NML on track for 2008

Published: Monday August 18, 2008

Neal & Massy Financial Holdings Limited

On course to deliver a blistering financial year 2008, Neal & Massy Holdings Limited (NML) reported an impressive first nine months of 2008 with an EPS growth of 30 per cent from $2.74 to $3.56. It should be noted that this EPS calculation was obtained using a weighted average shareholding of 92.2M shares as compared to 88.9 million at the end of the first half of 2007. This was a reflection of the increased number of shares that were issued in accordance with the takeover of Barbados Shipping & Trading Company (BS&T).

Healthy growth of 41.4 per cent in Group Third Party Revenue led to an increase at the top line from $3.7B to $5.2B. Strong Revenue growth paved the way for an impressive 38.5 per cent improvement in Operating Profit from $318.6M to $441.2M.

On a similar note, Share of Profits of Associated Companies & Joint Ventures moved up from $43.9M to $60.9M, representing a 38.6 per cent increase. These strong results filtered down as Profit before Taxation improved from $362.5M to $502.1M, a 38.5 per cent increase. A 6.2 per cent increase in the effective taxation rate to 29 per cent did not significantly hamper the Group as NML reported a 35.3 per cent improvement in Profit after taxation for the first nine months of 2008 from $263.2M to $356.2M.

A 37.9 per cent increase in Profit Attributable to Minority Interest led to a 35.1 per cent increase in Profit Attributable to Shareholders from $243.1M to $328.5M.

With the takeover of the Barbadian conglomerate BS&T, the Group's Total Assets more than doubled at the end of the first nine months of 2008 over the June 2007 mark, increasing from $3.7B to $7.9B. The effects of this transaction were also seen in the Total Liabilities section of the Group's Balance Sheet which rose from $2B to $5.1B year on year. Total Shareholders' Equity increased by 38.6 per cent but the Group's Annualised Return on Equity however remained relatively unchanged from the 2007 financial year at around 22 per cent.

NML's performance over the first nine months of 2008 was therefore a reflection of the increased shareholding in BS&T over the four month period March to June 2008.

The chairman highlighted in his comments on the Group's nine months performance that the integration of the operations and management of BS&T into the NML Group is still an ongoing process, leaving one to expect increased earnings and shareholder value in the medium to long term as a result of the efficiencies and synergies which should be created.

Over the years NML has developed a history of a stronger second half EPS with the fourth quarter being the strongest. Exhibit 1 below is a graphical demonstration of NML's EPS trend over the past two years in comparison to that of 2008 thus far. For the financial year so far the Group has managed to report consistent improvement quarter after quarter which is very encouraging as we anticipate results for the last quarter of the year. Taking this EPS trend into consideration and the fact that the first nine months of financial year 2008 have not deviated from this trend, the Group is well poised to deliver a strong fourth quarter performance. Furthermore, the second half the year would contain a full six months of earnings from the recently acquired BS&T, signaling a very strong second half performance.

At a price of $61.96, shares of NML are trading at a forward P/E multiple of approximately 12 times, still below the 13.2 times average multiple of the past five financial years. The chairman of the Group has also expressed his expectation of a substantially improved 2008 performance as compared with the previous year barring any unforeseen circumstances. As such, BOURSE maintains a BUY recommendation on this stock.


Republic Bank Limited

For the nine months ended June 30, 2008, Republic Bank Limited (RBL) reported an EPS of $5.85, a 10.6 per cent decline from an EPS of $6.54 in the previous comparable period. With both periods including one-off gains, core earnings revealed a different scenario as shown in Exhibit 2 left.

From the diagram above it can be deduced that despite higher overall profitability for the first nine months of 2007 compared to that of the same period of 2008, core earnings (exclusive of one-off gains) was actually higher at the end of June 2008 when compared to June 2007. Profit for the first nine months of 2008 included a net gain of $82M from the allocation of shares in VISA Inc, while the first nine months of 2007 included a gain of $370M from the disposal of shares in FirstCaribbean International Bank. When these are excluded, core earnings were up 26 per cent from $$677M to $855M.

A look at the results reveals a profit before taxation figure of $1.29B, a mere 1.1 per cent decline from the $1.31B at the end of June 2007. However, Profit after taxation declined 9.1 per cent from $1.1B to $1M. This led to a 10.5 per cent deterioration in Profit Attributable to Shareholders from $1B to $937.3M.

The Group was able to maintain a strong Balance Sheet as Total Assets recorded increased by 12.3 per cent to $41.6B, while Total Shareholders' Equity improved 17.4 per cent year on year.

Although our local market and RBL have remained relatively unscathed by the ongoing global macro economic conditions, RBL acknowledges that this still remains a concern and should not be ignored. The Group continues to exercise caution due to these market conditions and has advised that strategies will be adjusted accordingly should the Group become affected.

With core earnings growth of 26 per cent year on year, the Group is well on its way to delivering a strong 2008 financial year operational performance. As has been the trend over the years, the second half of RBL's financial year is usually characterised by stronger earnings growth when measured against the first half. It is anticipated that this financial year will continue along this developed trend. However, with the ongoing global challenges being faced by companies and more specifically the financial sector abroad, RBL must ensure that it has positioned itself to minimise the impact of any slowdown in economic activity that could filter down into our market.

At the current price of $102.14, shares of RBL have already appreciated 28 per cent year to date, and trading close to value. As such BOURSE maintains a HOLD recommendation at this time.


Source: Trinidad Express Newspapers
http://www.trinidadexpress.com/index.pl/article_business?id=161365305