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GHL and SFC earnings beat

Today we at Bourse review the six month (6M) performance of the two insurance companies listed on the local stock exchange: Guardian Holdings Limited (GHL) representing $3.3B or 3 per cent of the Trinidad and Tobago Composite Index (TTCI) and Sagicor Financial Corporation (SFC) representing $1.9B or 1.8 per cent. It should be noted that although GHL is greater by Market Capitalization, SFC is larger by asset base at $37.8B versus GHL $23B.

GUARDIAN HOLDINGS LIMITED (GHL)
For the 1H 2014, GHL reported a commendable 74 per cent increase in EPS, climbing to $0.73 from the $0.42 recorded as at the end of the June 2013. Investors should note that the 1H2013 was impacted by losses due to the National Debt Exchange Program in Jamaica (NDX); however, factoring out this extraordinary item, EPS for 1H2014 grew by approximately 35 per cent.

The Board has declared a second interim dividend of $0.17 per share, payable on 4th September 2014, with an ex-dividend date on the 19th August 2014. Net income from insurance underwriting activities for the period appreciated by 7.1 per cent to$267M from the $249.5M recorded for the comparable period in 2013.

Net Fair Value Gains on financial instruments and other Investing Income, excluding the effects of the NDX, moved to $448M from $413M registered in 2013, representing growth of 8.4 per cent. Net Income from all activities expanded 13 per cent to $715M from the $631M recorded at the end of 1H2013.

The Group’s core business segments- Life, Health and Pension (LHP), the Property and Casualty (P&C) and the Asset Management business lines-all experienced favourable growth in Operating Profit for 1H2014. Profit After Tax rose from $113.3M to $160.2M for the period. Profit attributable to the equity holders of the parent stood at $182.9M, representing growth of 72 per cent, from the $106.4M recorded in the 2013 comparable period.

This variance between the Profit After Tax and the Profit attributable to equity holders of the parent was mainly due to a $12M and an $8.7M gains from discontinued operations and non-controlling interests respectively.

Strategic Initiatives and Direction The Pointe Simon project, which resulted in a $457M write downs in FY2013, is reportedly now in line with current market valuations. The company is actively seeking to close lease agreements above the book value of the assets while the hotel portion of the property is expected to open in Q2 2015. At a meeting with stock brokers, the company indicated that approximately 7 per cent of the commercial office tower property had been leased and that there were other lease agreements in advanced stages of negotiations. Investors should note that there is some room to go to get the office towers to significant level of occupancy.

Growth in GHL’s bottom line is expected to be driven mainly by their Insurance business segments, as the Investment business line’s performance continues to be tempered by the low interest rate environment and record high monetary liquidity. With Insurance revenues on course to beat the comparative FY2013 results and the expectation that Investment Income should stabilize, growth in GHL’s bottom line is projected.

The Bourse View…
At a price of $14.30, the company’s trailing 12 month dividend yield stands at 3.8 per cent thereby offering investors a relatively attractive return at the current price. GHL is currently trading at a Market to Book ratio of 1.1x, in line with its 5 year average. While the Group’s strategic initiatives seem to be producing promising results, 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 improving insurance performance, BOURSE maintains its BUY rating on GHL.

SAGICOR FINANCIAL CORPORATION (SFC)
For the six month period ending June 30th 2014, SFC reported EPS of US$0.04 up from the loss per share of US$0.077 reported in the first half of 2013. Year to date, the stock price has retreated 10 per cent and is currently trading at a trailing P/E ratio of 9.3x with a market to book ratio of 0.6x. All other variables being constant, SFC’s Market/Book compares favourably to the Market/Book of GHL, which suggests that there is relative upside value to SFC (see Exhibit 1)

Total Revenue increased marginally by 0.60 per cent from US$498.6M to US$501.7M versus the comparable period last year due to an increase in Net Investment and Other Income which rose from US$184 to US$192 (up 4.8 per cent). Net Premium Revenue remained relatively flat at $314.65M, down from $308.84M (down 1.85 per cent).

Total Expenses, which amounted to US$175.1M for the half year, showed a marginal increase of 0.86 per cent, including US$2.3M in restructuring costs. Sagicor has stated that they will continue to restructure to reduce operating cost. Due to the discontinued operation of the Sagicor Europe sale in December 2013, Net Income for the period increased significantly from a loss of US$13M to a profit of US$26M (UP 300 per cent) when compared to the comparable period last year. This was due to the US$41.6M net loss absorbed from discontinued operations for the 1H2013, whilst the company incurred US$1.5M net loss from discontinued operation in the 1H2014.

Sagicor Group Jamaica has acquired RBC Royal Bank (Jamaica) Limited and RBTT Securities Jamaica Limited from Royal Bank of Canada as of June 27. RBC Royal Bank (Jamaica) has been rebranded Sagicor Bank. SFC is confident that it can add value to RBC’s banking operations, despite Jamaica’s economic headwinds.
SFC has a considerable exposure to regions in the Caribbean that are currently facing challenging economic conditions (approx. Jamaica 41 per cent, Barbados 14 per cent and other Caribbean regions excluding Trinidad and Tobago 13 per cent - by revenue) as shown in Exhibit 2. Despite these exposures, SFC continuing operations have performed well.

The Board and management have stated that they will continue to embrace conservative and prudent strategies during this challenging period. SFC is currently trading at a price of $6.53 and a trailing P/E of 9.3 times. With an attractive dividend yield of 3.8 per cent and the prospect of better performance due to expanding operations, BOURSE maintains a BUY rating on SFC.

For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100 or email us at research@boursefinancial.com.

—This document has been prepared by Bourse Securities Limited, (“Bourse”), for information purposes only. Any trade in securities recommended herein is done subject to the fact that Bourse, its subsidiaries and/or affiliates have or may have specific or potential conflicts of interest in respect of the security or the issuer of the security, including those arising from:
(i) trading or dealing in certain securities and acting as an investment advisor;
(ii) holding of securities of the issuer as beneficial owner;
(iii) having benefitted, benefitting or to benefit from compensation arrangements;
(iv) acting as underwriter in any distribution of securities of the issuer in the three years immediately preceding this document; or
(v) having direct or indirect financial or other interest in the security or the issuer of the security.
Investors are advised accordingly. Neither Bourse nor any of its subsidiaries, affiliates directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses arising from the use of this document or its contents or reliance on the information contained herein. Bourse does not guarantee the accuracy or completeness of the information in this document, which may have been obtained from or is based upon trade and statistical services or other third party sources. The information in this document is not intended to predict actual results and no assurances are given with respect thereto.
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