JMMB posts improved profit

Jamaica Money Market Brokers reported improved 2013 fiscal year results to March with net profits of $3.87 billion, the first time in its history. Not even the $750 million loss incurred in the write-off of investment premiums that the company had to effect in swapping government debt for lower yielding ones could dent the profit for the year.

All the good news did not come about from normal operations. In 2012 the company acquired all the shares of Capital & Credit Group (CCFG) and merged some elements into JMMB‘s other operations. The acquisition price was less than the net asset value of the acquired company resulting in a book gain of $2 billion. Had it not been for these one-off items, profit would have been lower by approximately $1.1 billion. In 2012, the company earned $2.2 billion after tax but those results were boosted by a large one-off gain from a security sale. IC Insider’s assessment is that earnings from ongoing operations, is around $1.65 per share.

Interest earned | For the year ending March, JMMB earned $11.25 billion in interest. In 2012, the comparative amount was $9.17 billion. The company improved the interest margin considerably, from 63 percent to 70 percent, garnering $4.648 billion compared to $3.54 billion in 2012. Net interest and other income amounted to $6.997 billion up from $5.99 billion in the previous year. The 2013 figures have 9 months income from the CCFG acquisition. Unfortunately, operating cost rose faster that the income with expenses climbing $1.4 billion to $4.6 billion. When the one-off gain in income realised in 2012 is taken into consideration, the increase cost does not look that bad against the growth in income.

jmmbGrouplogo150x150Size can matter | Total assets climbed to $167 billion, higher than the amount at the time of the take over. Growth here is important if the group is to keep profits on the rise. Mergers and acquisitions usually result in duplicated cost which is reduced overtime. JMMB should fully integrate CCFG operations during this year and should minimize cost and start to enjoy most of the benefits of the merger. To date, not much is seen in the profit results to suggest that the group has benefited much from the acquisition. The improved interest margin may have been one of the benefits.

The last quarter had revenues of $3.85 billion, a gain of 28 percent over the similar period in 2012 and is up from an increase of 20 percent realised in the December quarter. Pretax profit before exceptional income and charges was up to $735 million compared to $590 million in 2012. In spite of the debt swap charge, a tax credit of $791 million for the quarter resulted in after tax profit climbing to $647 million versus $441 million in 2012. In the March 2012 quarter, there was a tax charge of $144 million.

Capital | In spite of the write-off of the premium on GOJ bonds that were swapped, JMMB still carries $1.7 billion as investment fair value reserves up from just $400 million in 2012. The gains have helped, along with the profit reported for the year, to push the equity capital to $16.7 billion up from $10.8 billion in 2012.

Undervalued | JMMB will be acquiring the shares it does not already own in International Bank in Trinidad, no terms have yet been announced. This acquisition will put management in full control and enable them to optimize business and returns from it. The annual accounts show minority interest of $118 million, so this share of profit plus whatever increase obtains for this year will flow to profit.

JMMB could produce net earnings in the order of $3.2 billion for the year ending in March 2014. The outcome could be positively influenced by trading gains and how active the stock market becomes. An active stock market would result in increase brokerage fees and gains from trading shares for their own account as well as increase in the size of the unit trust portfolio that would also result in increased fee income.

Stock outlook | The shares that were languishing at $8 jumped on the release of the results to $9 on heavy volume. The shares which are listed in Trinidad are also in demand on that stock exchange. The PE is around 6 times 2013 earnings from ongoing business and is selling below net book value as well.

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