Sagicor undervalued despite $B NDX hit

Sagicor Life group got hit with a billion dollar charge — the product of the Government of Jamaica’s debt swap in February. The Group exchanged $60.65 billion of GOJ securities for new securities with lower market values, lower coupon rates and extended tenors. The bond exchange resulted in “one-time” realized capital losses of $1.11 billion and lower interest will be earned on the new bonds going forward. To the end of March, the reduction in interest was $83.25 million. In addition, there was expense of $48.1 million for asset tax, which was introduced in June 2012 as stated by management in a release accompanying the first quarter numbers.

NDX effect | Despite the effects of the NDX debt exchange and increased taxes, Sagicor Group posted a net profit of $620.15 million for Q1 2013. In the first quarter of 2012, a net profit of $1.49 billion was earned. The Q1 2013 basic earnings per stock unit was $0.16 (2012: $0.40) and the annualized return on average Stockholders’ Equity was 8% (2012: 20%). Total Comprehensive Income including, net profit for the period and movements in reserves held in Equity, was $1.06 billion and the amount for 2012 was $2.04 billion. For the 2012 financial year the group reported audited profits due to Sagicor’s shareholders of $5.8 billion or $1.54 per share.

SagicorBuilding280x150The release went on further to state that the group’s insurance business performed relatively well but the banking arm faced challenges. Revenue would have been up about 9% but for the impact of the NDX. Net Premium Income, in aggregate, was 6% more than that for 2012. The Individual lines of business earned premiums up by 10% while Group Insurance and Annuity premiums were up by 3%. There was good new business across all lines in the first quarter contributing to strong growth in the in-force policies.

Investment income, before interest expense and capital gains was higher than in the prior year by 2%, including lower coupons in March on some GOJ bonds. Capital gains, for other than NDX security trades, and fair value adjustments were 28% lower than in 2012. Fees and Other Revenues were ahead of prior year by 59%, mainly influenced by higher current period unrealized foreign exchange gains from devaluation of the Jamaican dollar. The life insurance arm paid out 17 percent more on insurance claims due to higher mortality rate and growth on business.

Sagicor boasts total assets of $180 billion, with equity of $33 billion, making it one of Jamaica’s largest financial institutions. Total revenue for the quarter was $7 billion versus $7.5 billion in 2012 and for 2012 equity was $31.5 billion.

Maturity | The life company has reached or is close to maturity in the local market for insurance while the banking arm will need to fight hard to make any meaningful impact on Sagicor’s profits. Management is clearly seeing this, hence the decision to move into Costa Rica.

Stock outlook | The stock for the group is trading around $8 and is considered undervalued by IC Insider as earnings from ongoing operations should range between $1.60-2.00 based on existing business for this year when the one-off NDX charge is removed. Investors should note that historically the PE ratio of this stock has been much higher than for most in the market, which makes the stock a steal at current prices.

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  1. […] versus reported profits for 2012 of $1.12 billion. It also represents a major recovery over the ‘NDXed’ first quarter results of only $620 million. Earnings per share came out at 42 cents, annualized […]

  2. […] Rated Stock | New to our Buy Rated list is Sagicor. Our analysts will publish their reasons why in the upcoming days.  Meanwhile, we’ve […]

  3. […] read IC Insider’s latest report “Sagicor undervalued despite $B NDX hit“ , click […]

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