HIGHLIGHTS

GHL Q2 2021

• Earnings:  Earnings Per Share of $1.10 increase from Earnings Per Share of $0.71
• Performance Drivers:
  • Increased Investing Income
• Outlook:
  • Stabilizing Financial Markets
  • Economic Uncertainty
• Rating: Maintained at NEUTRAL

NCBFG Q3 2021

• Earnings: Earnings Per Share of $0.18 a decline from Earnings Per Share of $0.27
• Performance Drivers:
  • Gains on FX and Investing Activities
  • Decline in Insurance Activities
  • Improvement in Operating Income
• Outlook:
  • Advancement in technology
  • Economic Uncertainty
• Rating: Maintained at NEUTRAL

This week we at Bourse review the financial performance of Guardian Holdings Limited (GHL) for the 6-month period ended June 30^th 2021. GHL benefited from gains driven by favorable investment activities. We also review the performance of the Caribbean’s second largest indigenous banking group, NCB Financial Group Limited for the 9-month period ended 30^th June 2021. With increased vaccination efforts but the growing threat of COVID-19 variants on economic reopening, will both companies continue to progress? We discuss below.

Guardian Holdings Limited (GHL)

GHL reported stronger earnings per share (EPS) of $1.10 for its half-year period ended June 20201(HY2021), a 54.9% increase relative to the prior comparable period ($0.71).

Net Income from Insurance Activities declined 24.3%, from $551M in HY2020 to $417M in HY2021. According to GHL, this was largely driven by its Trinidad Life, Health and Pension business, which experienced an increase in policy lapses in addition to lower premium collections attributable to pandemic-induced lockdown measures. Fees and Commission Income from Brokerage Activities declined 1.04% to $71.9M. Net Income from All Activities increased 34%, as the reduction in Income from Insurance Activities was offset by a 143% increase in Income from Investing Activities from $315M in HY2020 to $769M in HY2021. Operating expenses grew 24.3%, with the Group noting continued costs related to the implementation of IFRS 17 in addition to group wide transformation initiatives. Net Impairment losses on Financial Assets increased 143% from $24.2M in HY2020 to $58.8M in HY2021, likely driven by weaken credit conditions. Finance charges increased 40.6% from $73.2M in HY2020 to $102.9M in HY2021. The Group reported a Profit before tax of $337.5M, a 44.1% increase compared to a profit before tax of $234.2M in the previous period. Profit after taxation was $260.3M. Profit attributable to equity holders was $256.1M, an improvement of 55.6% relative to the prior period.

Investment Income Boosts Performance

The volatile Net Income from Investing Activities played a pivotal role in GHL’s HY2021 performance, representing 61.2% of Net Income from All Activities. The segment likely benefited from robust advances across almost all equity markets, low interest rates supporting bond prices and generally positive investor sentiment. Net Income from Insurance Activities declined 24% in HY2021 in response to economic pressures caused by the COVID 19 pandemic, leaving many persons cyclically unemployed and unable to pay their policies. Nevertheless, the Group reported a 1% increase in Net Written Premiums year-over-year by $30M. GHL’s Life, Health and Pension segment recorded a 4% growth in Gross Premiums primarily from its Trinidad and Jamaican markets, while its Property and Casualty segment saw an 8% increase in Gross Premiums attributable to fronting arrangements and their operations in the Netherlands. Net Income from Brokerage Activities was relatively subdued, falling to $72M from $73M in the prior comparable period.

The Bourse View

GHL is currently priced at $33.25, having appreciated 59.1% year to date driven by its cross-listing initiatives. The stock trades at a price earnings ratio of 8.9 times compared to a sector average of 11.8 times and offers investors a trailing dividend yield of 0.5% compared to a sector average of 0.7%. Investors would welcome GHL’s declaration of an interim dividend of $0.18 (HY2020: nil). Despite the economic headwinds faced, the Group marginally increased Net Written Premiums while also capturing gains as financial markets continue to recover. Increased vaccination efforts at both the regional and international level provides some optimism for more stable and gradual economic recovery which could ultimately benefit the Group. However, the emergence of COVID-19 variants contributes to uncertainty as it relates to the path of full economic recovery. On this basis, Bourse maintains a NEUTRAL rating on GHL.

NCB Financial Group Limited (NCBFG)

NCBFG reported Earnings Per Share of TT$0.18 for the nine-month period ended June 30^th, 2021, 33% less than TT$0.27 reported in the prior comparable period. Net Interest Income declined marginally by 0.7% (TT$1.89B), while Net Fee and Commission Income improved 3.0% from TT$751.4M to TT$774M. Gain on Foreign Exchange and Investment Activities significantly rose 402.4% to TT$564.3M from a previous TT$112.4M, likely attributable to subsidiary Guardian Holdings Limited’s (GHL) financial results. Net Result from Banking and Investment Activities advanced 26.5% or TT$710M from TT$2.67B to TT$3.39B for 9M 2021. This performance was primarily driven by improved gains from investment activities.

Net Result from Insurance Activities fell 22.5% to TT$830.7M, attributable to a 33% jump in Commission and Other Selling Expenses to TT$578.7M. Overall, Net Operating Income stood at TT$4.22B, 12.5% greater than the prior comparable period. Net underwriting income climbed 7% or TT$245.9M due to improved premium income, however, underwriting expenses increased by 20% over the prior year.

Operating Expenses climbed 19.9% to $3.29B relative to a previous TT$2.74B, this was predominantly due to the digitization of their strategies. Operating Profit was TT$930.6M, 7.7% lower than TT$1.0B. Profit Before Tax was down 7.5% YoY to TT$899.5M as a TT$1.39M increase in Share of Profit of Associates, lent support. Taxation for the period swung to an expense of TT$299.8M from a prior credit or write back of TT$82.4M. Net Profit totalled TT$638.6M for a 31.5% decline, while Net Profit Attributable to Shareholders fell to TT$454.7M from TT$678.3M, 33% lower.

Operating Income Climbs

NCBFG reported an increase in Net Operating Income of 12% YoY for the period under review. Net interest income, 72% of Net Operating Income marginally declined by 0.7% The Group’s Loan portfolio and Customer Deposits portfolio expanded 13% and 17% respectively over the prior year reflecting banking customers’ confidence in the group.

Net Fee and Commission Income, 29.4% of Net Operating Income, climbed 3.0% from TT$751.4M to TT$774M due to an increase in retail and corporate activities. Gain on FX and Investment activities -amounting to 21.5% of Net Operating Income- experienced the largest increase of 402.3% from TT$112M to TT$564M owing to improving market conditions and asset prices.

Net Result from Insurance Activities, which accounted for 31.6% of Net Operating Income (TT$395.0M), dropped 22.5% YoY, from TT$1.0B to TT$831M.

Outlook

The regional pandemic-induced economic downturn has slowed the Group’s progress, with the near-term prospects of robust recovery in jeopardy.

 A slowdown of business activities in Trinidad and Tobago, attributable to the Country’s State of Emergency with curfew hours, could remain in place until August 30^th, 2021. However, ongoing vaccine rollouts could accelerate the gradual easing of restrictions, which has been taking place in recent weeks. On the other hand, in Jamaica, tightened curfew measures will remain in place until at least August 10^th, 2021 to limit movement and control COVID spreads which could hinder economic recovery.

The outlook for the remainder of 2021 remains palpably uncertain, given the spread of new variants of COVID-19 and rising case numbers. The inevitable arrival of the highly-contagious Delta variant to Trinidad and Tobago, Jamaica and other key operating jurisdictions of NCBFG could dampen economic prospects for the tourism and travel-dependent Caribbean region. This new strain of virus could lead to the reinforcement of restrictions impacting travel, tourism as well as limiting movement within the domestic economies.

The Bourse View

NCBFG is currently priced at $8.00 and trades at a price to earnings ratio of 30.8 times, above the Banking sector’s average of 22.2 times. The Group made a decision to not to declare an interim dividend payment in its latest earnings release. The stock also offers investors a trailing dividend yield of 0.3%, below the sector average of 2.2%. While the Group continues to effect operational changes in an effort to improve efficiencies, recent subdued performance has lowered its relative attractiveness to other banking sector stocks. On the basis of recovering financial markets but tempered by relatively high valuations and ongoing economic uncertainty, Bourse maintains a NEUTRAL rating on NCBFG.

“This document has been prepared by Bourse Securities Limited, (“Bourse”), for information purposes only. The production of this publication is not to in any way establish an offer or solicit for the subscription, purchase or sale of any of the securities stated herein to US persons or to contradict any laws of jurisdictions which would interpret our research to be an offer. Any trade in securities recommended herein is done subject to the fact that Bourse, its subsidiaries and/or affiliates have or may have specific or potential conflicts of interest in respect of the security or the issuer of the security, including those arising from (i) trading or dealing in certain securities and acting as an investment advisor; (ii) holding of securities of the issuer as beneficial owner; (iii) having benefitted, benefitting or to benefit from compensation arrangements; (iv) acting as underwriter in any distribution of securities of the issuer in the three years immediately preceding this document; or (v) having direct or indirect financial or other interest in the security or the issuer of the security. Investors are advised accordingly. Neither Bourse nor any of its subsidiaries, affiliates directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses arising from the use of this document or its contents or reliance on the information contained herein. Bourse does not guarantee the accuracy or completeness of the information in this document, which may have been obtained from or is based upon trade and statistical services or other third party sources. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.”