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Advances on the rise at RBL

Republic Bank Limited

For the First Quarter ended December 31, 2012 (Q1 2013) Republic Bank Ltd (RBL) recorded diluted Earnings per share (EPS) of $1.78. This was in comparison to the $1.70 reported in Q1 2012.

The Group's main income generator, Net interest income climbed 6.09 per cent to $554.5M, while Other income moved to $285.4M, an 11.40 per cent increase from Q1 2012. Operating income grew 7.83 per cent to $840M whilst Operating expenses rose 5.28 per cent to $420.8M resulting in a marginal decrease in Operating expense margin from 51.3 per cent to 50.1 per cent. Operating profit increased 8.61 per cent to $419.2M whilst the Operating profit margin remained relatively flat at 49.9 per cent. For the period under comparison, RBL's Loan impairment expense increased from $0.598M to $17.2M.

The Group's Interest income continues to be challenged by the excess liquidity within the financial system, falling interest rates and minimal investment opportunities. However, RBL remain encouraged by the upswing in credit demand as evident in the 5 per cent rise in the Advances portfolio. Credit conditions appear to have been improving slightly according to statistics reported by the Central Bank of Trinidad and Tobago. For the period November 2011 to November 2012, Total Private sector credit grew 3.83 per cent. Contributing to this was the increase in Consumer credit, Business credit and Real estate mortgage lending of 3.05 per cent, 2.61 per cent and 11.34 per cent respectively.

Looking at the balance sheet, RBL's asset base now stands at $54.2B, 10 per cent above the $49.1 reported in Q1 2012. This growth was partially driven by the 5 per cent and 16 per cent growth in the Advances and Investment securities portfolio. RBL's Cash resources increased 18 per cent to $18.3B. Total liabilities were up 11.5 per cent, while Total equity grew 3.7 per cent to $7.9B.

During the quarter, RBL purchased the non-controlling interest in RBL (Barbados), resulting in a 98.6 per cent shareholding as at December 31st, 2012. Also, the Group has acquired a 10 per cent stake in the HFC Bank of Ghana Ltd. With RBL's extensive local experience in the energy sector financing, this new investment might help RBL ride the new wave of energy development that has begun in Ghana. Through this investment in new territories the Group is poised for the possibility of continued strong future performance.

There was some concern regarding the impact of the listing of the Clico Investment Fund (CIF) on RBL's share price. However, since the listing, the price of RBL has remained relatively constant, peaking at $106.01 on January 28, 2013. As at February 7, the price has fallen back to $105.61. At a price of $105.61, RBL is trading at a trailing P/E of 14.4 times, a premium to its 5 year average of 13.5 times (Exhibit 1). The dividend yield for RBL currently stands at 4.02 per cent.

Neal and Massy Ltd

For the First Quarter ended December 31, 2012 (Q1 2013) Neal and Massy Ltd (NML) Earnings per share (EPS) from continuing operations remained unchanged at $1.36. However, EPS (inclusive of discontinuing operations) was up 9.7 per cent, $1.36 versus $1.24 reported in Q1 2012. Last year's EPS figure included a loss of ($0.12) from discontinued operations.

During the quarter, NML's top line experienced a 1.8 per cent growth in Revenue to $2.45B whilst Operating profit increased 1.3 per cent. The Group's Operating profit margin moved from 7.99 per cent to 7.94 per cent. The Integrated consumer portfolio performed consistently generating revenue of $2.14B or 81.5 per cent of the Group's Revenue. Share of results of associates and joint ventures experienced a 4 per cent increase to $11.5M.

A decomposition of PBT shows that the Integrated consumer portfolio remains the largest contributor to PBT, accounting for 64 per cent whilst the Strategic investment portfolio and Other investments accounted for 24 per cent and 12 per cent respectively. For Q1 2013, Other Investments experienced the largest increase, climbing approximately 10 per cent whilst the Integrated consumer portfolio rose 3.9 per cent. However, the Strategic investment portfolio declined approximately 2.8 per cent. The Integrated consumer portfolio performance was hindered by a 3.6 per cent decline in the Integrated retail segment (Exhibit 2). This decline was largely as a result of reduced sales associated with the VAT removal process in Trinidad and Tobago. The gas supply restriction hindered downstream companies profitability, as well as the further slowdown of project related work in the Energy sector. These factors led to an 8.6 per cent fall in the Energy and Industrial gases segment.

Profit after tax (PAT) from continuing operations increased by 1.2 per cent to $146.1M. This was largely as a result of the strong double digit PBT growth of 42 per cent, 31 per cent and 15 per cent in the Insurance, ITC and Automotive and Industrial Equipment business units respectively and growth in the Guyana group of companies.

During the quarter, NML did not incur any losses from discontinued operations.

Given the weak performance of many of the economies NML operates in, the Group has undertaken a series of growth initiatives in new sectors and new geographies, such as Central and South America. The Group has a dynamic set of investment opportunities that it is currently evaluating as it recognises the need to enter new markets to sustain growth. In the First Quarter of 2013, the Group, in conjunction with its Joint Venture partners, Mitsubishi Corporation, Mitsubishi Gas Chemicals Corporation and Integrated Chemical Company Limited (ICCL) received official approval from the Government of Trinidad and Tobago for a Methanol to Dimethyl-Ether plant, which is the first phase of a new petrochemical complex planned for the La Brea area of Trinidad.

NML's initiative to clean up its underperforming operations has continued. Almond Casuarina Beach has been leased to Couples Hotels from Jamaica. The agreement with Couples provides for the complete acquisition of the hotel by September 2013. Almond Beach Village is the only remaining hotel to be sold. Almond Resort Inc. board continues to hold discussions and negotiations with potential buyers. Having recovered from the negative effects of the 2008/2009 global recession, the groundwork has been laid for the probability of a strong future performance.

At a price of $54.63 NML's is trading at a trailing P/E multiple of 10.65 times, a premium to its 5-year average P/E multiple from continuing operations of 9.7 times. At the current price investors are receiving a dividend yield of 2.75 per cent on the stock.

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