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20 years consecutive growth for Scotia

SCOTIABANK TRINIDAD AND TOBAGO LIMITED

For the Financial Year ended October 31, 2012 Scotiabank Trinidad and Tobago Limited (SBTT) delivered a 2.3 per cent growth in Earnings per share (EPS) from $3.087 to $3.094. Directors declared a fourth interim dividend of $0.32, plus a special dividend of $0.28 payable on January 8, 2013 bringing total dividends for the year to $1.56 versus $1.28 in 2011.

SBTT's Net interest and other income showed positive growth of 1.9 per cent to $1.28b as its Net interest income increased by 2.8 per cent while Other income fell by 0.5 per cent. Overall, Non-interest expenses increased 2.3 per cent to $572m largely attributable to strategic cost management policies. Loan loss expense declined 83 per cent to $8m due to strong credit policies whilst Other expenses increased 10 per cent to $546m.The net effect of Interest and other income and Non-interest expenses resulted in a 1.5 per cent increase in Profit before tax (PBT) and 0.2 per cent increase in Profit after tax to $709m and $546m respectively.

Segmental analysis of PBT reveals the Retail Banking division achieved only a 2.9 per cent growth; however this segment remains the largest contributing division, representing approximately 48 per cent of the Group's PBT. Year on year, the Corporate /Commercial & Merchant Banking segment suffered a 12 per cent drop in PBT to $285m. Despite the decrease, this segment accounts for approximately 40 per cent of PBT making it the second largest contributor to PBT. The Insurance Services sector reported the greatest improvement, delivering a 14 per cent increase in PBT to $98m.

Overall, the Total assets grew by 4.3 per cent to $17.7b. However, SBTT's Loan portfolio suffered a 6.7 per cent decline to $9.96b. The sluggish credit demand in the domestic economy impacted loan growth during the year. The decline in Loan loss expense in addition to the decrease in the Loan portfolio results in a Loan loss provision rate of 0.08 per cent for the year compared to 0.45 per cent for 2011 (Exhibit 1).

Central Bank statistics for the period September 2011 to September 2012 revealed that both Consumer credit and Business credit remained relatively flat with increases of 2.8 per cent and 1 per cent respectively. However, Real estate mortgage lending went up 10.9 per cent.

SBTT has fared well against a backdrop of low credit demand, slow economic growth and volatility in the international markets. It has also managed to reduce its Loan loss provision rate which is commendable for any financial institution. It is vital that the Group maintain this Provisioning rate and spreads to sustain the trend of continuous growth. In an attempt to sustain growth outside of its core, the Bank has been focusing efforts on the Insurance segment. Through its Precious Metals Division, ScotiaMocatta, SBTT has also introduced the sale of Gold. Clients will be able to buy gold in certificate form that are backed by the assets of The Bank of Nova Scotia and are issued to clients in lieu of physical bullion bars.

FY 2012 marks 20 years of consecutive growth for SBTT. Because of this stability, investors continue to show a willingness to pay a premium for the stock. At the current price of $65.21, SBTT is currently trading at a P/E multiple of 21 times, a premium to its 16.6 times 3 year P/E average. Given the relative illiquidity of the stock a dividend yield of 2.4 per cent BOURSE recommends a HOLD.

JAMAICA MONEY MARKET

BROKERS LIMITED

For the six months ended September 30, 2012 Jamaica Money Market Brokers Limited (JMMB) reported an Earnings per share (EPS) of J$1.55, which is 68 per cent higher than the J$0.92 for the corresponding period last year. JMMB experienced a one-off gain of J$1.61b from the acquisition of the Capital & Credit Financial Group (CCFG) for the period under review. From our calculations, EPS exclusive of the acquisition and based on operational activities can be estimated to be J$0.70.

JMMB's Interest income surged 16 per cent moving to J$5.2b, while its Interest expense grew 5.9 per cent to J$3b. The net outcome was a 33.9 per cent rise in its Net interest income to J$2.2b. Of this increase, 11.1 per cent or J$180.1m is attributable to the increase in the portfolio from the acquisition of the CCFG whilst the remaining 22.8 per cent was brought about by effectively managing the investment portfolio and cost of funds. JMMB's Net interest income is approximately 70 per cent of overall income. The Net interest income margin moved from 38.6 per cent to 41.7 per cent (Exhibit 2).

JMMB's Gains on securities trading suffered a 46 per cent decline from J$1181m to J$633m. Last year's figure included strong trading gains as the Group took advantage of various market opportunities. Foreign exchange margins from cambio trading and commission income reflected increases of 92.7 per cent and 50.5 per cent respectively. However, these income streams were not adequate to offset the rise in Operating Expenses.

Operating expenses grew 40.2 per cent to J$1.9b versus J$1.3b for the prior year. Operating costs from the acquisition of CCFG comprised 16.7 per cent or J$224.1m of Operating expenses while the outstanding J$315.2m was due mainly to one-off integration costs, growth in subsidiaries in the regional markets and normal inflationary increases. As such, Operating profit declined 25.4 per cent to J$1.2b. However, Profit after tax surged 86.4 per cent to J$2.5b because of the J$1.61b one-off gain.

Despite the challenges JMMB faces in operating in a low interest rate environment, the steady improvement in its Net interest income margin shows efficiency at managing its top line. The IBL Banking Group recovered from the adverse impact on its loan portfolio and continues on a positive path whilst the Dominican Republic subsidiary also produced robust results.

However, given the gloomy macroeconomic outlook for the Jamaican economy there may not be many opportunities for the Group to take advantage of. As such the Group may need to keep its focus on growing its core earnings across diversified business lines locally and through regional territories in order to drive long-term, sustainable growth and further enhance shareholders' value.

At a price of TT$0.60 the stock has depreciated 28.6 per cent year to date and is currently trading at a trailing P/E multiple of 12 times (excluding the one off gains of the acquisition). Investors are receiving a dividend yield of 3.80 per cent on the stock. BOURSE recommends a HOLD on the stock.

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