First quarter earnings update
This week, we at Bourse update investors on the first quarter performances of Guardian Holdings Limited (GHL), Sagicor Financial Corporation (SFC) and One Caribbean Media (OCM)
Guardian Holdings Limited (GHL)
For the period, GHL reported a 25per cent increase in diluted EPS to $0.35 from the $0.28 reported at the end of March 2013.
Net income from insurance underwriting activities for the period fell by 10per cent to $117.9M from $131.1M, on account of the timing of actuarial reserve adjustments and the payments of agents’ commissions.
The Group’s core insurance business segments saw growth in the Life, Health and Pension (LHP) and the Property and Casualty (P&C) business lines.
Overall, Net Income from Investing Activities improved by 15per cent, increasing from $200.4M to $230.3M when compared to last year’s comparable quarter. This positive result was mainly due to the fact that the National Debt Exchange did not impact the 1st quarter 2014 result, as compared to a $31M write off in Q1 2013. Declining investment returns amidst a low interest rate environment has impacted insurance companies globally, contributing to the downward trend in GHL’s other Investments’ portfolio.
Net Income from All Activity rose 5per cent from $331.5M to $348.3M, while PBT increased 5.3per cent to $96.7M from $91.7M.
Strategic Initiatives and Direction
The Pointe Simon project which resulted in a $457M fair value devaluation in financial year 2013 is reportedly now in line with current market value and has become commercially viable. The company expects that for fiscal year 2014, the Pointe Simon project would begin to generate cash flows, thus, by extension positively impact the company’s bottom line.
During 2014, GHL expects that all European exposure related to the Lloyds Syndicate would be terminated and the current reserves level in place are sufficient enough to likely generate a surplus as the fiscal year progresses.
With the current restructuring of the Group’s business and growth in the core insurance operations, 2014 is expected to be a year of consolidation and improvement for GHL, subject to any further unforeseen write-offs or devaluations.
The Bourse View…
At a price of $14.49, GHL has appreciated by 3.5per cent year to date (YTD) (see Exhibit 1). The company’s trailing 12 month dividend yield stands at 3.6per cent thereby offering investors a relatively attractive return (see Exhibit 2)
While the Group’s strategic initiatives and profitability seem to be turning a corner, a cautious investment approach is nonetheless warranted. Premised on the absence of significant negative surprises in relation to write offs, a stable investment environment and continuing good insurance performance, BOURSE upgrades its rating from a HOLD to a BUY on GHL.
Sagicor Financial Corporation (SFC)
A review of the financials…
For the period, SFC reported a 100per cent increase in diluted EPS to USD$0.03 from the US$0.015 reported at the end of March 2013.
As with GHL, a similar upward trend is being observed by SFC as Total Revenue appreciated 4.7per cent to US$261.7M from US$249.7M. SFC’s top line was driven by a 14per cent increase in Net investment and other income, which recorded US$97.3M from the US$85.4M reported in the comparable period for 2013. Net Premium Revenue remained flat at US$164.4M.
Net Income from Continuing Operations saw a 9.5per cent improvement from Q1 2013, recording US$15.1M from US$14.2M. For the same period, Net Income jumped 87per cent from US$8.1M to US$15.14M on account of an absence of the losses from discontinued operations affecting the company in 2013.
Strategic Initiatives and Direction
Having sold their UK business in December 2013, SFC has repositioned the Group to further add value to shareholders. The Group announced during the first quarter for 2014 their plans to increase their banking footprint and acquire RBC Royal Bank (Jamaica) limited as well as RBTT Securities Jamaica Limited from the Royal Bank of Canada.
The acquisition is not likely to increase SFC’s exposure in Jamaica, as the transaction will be funded with assets currently allocated to that country. Additionally, the deal should not add material risk to the Group as it represents 3per cent of the company’s total investments and 5per cent of equity capital in SFC.
While the Global economy is expected to improve during 2014, weak conditions in the Caribbean, especially Jamaica, Barbados and the Eastern Caribbean are forecasted to persist. For the quarter, a decline in the Jamaican dollar against the US dollar resulted in a currency translation loss of US$11.6M.
The Bourse View…
At a price of TT$6.76, SFC has contracted by 6.8per cent YTD (see Exhibit 1) and is at the lower end of the stock’s 5-year price range (see Exhibit 3). SFC is trading at a trailing P/E of 7.7 times which is well below its 5-yr average of 27.7x while its dividend yield stands at 3.7per cent.
Expectations of a better financial performance for the fiscal year 2014 and the strategic realignment and growth initiatives employed are tempered by continuing economic lethargy in SFC’s major geographic segments, as well as an uncertain investment environment.
The absence of further negative surprises in relation to the European business operations reserves running a deficit, a stable investment and good insurance performances leads BOURSE to upgrade its rating from a HOLD to a BUY on SFC.
One Caribbean Media Limited (OCM)
For the Period, OCM reported an EPS of $0.24, down 11per cent from the corresponding period for 2013 ($0.27).
Revenues declined by 2.4per cent from $124M in the 1st quarter 2013 to $121M whilst Profit for the quarter declined 10per cent from $18.1M to $16.3M. This fall in the company’s top and bottom line for 2014 was largely expected, as the THA election held in the first quarter 2013 and this would have boosted revenue and net income.
The Bourse View…
OCM has rallied 21.6per cent YTD as at May 21st, 2014. With Trinidad and Tobago’s General Election expected in 2Q 2015, the major boost to their bottom line should be realized in the election year.
At a current price of $22.50, OCM has appreciated by 21.6per cent YTD (see Exhibit 1). At a trailing P/E ratio of 18.4x, OCM is trading higher than its 5-year average of 14.6x. The trailing dividend yield stands at 3.3per cent which is a fairly attractive return for investors.
With some degree of a pick-up in Net Income from the pending General election likely already priced into the current price of OCM, Bourse moves from a BUY to a HOLD rating on the stock.
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