile, benefited from an improvement in Total Expenses likely on account of lower Impairment losses. With both groups poised to grow through acquisition activities, will the momentum continue? We discuss below.
Guardian Holdings Limited (GHL)
For the first quarter ended 31st March, 2021 GHL reported a reversal relative to its prior performance, with an Earnings Per Share of $0.76 being recorded in comparison to a Loss Per Share of $0.16. Net Results from Insurance Activities rose 15.1% to $208.0M due to the consolidation of the insurance and annuities portfolios of NCB Insurance Company Limited (NCBIC). Net Income from Investing Activities increased $305.7M relative to the prior comparable period, ultimately closing the period at $332.4M. Fees and Commission Income from Brokerage Activities declined 7.5% to $36.7M. Net Income from All Activities rose $329.9M to $577.2M with a recovery in Investing Income propelling the performance. The Group recorded a Net Impairment Loss of $5.03M relative to a prior Gain of $12.7M. Operating Expenses were unchanged from the preceding period amounting to $309.1M. Finance Charges increased by $14.0M or 38.1% to $50.7M, linked to the private listing of J$6.99B (TT$307.6M) worth of GHL bonds on the Jamaican Stock Exchange. The Group reported an Operating Profit of $212.3M, a reversal of a previous loss of $85.9M. Share of Profit of Associated Companies amounted to $3.6M. Profit Before Taxation amounted to $215.9M compared to a Loss of $81.1M in Q1 2020. Taxation Expense was $38.6M relative to a write back of $40.2M in Q1 2020. Profit After Taxation was $177.3M. Profit Attributable to Equity holders was $176.1M, an improvement of $212.6M compared to a Loss of $36.5M in Q1 2020.
Income Stabilises Amid Investment Rebound
Net Income from Investing Activities continues to play pivotal role in the performance of GHL. In Q1 2021, 60% of Net Income from All Activities was generated through investing activities. In the pre-pandemic period of Q1 2019 the weighting was estimated to be higher at 65%. According to GHL’s 2020 Annual Report, approximately 40% of the Group’s investment portfolio is measured at fair value through profit or loss. This suggests that the Group’s earnings could be susceptible to fluctuations in market valuations for securities.
Net Results from Insurance Activities grew 15.1% in Q1 2021, directly benefiting from the consolidation of NCBIC’s operations on the 30th of September, 2020. The size of the Group’s Insurance Contracts portfolio grew 2.8% to $19.3B from $18.8B. GHL noted an improvement in its Gross Written Premiums in Trinidad and Tobago, Jamaica and the Netherlands.
Fees and Commissions Income from Brokerage Activities declined 7.7% in the period. Notably, in August 2020, GHL through its subsidiary Thoma Exploitatie B.V. acquired Netherlands-based insurance brokerage company Financiële Dienstverlening Snel & Partners B.V. (“S&P”) for a cash consideration of TT$23.4M.
GHL JSE Price jumps on thin volumes
GHL officially re-entered the Jamaica Stock Exchange (JSE) on May 5th 2021, closing at a price of J$582.48 or an equivalent of TT$25.63. Since cross-listing, a total of 11,305 GHL shares were traded on the JSE, or an average daily trading volume of 1,615 shares. Despite relatively thin trading volumes, GHL’s share price on the JSE closed at J$899.65 or an equivalent of TT$39.60 on the 14th of May. This represents a 29% premium to the TT$30.60 closing price on the Trinidad & Tobago Stock Exchange (TTSE). In comparison to the daily trade volumes on the TTSE, 296,274 GHL shares traded between the 5th of May to the 14th of May or an average daily volume of 37,034 shares. It remains to be seen whether higher prices on both the JSE and TTSE can be sustained, given that all cross-listed stocks (JMMBGL, NCBFG and GKC) historically trade at discounts on the JSE relative to the TTSE market.
The Bourse View
GHL is currently priced at $30.60 having appreciated 46.4% year to date and trades at a price to earnings ratio of 7.2 times relative to a Non-Banking Financial Sector average of 10.6 times. Having not paid a dividend for FY 2020, GHL’s trailing dividend yield is currently 0.0% relative to a sector average of 1.0%. The Group is poised to benefit from economies of scale and growth prospects arising from its acquisition of NCBIC. Continued stabilisation of regional and international financial markets could support Income from Investing Activities. However, with regional economies still struggling to cope with the economic fallout from the COVID-19 pandemic, GHL could encounter short-term headwinds to organic growth. On this basis, Bourse maintains a NEUTRAL on GHL.
ANSA Merchant Bank Limited (AMBL)
AMBL reported an Earnings per Share (EPS) of $0.54 for the period ended 31st March 2021 (Q1 2021), up 210.2%, relative to a Loss Per Share of $0.49 in the prior comparable period. Total Income rose 1.2% from $253.9M to $257.0M during the period. Total Expenses contracted 35.3% to $195.6M, leading to an Operating Profit of $61.4M, 227.1% higher than an operating loss of $48.3M in the prior year. Overall, AMBL recorded a 211.9% increase in Profit Attributable to Shareholders in Q1 2021 to $46.6M from a Loss of $41.6M in Q1 2020.
PBT Recovers
AMBL’s largest profit generating segment, Insurance Services (Q1 2021: 71.0% of PBT) which recorded a loss $62.6M in Q1 2020, recorded a reversal of $107.5M during Q1 2021 to stand at a PBT of $44.9M. This was primarily attributable to the recovery in the Group’s Investment Income. Moving forward, the May 6th completion of the acquisition of Trident Insurance Company Limited in Barbados through, insurance subsidiary TATIL is expected to facilitate growth for the Insurance Segment in subsequent periods.
Banking Services, which accounted for 25.6% of PBT, recorded a marginal decline of 4.5%, likely impacted by a continuation of muted demand for asset financing and other financial services. The Group’s commercial banking acquisition of Bank of Baroda was rebranded as Ansa Bank Limited, with its official opening on March 1st 2021. With AMBL and parent company Ansa McAl Limited (AMCL) deeply integrated into the economic landscape of Trinidad & Tobago, growth from AMBL’s acquisition is anticipated. However, domestic economic pressures could delay the building of momentum in the near-term. Mutual Funds (Q1 2021 PBT: 3.5%) moved from a Loss of $16.4M in Q1 2020 to a PBT of $2.2M during the period.
The Bourse View
AMBL is currently priced at $41.00 and trades at a price to earnings ratio of 14.0 times relatives to a sector average of 10.6 times. The stock currently offers investors a trailing dividend yield of 1.8% above the sector average of 1.0%. According to AMBL’s FY 2020 Annual Report, an estimated 46% of the Group’s Total Assets are attributable to its Investment Securities portfolio. With financial markets showing signs of recovery in 2021 thus far, AMBL is anticipated to benefit. The operationalisation of its commercial banking license and its acquisition of the Barbados-based Trident Insurance Company should provide a platform for growth for the Group. However, with Trinidad and Tobago, remaining the Group’s primary operating jurisdiction, the recent reimplementation of lockdown measures could create headwinds to AMBL’s growth rate. On the basis of stabilising financial markets, growths prospects from banking and insurance acquisitions but tempered by lingering economic pressures Bourse maintains a NEUTRAL on AMBL.
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