Barita profit jumps but 2019 to be big

Barita last traded on the JSE at $29.

Barita Investments reported profit of $374 million after tax for the year to September, a rise of 84 percent over the 2017 results but final quarter profit after tax surged 315 percent, to $193 million.
The September quarter benefited from strong increase in net interest income moving from $69 million to $117 million and from $287 million to $424 million for the full year, even as interest rates declined sharply during the year. Gains on foreign exchange swelled earnings in this category pushing it to $145 million in the quarter from just $12 million in 2017 and to $188 million from $45 million for the fiscal year. Gain on sale of investments came in well below the level in 2017 at $25 million for the quarter down from $62 million in the quarter and from $259 million it fell to $136 million for the fiscal year. Even as realized investment gains fell, unrealised gains rose by $362 million for the year, bringing unrealized gains to $1.1 billion and shareholders’ equity to $3.26 billion.
At the close of the quarter the company had 3.3 billion in marketable securities up from $2.49 billion in 2017. Since the end of the quarter, the exchange rate that was at JS$134.65 at the close of September and $130.39 at June, is now down to just over $127 and that could mean a big drop in the value of the US dollar-based portfolio. With the movement of stock prices particularly NCB Financial and a few others, gains in investments which will now all be reported through the regular profit and loss statement will most likely wipe out the FX losses and leave a nice surplus, unless changes for the worse were to occur in the next few weeks before the end of the calendar year.

NCB stock should add gains for Barita in 2019 fiscal year.

During this year, the majority shares switched hands with Cornerstone majority owners of Myer Fletcher Merchant Bank acquiring 75 percent ownership. Barita was founded by Rita Humphreys-Lewin and quietly built into a force to be reckoned with, within the investment banking arena. The brokerage house has been seen as conservative, but observers within the financial sector are of the view that those days are over, at least for now. As a result, investors have been piling into the company’s stock as they see swelling earnings ahead. The stock which was on the IC buy rated list for a long time finally exited recently, but there seems to be a longer road ahead before the gains are over.
Barita has so much potential for growth but was being managed in a conservative manner. Margin accounts, a big source of added revenues was not being pushed, Unit Trust was marketed more as a take it or leave it manner, than a more aggressive approach to pull in many more customers. Not even the stock market, the company best known for, has the potential been fully taken advantage of. Hopefully, the new majority owners will take a more aggressive approach, especially in light of an improving economy and one that could lead to long term growth for the economy, stocks and unit trust investing. There are some hopeful signs. One is a more aggressive dividend policy that will enhance the value of the stock. A more aggressive staff recruitment is under way that will modify the culture and drive business going forward.
IC understands that Barita is in the process of acquiring an investment portfolio with assets of more than $10 billion from a large financial institution that they have had a close relationship with for decades. More efficient management of some resources is likely to add significant income to the operations in a full year, estimated by IC to be around $100 million per year, not to mention the added income from the investment funds being acquired, that should contribute around $75 million in net revenues per year. But there is more, Cornerstone successfully closed a $5 billion bond issue last week at 7.25 percent per annum. Word is that the vast majority of the proceeds is slated to be used by Barita and will most likely to be invested across a wide spectrum of the investments within Barita and this could add a great deal of income and profit to the operations. With the chnage in accounting policy relating to how investment gains or losses are reported and the added income from the various changes and expansion being undertaken 2019 profit should exceed $1 billion, the first time that this nbenchmark would be acheived.
When all is said and done, the fixed income portfolio is the bread and butter earner but in this environment of a bullish stock market, it is ability of the management to take advantage of the opportunities that the market will throw up that will be the real driver of the company’s stock price in the short to medium term.
Some investors are speculating that the company could be going after a rights issue soon which could absorb much of the inflows from the just concluded bond issue. IC had reported previously that the stocks is an ideal candidate for a split. With the current price now at $29 and the prospects looking very bright, a split seems very likely in 2019.

Persons or entities associated with IC Insider hold shares in Barita Investments.

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