HIGHLIGHTS
GHL 9M 2021
- Earnings: EPS down 5.7% from $2.09 to $1.97
- Performance Drivers:
- Increased Investing Income
- Increased Insurance Claims
- Outlook:
- Stabilizing Financial Markets
- Economic Uncertainty
- Rating: Maintained at NEUTRAL
This week, we at Bourse review the performance of Guardian Holdings Limited (GHL) for the nine-month period ended September 30th 2021 (9M 2021). GHL reported lower earnings as the Group continues to maneuver the impact of the COVID 19 pandemic. Can GHL recover despite the still uncertain operating environment? We discuss below.
Guardian Holdings Limited (GHL)
Guardian Holdings Limited (GHL) reported Earnings per Share of $1.97 for its nine-month period ended September 30th 2021(9M 2021), a 5.7% decrease relative to $2.09 reported in the prior comparable period. Net Result from Insurance Activities fell 36.8%, from $998.2M in 9M 2020 to $630.4M in 9M 2021. Fees and Commission Income from Brokerage Activities increased 2.4% ($2.6M) to $109.4M. Net Income from All Activities increased 12.3%, as the reduction in Income from Insurance Activities was offset by a 98.5% increase in Income from Investing Activities from $580.7M in 9M 2020 to $1.2B in 9M 2021. Operating Expenses grew 16.4%, with the Group noting continued costs associated with the implementation of IFRS 17 as well as Group-wide transformation initiatives. GHL recorded Net Impairment losses on Financial Assets of $76.5M, 208.5% higher than $24.8M in the prior period. Finance charges amounted to $150.M (9M 2020: $110.0M). Consequently, the Group reported an Operating Profit of $592.3, 5.7% lower relative to a prior $628.2M in 9M 2020. Profit Before Tax declined 5.9% to $608.8M from $647.2M. Resultantly, Profit Attributable to Equity Holders of the Company declined 5.8% from $485.2M in 9M 2020 to $457.1M in 9M 2021.
Insurance Income Declines
Net Income from All Activities increased 17.6% during the 9M 2021 period with two of the three segments showing improvement. Net Income from Investing Activities (60.9% of Net Income) increased 98.5%, as equity and financial markets advanced buoyed by lower interest rates and positive investor sentiment. Net Income from Brokerage Activities (5.8% of Net Income) increased modestly from $107M in 9M 2020 to $109M in 9M 2021. Despite a 3.7% ($121M) increase in Net Premiums Written, Net Income from Insurance Activities (33.3% of Net Income) contracted 36.9% to $630M. This decline was largely attributable to the effects of the COVID-19 pandemic, evidenced by the Group’s Jamaican life insurance operations experiencing an increase in mortality claims. Meanwhile, GHL noted that its Trinidad and Tobago life insurance segment continued to face challenges as economic activity remained muted. According to GHL, the Group experienced a US$10M loss from their Bermuda based reinsurance company, Guardian Re, after incurring larger than expected pay-outs related to non-regional risk (floods in Germany).
GHL Pops, the Fizzles on JSE
Investors would have reacted quite positively to GHL’s announcement and eventual re-listing of its ordinary shares on the Jamaican Stock Exchange (JSE) on May 5th 2021, with GHL’s debut price being J$582.48 (TTD$25.53). Since its debut on the JSE, GHL’s price has endured a rollercoaster ride. After peaking at J$968.99 on May 7th, 2021, GHL’s share price has declined fairly steadily, closing on the JSE at J$523.08 or an equivalent of TT$22.66 on November 11th, 2021. This represents a 25.7% discount to the TT$30.51 closing share price on the Trinidad and Tobago Stock Exchange (TTSE).
The settling of GHL’s JSE price at a discount to its price on the TTSE appears consistent with other cross-listed stocks trading on both exchanges. Currently, NCB Financial Group Limited (NCBFG) trades at a 34% discount followed by GraceKennedy Limited (GKC) and JMMB Group Limited, discounts of 30% and 27% respectively relative to TT market prices.
The Bourse View
GHL is currently priced at $30.59 having appreciated 46.4% year to date, driven by its cross-listing initiatives. The stock trades at a price to earnings ratio of 9.5 times relative to a Non-Banking Financial Sector average of 11.7 times. GHL’s trailing dividend yield is currently 0.6% relative to a sector average of 1.1%. Despite the economic headwinds faced, the Group marginally increased Net Written Premiums and benefited from higher investment income led by favourable movements in regional equity portfolios. The recent surge in regional COVID-19 cases could potentially prolong the adverse experiences of the Group on claims and persistency ratios, create a more uncertain outlook for performance. The ‘one-off’ loss arising from German flood-related exposure – when combined with more erratic weather/climate patterns at a global level – could lead investors to reassess the riskiness of GHL’s insurance/reinsurance portfolios. While financial markets have been quite upbeat throughout the latter part of 2020 and into 2021, changing global policy decisions to address rising inflation and manage any potential economic ‘overheating’ could affect the broadly positive sentiment and direction in recent times. On the basis of buoyant financial markets and relatively attractive valuations but tempered by economic uncertainty as it relates to the emergence of COVID-19 variants, Bourse maintains a NEUTRAL rating on GHL.
