BOURSE SECURITIES LIMITED

18th November, 2019

NCBFG, JMMBGL earnings up

This week, we at Bourse review the full financial year performance ended September 2019 of banking giant NCB Financial Group Limited (NCBFG) and half year (HY) results of Non-Banking Finance stock JMMB Group Limited (JMMBGL). Both groups would have reported overall increased earnings. However, NCBFG’s performance would have been helped by several one-off transactions. We take a closer look at the results below.

NCB Financial Group Limited (NCBFG) reported Earnings per Share (EPS) of TT$0.62 for the full year ended September 30 2019 (FY2019), a 6.9% Year-on-Year (YoY) over its FY2018 EPS of TT$0.58. Adjusted for several one-off items, however, the group’s performance would have been relatively comparable to FY2018.
Net Interest Income climbed 32.9% from TT$1.79B in FY2018 to TT$2.38B in FY 2019. Net Fee and Commission Income improved 20.9% from TT$807.5M in FY2018 to TT$976.3M in FY2019. The Net Result of the Group’s Banking and Investment Activities increased 15.7% or TT$525.1M to TT$3.86B in FY2019.
NCBFG’s Net Result from Insurance Activities improved 280% YoY, from TT$193.3M to TT$734.6M in FY2019. Much of this performance was attributable to the Group’s successful acquisition of a majority stake (~62%) of Guardian Holdings Limited (GHL) and subsequent consolidation of results.
Operating Expenses for the group ballooned 49.1% YoY from TT$2.21B to TT$3.29B in FY2019, attributed to the consolidation of GHL as well as technology and human capital investments. Overall, Operating Profit for NCBFG declined 1.4% YoY to TT$1.31B. Including Share of Profit of Associates (TT$147.5M, up 12.6% YoY) and several one-off items, Profit Before Tax advanced 8.8% YoY to TT$1.88B. Net Profits Attributable to Stockholders of the Parent grew 5.8% YoY to TT$1.56B.

‘One-Off’ Items Support Profits

NCBFG’s performance was positively impacted by several one-off items both in FY2018 and FY2019. FY2018 one-off gains totaled TT$266.2M, including the gain on Disposal of an Associate company (TT$42.6M), as well as a gain from Negative Goodwill on the acquisition of a subsidiary (TT$223.6M). In FY2019, one-off gains totaled TT$419.8M, including a gain on Disposal of an Associate company (TT$167.5M), gain on Disposal of a Subsidiary (TT$133.7M) and a gain on re-measurement of an associate interest (TT118.6M). Adjusting for these one-off items both in FY2018 and FY2019, Profit Before Taxes declined modestly by 0.1% YoY to TT$1.462B.

 

Outlook

NCBFG’s Profit Before Taxes (PBT) have shown consistent growth over the past four comparable periods, from FY2016 to FY2019. Breaking PBT into Operating Profit, Share of Profit from Associates and ‘One-Off’ Gains, some trends emerge.
In the case of Operating Profit, FY2019 figures have been flat relative to FY2018, despite the acquisition of GHL. Growth in Operating Income would have been more than offset by an increase in Operating Expenses. NCBFG’s ability to rein in costs, if possible, could be an important factor in future improvements in profitability.
Share of Profit from Associates has been fairly stable from FY2017 to FY2019, ranging from TT$131M to TT$147.5M. The wildcard for investors in NCBFG’s earnings has been extraordinary one-off items in recent years. Earnings from one-off events would have accounted for approximately TT$266.2M and TT$419.8M (or 15.4% and 22.3%) of PBT in FY2018 and FY2019 respectively.
NCBFG’s ability to fully ‘digest’ its latest acquisitions, manage financial leverage and achieve sales and cost synergies will all play a key role in improving the Group’s financial performance.

The Bourse View

At a current price of TT$10.85, NCBFG trades at a trailing P/E of 18.6 times, above the Banking sector average of 16.2 times also above its 3-year average P/E of 10.5 times. NCBFG offers investors a trailing dividend yield of 1.6%, below the sector average of 3.9%, though its dividend payout ratio is less than half the sector average. On the basis of fairly muted PBT growth (adjusted for one-off items), above average valuations and a relatively low dividend yield, Bourse maintains a NEUTRAL rating on NCBFG.

JMMB Group Limited

JMMB Group Limited (JMMBGL) reported Earnings per Share (EPS) of TT$0.084 for the six months ended September 30 2019 (HY2020), 33.6% higher than its HY2019 EPS of TT$0.063.
Group Operating Revenues net of Interest Expense climbed 25.6% or TT$120.3M from TT$469M to TT$589.3M in HY2020, propelled notably by a 59.7% or TT$72.8M increase in Gains on Securities Trading to TT$198.8M. Operating Expenses also increased 16.2%, from TT$320.7M toTT$372.6M. Inclusive of Impairment Losses on Financial Assets, Operating Profit increased 44.6% from TT$139.6M in HY2019 to TT$201.8M in HY2020. Overall Profit for the Period attributable to equity holders improved 33.6% from TT$104.2M to TT$140.9M.

Outlook

Group Profit Before Tax (PBT) for JMMBGL has trended upward over the past three comparable periods, growing from TT$118.2M at HY2018 to its current HY2020 TT$201.8M level. The Group continues to grow both through organic and inorganic sources. Its most prominent recent growth driver will be the acquisition of a 22.6% stake in ‘New Sagicor’ which is set to list on the Toronto Stock Exchange. To partially fund this purchase, JMMBGL would have recently concluded the largest Additional Public Offering (APO) in Jamaica, with the potential to issue up to 325 million new shares raising as much as US$92.8M equivalent in new capital. Results of the APO are expected by November 25th, which is anticipated to be strong given the earlier than scheduled closure.

The Bourse View

At a current price of $2.27, JMMBGL trades at a trailing P/E of 17.2 times, considerably higher than the Non-Banking Finance sector average of 12.5 times and offers a trailing dividend yield of 1.0%, below the sector average of 3.1%. On the basis of strong PBT growth, but tempered by above average valuations, a low dividend yield and an evolving capital structure, Bourse maintains a NEUTRAL rating on JMMBGL.

For more information on these and other investment themes, please contact Bourse Securities Limited, at 226-8773 or email us at invest@boursefinancial.com.
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