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A review of the banking sector

This week, we at Bourse take a look at the banking sector of the Trinidad and Tobago Composite Index and the most recent financial year performance of the Trinidad and Tobago (TT) banks listed on the local stock exchange.
The banking sector of the Trinidad and Tobago Composite Index (TTCI) continues to hold the title of the largest sector by market capitalization, currently valued at TT$54.6B (February 14, 2014). It accounts for 48 per cent (Exhibit 1) of the total market capitalisation and is comprised of five companies:
First Caribbean International Bank Limited (FCIB), First Citizens Bank Limited (FIRST), National Commercial Bank Jamaica Limited (NCBJ), Republic Bank Limited (RBL) and Scotiabank Trinidad and Tobago Limited (SBTT). (Note: BCB Holdings was delisted on the February 3, 2014, reducing the banking sector’s market cap by TT$1.2B).
The sub-index has been driven primarily by significant price increases in SBTT (up 136 per cent) and RBL (up 58 per cent). Since the listing of FIRST in September 2013, its price has appreciated 77 per cent as at February 14, 2014.

REPUBLIC BANK LIMITED
For the year ending September 2013, Republic Bank Limited (RBL) recorded $2.18B in net interest income (NII), 1.9 per cent higher than the prior year. The net profit after tax of $1.2B was $29M or 2.4 per cent less than the net profit seen in the comparative period of 2012. Despite this drop in net profit, there was an uptick in the Company’s diluted Earnings per Share (EPS) for the period with EPS of $7.28 vs. $7.25 in the same period of 2012.
For the three months ended December 31, 2013, RBL recorded a growth in operating income of 2.4 per cent to $859M with operating expenses increasing 6.8 per cent to $449M versus $421M in the comparable period a year earlier. Net Profit after Tax advanced 2.4 per cent to $302M. Earnings per Share (EPS) for the period increased to $1.81 vs. $1.78 in the same period of 2012 representing a positive change of 1.7 per cent. Based on a trailing EPS of $7.30, RBL’s trailing PE ratio is 16 times.
At $117.00, RBL is trading at a trailing P/E of 16 times, a premium when compared to its 5-yr average of 13.9. With a dividend yield of 3.6 per cent, BOURSE recommends a HOLD on this stock.

FIRST CITIZENS LIMITED
For the year ending September 2013, FIRST recorded $1.16B in net interest income, 5.6 per cent higher than the prior year. Overall, total net income increased by 7.5 per cent to $1.6B when compared to $1.5B recorded for 2012.
Overall, net profit for 2013 was $606.5M which marked an increase of 36 per cent from the prior year. EPS for the period increased to $2.41 vs. $1.83 in the same period of 2012 representing an increase of 32 per cent.
For the three months ending December 31, 2013, profit after Tax climbed 3.9 per cent to $174M from $168M.
EPS for the period decreased to $0.70 vs. $0.71 (down 1.4 per cent) notably due to the change in the weighted average number of shares increasing from 236M to 251M.
At $38.98, FIRST is trading at a trailing P/E of 16 times. With a dividend yield of 2.8 per cent, BOURSE recommends a HOLD on this stock.

SCOTIABANK LIMITED
For the year ending September 2013, SBTT experienced a fall in Net Interest Income of 2.7 per cent from $922M to $897M but there was an overall increase in net interest and other income of $1.39B, 7.9 per cent higher than the prior year.
There was a 39.3 per cent increase in fees, commission and net premium income to $358M which accounted of 73 per cent of Other Income. SBTT’s net profit grew 2.9 per cent from $545.6M in 2012 to $561M for financial year 2013. Earnings per Share (EPS) for the year under review increased to $3.18 vs. $3.09 in the same financial period of 2012 representing an upward move of 2.9 per cent.
At $72.50, SBTT is trading at a trailing P/E of 22.8 times, a premium when compared to its 5-yr average of 16.9. With a dividend yield of 2.6 per cent, BOURSE recommends a HOLD on this stock.

The Bourse View…
RBL’s total assets continued on an upward trend and dominated the banking sector at TT$57B at the end of 2013 followed by FIRST with total assets of TT$36B (Exhibit 2). Both banks are trading at a P/E multiple of 16 times whilst SBTT has an asset base of TT$19.5B with a trailing P/E of 22.8 times. These banking stocks drive the multiple of the overall banking sector, which has P/E multiple of 6.8 times, higher than any other sector on the exchange.
Whilst listed TT banks are trading at a premium when compared to the banking sector five-year average P/E ratio, the local bank stocks remain a stable investment and the trailing yields on these banks continue to be relatively attractive as seen in Exhibit 3.
The banking sector continues to be challenged by the excess liquidity within the financial system, low interest rates and minimal investment opportunities. This can be seen in the growth of the banks top line from the period 2012 to 2013.
The sector saw robust growth in consumer loans and real estate mortgage loans in the year past whilst a contraction in business loans prevailed. Interest rates are expected to remain low in the short term which could dampen the bank’s NII.
Another attractive security on the market with bank exposure through its RBL shareholdings is the CLICO Investment Fund (CIF) which has the underlying assets of 85 per cent RBL shares and 15 per cent government bonds. With a trailing yield of 4.36 per cent, a published Net Asset Value (NAV) of $27.00 as at 14 February 2014 and a listed price of $22.00, the mutual fund is trading at a discount of 18.5 per cent. BOURSE recommends a BUY on this stock.
For more information, investors can call Bourse at 628-9100 or visit us at any one of our offices. Further information is also available on Bourse’s website at www.bourseinvestment.com and Bourse Securities Limited Facebook page.
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