HIGHLIGHTS
RFHL 9M2023
- Earnings: Diluted Earnings Per Share improved 10.3% to $7.73 from $7.01
- Performance Drivers:
- Increased Revenues
- Higher Credit Loss Expense
- Outlook:
- Continued economic recovery across operating jurisdictions
- Rating: Maintained at MARKETWEIGHT
FCGFH 9M2023
- Earnings: Earnings Per Share increased 14.6% from $2.06 to $2.36
- Performance Drivers:
- Higher Operating Income
- Write Back in Impairment Expenses
- Outlook:
- Increased Economic Activity
- Rating: Maintained at MARKETWEIGHT
This week, we at Bourse review the performance of two key members of the local Banking Sector, Republic Financial Holdings Limited (RFHL) and First Citizens Group Financial Holdings Limited (FCGFH) for their nine-month periods (9M2023) ended June 30th, 2023. Both RFHL and FCGFH reported positive earnings growth, reflecting generally improving conditions. Can both banks’ performances be maintained in the coming quarters? We discuss below.
Republic Financial Holdings Limited (RFHL)
RFHL reported a Diluted Earnings Per Share (EPS) of $7.73 for the nine months ended 30th June 2023(9M 2023), up 10.3% relative to the $7.01 reported in the prior comparable period.
Net Interest Income increased 12.6% to $3.4B from $3.1B in 9M 2022. Similarly, Other Income ticked up 6.4% to $1.6B in 9M 2023, relative to $1.5B in 9M 2022. Operating Income improved by 10.6% to $5.0B. Operating Expenses increased 4.8% from $2.6B in 9M 2022 to $2.8B in 9M 2023. Operating Profit for the period stood at $2.3B relative to $1.9B in 9M 2022, up 18.6%. Credit Loss Expense increased 121.2% from $151.9M in 9M2022 to $336.0M in 9M 2023. Profit Before Taxation (PBT) stood at $1.9B in 9M 2023, 9.6% higher than $1.7B in the prior comparable period. Taxation Expense increased 6.0%, with the effective taxation rate moving from 39.1% in 9M 2022 to 37.3% in 9M 2023. Overall, Profit Attributable to Equity Holders of the parent rose by $117.1M or 10.2%.
Revenues Higher
RFHL’s Operating Income continued its upward trajectory with a 10.6% increase in 9M 2023. This improvement in operating income has persisted throughout the past four (4) comparable reporting periods. Net Interest Income (68.6% of Operating Income) advanced 12.6% from $3.1B to $3.4B, reflecting increasing demand for loans by consumers and supported by a 2.1% ($2.0B) increase in customer deposits and 6.0% growth in Loans and advances. Similarly, Other Income (31.4% of Operating Income) climbed 6.4%, likely driven by increased transaction volumes due to the recovering economic activity across the region.
Overall, RFHL has was able to improve income across its revenue streams, with Operating Income rising from $4.5B to $5.0B in the period under review. This result was also broadly consistent geographically, underpinned by Operating Income expansion in Barbados (↑48.8%), Cayman Islands (↑45.0%), Suriname (↑34.3%) and Guyana (↑23.9%) operations year-on-year.
PBT Expands
RFHL recorded an expansion in its operations in six out of its eight major operating jurisdictions in the nine months ending June 30, 2023, with Profit Before Tax (PBT) advancing to $1.92B. Barbados, the second largest contributor of PBT (18.8%), advancing 149.9% in the period under review from $144.6M to $361.3M. The Eastern Caribbean (14.1% of PBT) grew 35.1% YoY to $270.8M in 9M 2023 from $200.4M in the prior comparable period. Suriname (4.2% of PBT) climbed 68.2% year-on-year, moving from $48.1M to $80.9M in the current reporting period. Guyana (11.4% of PBT) recorded an increased from $157.0M to $217.7M for the reporting period, up 38.7%. British Virgin Islands (BVI) (3.4% of PBT) expanded 22% YoY to $65.6M.
Despite growth in these territories, PBT from Trinidad and Tobago, the Group’s largest operating jurisdiction (31.1% of PBT) dropped 31.5% YoY to $596.1M from $869.8 in the previous comparable period. PBT from Ghana fell 126.4%, a loss of $28.2M, from $106.7M.
The Group’s total assets increased by $1.43B or 1.3% YoY, led by growth in client deposits and loan advances across subsidiaries in Trinidad and Tobago, Barbados, Eastern Caribbean, Cayman Islands, Guyana, B.V.I., and Barbados. According to the Group, performance has been resilient, bolstered by consistent growth in their loan and investment portfolios across all subsidiaries.
The Bourse View
At a current price of $126.99, RFHL trades at a trailing P/E of 12.6 times, below the Banking Sector average of 13.0 times. The stock offers investors a trailing dividend yield of 3.6%, above the sector average of 3.2%.
As it nears their financial year end, the Group continues to maintain its focus on revenue generation, expense management and its digital enhancement initiatives. On the basis of geographical diversification of operations, improved earnings and fair valuations, Bourse maintains a MARKETWEIGHT rating on RFHL.
First Citizens Group Financial Holdings Limited (FCGFH)
First Citizens Group Financial Holdings Limited (FCGFH) recorded Earnings per Share (EPS) of $2.36 for the nine months ended 30th June 2023 (9M2023), up 14.6%, relative to $2.06 reported in the prior comparable period (9M2023).
Net Interest Income advanced 25.0%, moving from $1.08BM in 9M2022 to $1.36B in the current period. Other income fell 7.3%, amounting to $447.3M. Overall, Total Net Income was 15.1% higher, standing at $1.81B in 9M2023, relative to $1.57B in the previous period. The Bank reported a Credit Impairment writeback of $9.3M from a prior writeback of $56.6M. Expenses amounted to $1.01B, $81.9M or 8.8% higher year-on-year. Consequently, Operating Profit increased 15.4%, moving from $701.1M to $808.9M in 9M2023. Share of Profit from Associates and Joint Ventures fell 4.7% to $15.9M in the period under review. Profit Before Taxation climbed 14.9% to $824.8M from a prior $701.1M. Taxation expense stood at $232.1M in 9M2023, 16.4% higher than $199.2M in 9M2022. Overall, Profit After Taxation advanced 14.3% from $518.6M in the prior period to $592.7M. According to the Group, the overall improvement in profitability is a positive demonstration of the Group’s focused approach to deploy technological advancements that assist in providing the clientele with top-class products, solutions, and services.
Credit Impairment Writeback
FCGFH remained focused on achieving loan growth resulting in its Loans to Customers, increasing 5.3% year-on-year from $18.4B to $19.9B in 9M2023. The Group recorded a reversal in its Credit Impairment Losses in the amount of $9.3M, signalling improving credit conditions and more resilient loan performance. Increased economic activity both locally and regionally, coupled with easing inflationary pressures, appear supportive of the Group’s loan portfolio credit quality.
FCGFH grew its Profit Before Tax (PBT) by 14.9% YoY. Retail & Corporate Banking continued to be the dominant contributor to PBT, accounting for 57.8% before eliminations. The segment increased 9.4% from $698M in 9M2022 to $763M in 9M2023, supported by loan growth. Treasury & Investment Banking, the second largest contributor to PBT (39.3% before eliminations) advanced 55.4% YoY, as a result of upbeat international financial markets. Trustee & Asset Management (2.9% of PBT before eliminations) fell 7.7%.
The Bourse View
FCGFH is currently priced at $49.77 trades at a P/E ratio of 15.5 times, above the Banking Sector average of 13.0 times. Historically, FCGFH would have traded at a ‘pre-COVID’ earnings multiple of around 14.0 times (during 2017-2019). The Group declared an interim dividend payment of $0.51 per share, to be paid on 1st September 2023 to all shareholders on record as of 17th August 2023. The stock offers a dividend yield of 3.6%, relatively in line with the sector average of 3.2%. FCGFH’s policy of paying consistent quarterly dividends should prove attractive to income-oriented investors while offering the potential to deliver medium-term growth. On the basis of improving performance, but tempered by above-average valuations, Bourse maintains a MARKETWEIGHT rating on FCGFH.
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