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SIJL's EPS declines

Today we at Bourse are covering a short review of the First quarter 2013 performance and outlook on Scotia Investments Jamaica Limited and FirstCaribbean International Bank Limited.

Scotia Investments Jamaica Limited

Scotia Investments Jamaica Limited (SIJL) reported Earnings per share of J$1.15, or a 2.6 per cent decline from the J$1.18 reported for the First quarter ended January 31, 2013 (Q1 2013). The Board has approved an interim dividend of J$0.45 per share, payable on March 28, 2013.

Interest income for the Group climbed 4.5 per cent to J$1.4b whilst Interest expense remained relatively flat at J$606.1m. Net interest income grew 8.2 per cent to J$745.1m. The Group's Net interest income margin improved from 53 per cent in Q1 2012 to 55 per cent in Q1 2013.

Net interest income after impairment losses was J$762.8m, up 10.8 per cent when compared to the same period last year. Non-interest income increased 10 per cent or J$30m to J$345.5m. This was mostly due to increases in net foreign exchange trading income and net gains on financial assets classified as held for trading. The net fee and commission income portion fell 8.9 per cent to J$204.7m.

Total operating expenses increased 27 per cent to J$428.2m. The increase was largely as a result of the growth in Staff related costs and Other operating expenses to J$234.7m and J$161.1m, or by 24 per cent and 36 per cent respectively.

For the period under review, the Group's Profit after tax decreased 2.4 per cent to J$487m.

Taking a look at the Balance sheet, Total assets increased 1.5 per cent to J$74.6b.

Lissant Mitchell stated the remainder of 2013 will be challenging as the impact of participating in the NDX will reduce Interest revenue. However, she reiterates that SIJL remains dedicated to growing non-interest income. The NDX is the second debt swap implemented by the Government of Jamaica (GOJ). After the first debt swap in January 2010 (JDX), Gross operating revenue fell 26 per cent for FY2010 followed by a 19 per cent decline in 2011.

Going forward it is expected the NDX would hamper the Group's top line and overall profitability.

At a price of $1.94 SIJL is trading at a trailing P/E of 6.4 times, compared to its five year average of 6.2 times.

The dividend yield stands at 6.1 per cent (Exhibit 1), one of the highest yielding stocks in the market. Given the latest debt swap and its anticipated impact, BOURSE recommends a HOLD on this stock.

FirstCaribbean International

Bank Limited

For the First quarter ended January 31, 2013 (Q1 2013) FirstCaribbean International Bank Limited (FCIB) registered Earnings per share (EPS) of US$0.012 versus US$0.013 from a year ago.

Both Net interest income and Operating income registered declines of 6.2 per cent and 1.4 per cent, to US$94.4m and US$36.9m respectively. Operating expenses climbed 7.9 per cent to US$87.8m. For the period under review, Loan loss impairment decreased 32.1 per cent to US$23.8m (Exhibit 2). Overall, Total expenses declined 4.7 per cent to US$111.6m. Profit after tax declined 11.6 per cent to US$18.7m.

Looking at the Balance sheet, Total assets increased approximately 1 per cent to US$11.5b. Total liabilities remained relatively flat at US$9.9b. As reported, the Bank's Tier 1 and total capital ratios remain strong at 23 per cent and 24 per cent respectively.

The lagging economic recovery worldwide continues to affect business activity and consumer demand. FCIB continues to suffer from the effects of a low interest rate environment which negatively impacts interest income. The Group's profitability has been declining almost consistently over the last five years. Hence, it may be critical that the Group focuses on generating revenue in its Non-Interest income stream. Investors should be cognizant of the fact that in light of the economic instability of the majority of territories (OECS) in which the Group operates this is a challenging task.

At a price of $7.49, FCIB is trading at a trailing P/E of 27.2 times, significantly above its 5-year average of 19.1 times. The dividend yield on the stock stands at 2.5 per cent (Exhibit 3). BOURSE recommends a HOLD.

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